My colleague George Brandes and I have our roots firmly planted in Music City, and we very proudly call Nashville, Tennessee home. And one of our favorite occasions is coming up in just a few days: the Grammy Award Ceremony is this SUNDAY!
But the winding road toward the Gramophone trophy involves many trials for would-be artists. Not least of these are the worries about money and the insecurity of going without health insurance at times. Indeed, many if not most freelance artists struggle to scrape by while refining their gift and perfecting their art.
Beyond being huge fans and supporters of musicians, we wanted to help out by putting together a list of concrete tax and health care tips for creative types. As our gift to you, here are about a half dozen of Jackson Hewitt’s best tax insights for artists:
1. Can I deduct my health insurance premiums as a self-employed individual on my 2013 return?
Yes, indeed – just like the deduction for half of your self-employment taxes, you generally can deduct these premiums directly on your Form 1040. Other deductions you pay as a self-employed individual can be deducted directly from you self-employment income including: travel expenses either by personal vehicle or public transportation like planes, trains and buses; hotel rooms, half of your meal expenses while you are on the road; legal expenses; recording studio expenses; advertising expenses; even costumes and stage make-up. All these expenses and any others that are ordinary and necessary costs of being a self-employed entertainer can be deducted. It might be worth talking to a tax advisor (ahem, like us) to find out more.
2. If I get coverage from the new insurance marketplace and I also qualify for one of the new tax credits, will I be able to deduct the amount of the premium that I pay on my 2014 return?
The answer is not clear-cut, at least not yet. Based on our current understanding of law, the answer is a tentative “yes,” but we expect the IRS to clarify this in future guidance. You will still be able to claim any other medical expenses you have during the year. Stay tuned for future guidance!
3. My income is highly irregular. How do I estimate this for the purposes of qualifying for one of the ACA programs?
The ACA programs look at your income in different ways. First, the marketplace estimates your income for the past 30 days to see if you may qualify for Medicaid or CHIP. If not, the marketplace projects your income for the full tax year to see if you may qualify for a tax credit. The system asks questions about your income now – and how you expect that it might change. Based on your responses, it estimates the amount of a credit that you might get. The federal government then pays a monthly amount directly to the insurance plan that you pick – and you just have to pay whatever is left of the monthly premium.
If the federal government makes advance payments of the credit to your insurance company, then you need to “settle up” when you file your taxes. At that point, the IRS will calculate the credit that you get based on your actual income, and you might get a larger refund if you overestimated your income when you applied for the credit. Of course, you might also have to pay back part of the advance payment of the credit if you underestimated your income when you applied. To prevent this from happening, make sure to report any changes in your circumstances to the marketplace when they occur. An increase in income can result in a possible balance due at the end of the year, and a decrease can result in a higher credit or even free or low-cost coverage through Medicaid. Check with your tax professional when your income, or even your life situation, changes. A short call between sets can make all the difference….
4. I already have insurance that I buy on the individual market. Can I switch this for cheaper coverage on the marketplace?
Yes, but make sure to choose carefully. While you can only receive the tax credit for plans purchased though the marketplace the cost and coverage of insurance plans vary. Even plans offered by the same insurance company may have different networks of doctors or may cover different benefits, so you will want to understand what you are buying to make the best choice for you and your family.
5. Can I keep my old coverage and claim the credit?
No. To claim the credit, you must enroll in a qualified health plan sold on the new marketplaces.
6. I travel all over – and home is where I lay my head. Which state marketplace should I use?
The residency issues can get complicated for health insurance and for state income taxes. When buying health insurance, you should generally apply in the state where you are now staying and plan to remain for a measure or two. When things change, you just need to let the marketplace know. For income tax purposes, you will file in each state where you earn money and in your home state. Fortunately, the home state generally allows a credit for taxes paid to another state, so your overall tax bill is reduced, even if the number or state returns you file isn’t. (Help with your state tax issues is as close as the local Jackson Hewitt office: you can even file your New York return in any of our Honolulu offices!) And you definitely want to talk with a licensed insurance agent about picking a plan with an out-of-network benefit so that you can get care while you are traveling. We can certainly help you connect with an agent at Getinsured to get just this kind of advice.
With that, we’ll close by wishing the luck to all of the Grammy nominees!
If you’ll forgive the pun, all statements are on the record. Please feel free to contact me at email@example.com or 615-761-6929 if I can be helpful in any way.
PS: To learn more about visiting Music City, please visit http://www.visitmusiccity.com/ or email us at firstname.lastname@example.org and email@example.com. We’ll happily entertain any visitors at Tootsie’s Orchid Lounge on Lower Broad – so do let us know if you make it town!
Senior Vice President for Health Policy
Jackson Hewitt Tax Service Inc.
Cell: (615) 761-6929