Grammys, Healthcare, and Taxes01.24.14
We are very excited about the Grammy Award Ceremony this Sunday!
But the winding road toward the Gramophone trophy is not always an easy or
exciting one for many would-be artists.
Not least of these are the worries about money and the insecurity of
going without health insurance at times, especially while working a stressful
schedule and long hours. Many, if not most, freelance artists struggle to scrape
by while working toward their dreams.
As huge music and arts fans ourselves, we put together a
list of tax and healthcare tips for creative types. If you need help or have
questions about any of these, of course, your local Jackson Hewitt Tax Pro
would be happy to assist.
Healthcare harmony: You
can deduct your health insurance premiums as a self-employed individual on your
2013 return. 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 may be deducted.
Living gig to gig: If
you have an irregular income, here’s some guidance on how to estimate your
total income for the purposes of qualifying for one of the ACA programs. The
Affordable Care Act 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 these advance payments of
the credit to your insurance company, you must file a tax return and “settle
up” your credit account. At that point, you
must calculate the credit amount based on your actual income and subtract any
advanced credit paid to the insurance company during the year. 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” coverage through
As a self-employed taxpayer with fluctuating income, you
should be estimating your annual income each quarter to help you determine
estimated tax payments that will more closely match your income and
self-employment taxes at the end of the year.
To help keep your advanced credit payments in line with your actual
income, report these changes to the Marketplace each quarter.
A short call between sets can make all the difference to
your taxes when you file in 2015.
Tuning up your
coverage: If you already have insurance, you may be able to switch to less
expensive coverage on the Marketplace. But make sure to choose carefully. Even plans offered by the same insurance
company may have different networks of doctors or may cover different benefits,
so make sure you understand the plan you are buying.
You need a ticket to
get in: You must enroll in a qualified health plan sold on the new Marketplaces
to claim the tax credit. Not all insurance plans qualify for the new tax
credit. Be sure to purchase insurance from the Marketplace. Don’t leave that
credit on the table; it could save you hundreds, if not thousands, of dollars.
Going on tour: If you
travel a lot, you may have questions about which state Marketplace to work
with. 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 of state returns you file isn’t. 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.
Help with your tax issues, including state taxes, is always
as close as your local
Jackson Hewitt office, no matter where your tour takes you. We look forward
to saying we knew you back when…