why you may end up owing a lot come tax season

Come tax season, many actors are shocked their first year after making any type of significant money doing voice acting, because they may find themselves owing thousands of dollars to the IRS! This can obviously be a big surprise hit to your budget, so the main point of this article is to help you understand why you may owe money and how to help prepare for it.

1099 vs W-2

If you’ve previously only ever held day jobs, you may be confused as to why you’d suddenly owe a lot of taxes, because you’re used to the taxes already being deducted from your paychecks by the time you receive them. This is because most day jobs where you are hired as an employee will pay you on a W-2, meaning your employer pays a certain amount of taxes on your behalf (Social Security, Medicare, etc) and also deducts your state and federal taxes from your paycheck. If you are being hired as a W-2 employee, the tax form you fill out upon hire is called a W-4.

However, if you’re working as a voice actor, you’re not working as an employee of a particular company. Instead, you’re contracting your services out to (likely a number of) clients at any given time for relatively short-term projects with no guarantee of future employment. Outside of SAG-AFTRA union projects (which DO pay on a W-2 basis and have taxes deducted, unless you have a loan-out corporation—more on that later), the grand majority of (nonunion) voiceover jobs will pay you on a 1099 (independent contractor) basis. The tax form you fill out as an independent contractor is called a W-9, which studios/clients may be legally required to collect from you if you earn over a certain dollar amount per year.

When you are paid on a 1099, the taxes are not deducted from your paycheck automatically—you are given the check (or direct deposit) for the full amount of the job. However, you are still required to report and pay taxes on that amount, and the amount of tax you will be required to pay is often more than you would on a W-2 job, as you’re essentially paying both the employer AND the employee portion of the tax.

A costly mistake actors may make

One common but costly mistake you may make as a new actor is spending the funds you make from your 1099 voice acting jobs without accounting for the taxes you will have to pay on that income. It can be a very rude awakening to spend the money you immediately have access to, only to find yourself hit with a huge bill when it comes time to do your taxes!

A CPA can help advise you in more detail as to your specific situation, but a general rule of thumb is to try to set aside at least 30% of your voice acting paychecks for taxes. These can be paid on a quarterly basis (you’ll actually be required to pay quarterly estimated taxes once you hit certain thresholds as a self-employed contractor, or else you may face a penalty).

Should you register your voice acting work as a business?

While chances are you’re paying your taxes as a sole proprietor (individual) when first starting to earn income as a freelancer, once you hit certain income thresholds, some may find it beneficial to register as a business.

Whether or not incorporating is beneficial to you depends on a number of factors, such as average yearly 1099 income and the state you reside in. Consult with a CPA to evaluate your options.

LLC or S-corp?

If you DO decide to create a business, you will have to decide whether or not to create an LLC (Limited Liability Company) or S-Corp (corporation). Some voice actors may favor S-corps for the potential tax benefits and paying oneself as a W-2 employee. A qualified expert can advise you on the best path for your situation. You can read more about the differences here.

SSN vs EIN

When completing a W-9 for a new client or studio, you’ll need to fill out your personal tax information. If you’re an individual/sole proprietor, this includes providing your social security number. With online clients in particular, it can be risky because you don’t always know what – if any – security measures they have in place to safeguard your personal information.

If you work with a lot of online clients who need your tax ID for the purposes of complying with the IRS, you may wish to consider applying for an EIN (Employer Identification Number) instead. While businesses will automatically receive an EIN, you can still apply for one of these even if if you are an individual, and it can help with peace of mind in regards to potential identity theft and compromised databases.

Note that even if you register an EIN, there are still certain situations where you will be asked to provide an SSN as well. The most common example is on union paperwork, where SSN is used as a form of identification but you can still specify a “loan-out corp” for payment and add your EIN too. You may also be asked to provide an SSN as part of I-9 paperwork, which is used to prove you are eligible to work in the United States and which certain studios require to be cleared for work.

Potential benefits to incorporating

• Can pay yourself (the owner) a salary as a W-2 employee and have taxes taken out of your pay like you would a day job
• Allows you to sign contracts and tax documents under your business name rather than your personal name (note that you will still need to sign as the authorized representative of your own business, so this doesn’t mean you won’t ever have to give out your legal name)
• May potentially help protect your personal assets in case of legal action being pursued against your business (consult a lawyer to go over your options if this is a significant concern for you)
• An EIN can be used in place of SSN on start paperwork (note: SSN may still be required in certain situations – see above)
• May allow for additional write-offs (consult with your tax preparer on this)
• May allow for more privacy in certain situations where you would otherwise have to send lots of personal information
• Having personal and business expenses separated by default helps you track which expenses were directly related to your business (for deduction purposes)

Potential drawbacks to incorporating

• Miscellaneous costs involved in keeping your business operational in your state—some states such as California (where much of the industry is) have high yearly fees
• You are required to maintain separate accounts (bank, Paypal, etc) for your business and keep business and personal funds separate
• More extensive bookkeeping may be required as well as additional tax prep
• If you pay yourself as a salaried employee, you will need to use a payroll service which has its own monthly costs
• You are 1099ed even for jobs that would normally pay on a W-2 – such as union jobs – if you run them through your business, meaning you still have the issue of paying the “employer portion” of certain taxes
• Clients are not required to send a 1099 to companies they contract with (though some still will), meaning you must be extra careful to report all income yourself

The bottom line

If you are just starting out in paid voice acting work, incorporating may be more cost and ongoing hassle than would make sense for your current situation. However, if you routinely receive significant amounts of freelance/1099 income, you may find it helpful. Ultimately it is best to consult a CPA to determine the option that is right for you.

tracking your income for taxes

Especially as you start earning more money, it is imperative that you get in the habit of tracking your income for tax reporting purposes. This is beneficial in ways beyond just taxes—it can help you be aware of missing or overdue payments so you can follow up with clients accordingly, and can also help you budget as well as identify trends in your income.

Having good bookkeeping habits and keeping track of your finances early on can help in many situations, such as buying a home, applying for a loan, or to provide documentation if you were ever audited.

Aren’t clients supposed to send me a 1099 that shows how much money I made with them that year?

If you make over a certain amount with a specific client in a calendar year, that client is required to file a 1099 and should be sending you a copy. However, sometimes 1099s get lost in the mail, are sent out late, mistakenly sent to the wrong actor or contain incorrect information. You cannot rely solely on your 1099s received to determine your total income for that year.

Am I still required to report the income if the client did not send me a 1099?

Yes, you are still required to report taxable income to the IRS.

Note that if you filled out a W-9 when starting work with a new client or studio, it is entirely possible they sent the records of your payments with them to the IRS even if they did not send you a 1099 or did you not receive it. If a client reports that you earned income with them and it is determined that you did not report this income on your tax return, you may be fined a penalty.

Additionally, if you were ever to be audited, it could be a problem if it was determined that you received taxable income that you did not report, such as payment for services on sites like PayPal or Zelle. While you may realistically feel the risk of an audit is low if you’re barely making any money yet, it is again good to get into good habits as your business grows.

What about PayPal income?

PayPal will issue a 1099-K if your sales meet a certain threshold for the year. However, even if you do not meet this threshold, you are still responsible for reporting any business income you received via PayPal. You can download your yearly statement from your PayPal account which can assist you in determining your yearly totals for goods and services (voice acting counts as a “service”.) Note that while your totals will indicate the “gross income” before PayPal fees, the fees may be considered deductible as a business operating expense—ask your tax preparer if you need help.

What’s the best way to keep track of my income?

You can find a system that works for you, but one option is a Google Sheet where you list details such as client name, project title, date worked, amount you are owed, and whether or not it was paid. If you routinely work with an agency or get paid via services such as Paypal, you can have one column for gross amount, one column for amount deducted (agent commissions / Paypal fees) and the final column for net amount.

A bookkeeping service or accounting app can also have built-in tools that help you track payments, but unless you invoice every client exclusively through that app, you won’t have the extra benefit of tracking which jobs haven’t paid you yet.

What are some other forms of income adjacent to voice acting that I need to remember to report for taxes?

• Income from livestreaming
• Revenue earned from content creation (YouTube, TikTok, Patreon, etc)
• Convention/autograph/online store sales
• Miscellaneous revenue earned from clients such as for panels, interviews, or other promotional work
• Additional creative services (casting, directing, audio production, graphic design or art commissions etc)

tracking expenses for deductions

One way to mitigate how much you owe in taxes is to keep records of how much you spend on expenses directly related to your business. Rather than keeping a box full of paper receipts which can easily get misplaced, it’s better to keep track of them digitally using an app or online bookkeeping service. You may also find it helpful to apply for a separate credit card that is used ONLY for business purposes, to aid you in filtering out business versus personal expenses.

If you aren’t earning or spending a whole lot yet in terms of your career, you may find taking the standard deduction to be way less of a hassle. But if you or your CPA determine that itemizing is the way to go, it’s important to keep track of your business expenses throughout the year.

Yearly expenses you MAY wish to consider for potential tax deductions (again, always consult with a pro – this is not tax advice!!)

• Marketing materials (demo reels, web hosting, domain renewal, business cards, headshots, graphic design services)
• Classes, workshops, coaching, and other educational materials/services directly relating to acting
• Home studio equipment (booth/acoustic treatment, microphone, computer, audio interface, headphones – basically anything you bought during the year that is used for recording)
• Software/subscriptions (recording software, Source Connect, accounting apps, IMDB Pro, casting site memberships, premium subscriptions to Discord/Twitter/etc if you use these services to conduct business)
• Internet & phone service (generally, only the portion used for business can be deducted)
• Physical/digital products related to your work (such as purchasing a game or a DVD of a show you worked on in order to more effectively promote your role on social media or streams)
• Streaming service subscriptions if used to research shows for work (Netflix, Crunchyroll, Hulu, etc)
• Travel expenses directly related to your business (expenses when attending work-related conventions or conferences or flying out of state for sessions/workshops – such as baggage fees, Wi-Fi on plane if used to check work emails, transport to & from airport, hotel or airfare expenses if paid out of pocket)
• Mileage when commuting to sessions (or Uber/Lyft/transport expenses if used to get to sessions/work functions)
• Business meal expenses in certain scenarios (for example, buying dinner for a client to discuss a job, or taking a mentor out to coffee to meet for work advice – there are specific restrictions for this, so do your research!)
• Transaction fees (PayPal, bank wire, ACH)
• Postage & shipping expenses (maintaining a P.O. Box for your business, mailing checks for agency commissions, etc)
• Materials and supplies (if you do conventions/autographs, this could include things like paint pens, table display signage, credit card reader, promotional banner, art prints, sleeves, case for transporting materials to and from exhibit halls, etc)
• Union dues
• Commissions paid to agents/managers

Beware of frivolous deductions!

As tempting as it may be to write off every possible expense you can think of, remember that you must theoretically be able to prove that these expenses are directly related to your business. Avoid claiming personal expenses such as clothing, hair/nails, gym memberships, groceries, personal meals between sessions, going to the bar with friends, and other things that generally wouldn’t hold up in an audit. Even if other actor friends claim they write off all of these things, chances are it’s just because they haven’t been caught yet! Ask a professional for guidance on anything you’re not sure about.

Track as you go

If you wait until the end of the year to go through piles of receipts or bank statements, it can be quite tedious. Try to get in the habit of logging your income and expenses on a monthly basis—you’ll thank yourself come tax season.