Even if you’re a clown, don’t joke with the IRS. Here’s how to deal with those humorless meanies and keep more of your money.
Know your work status.
Whether you’re an employee or an independent contractor affects how you handle your taxes.
If you have a regular job for a party company, event space, or other business, you’re probably hired as a W-2 employee. As an employee, all you need to do is get your W-2 at the end of the year and enter your information into your tax filing software.
If you have gigs at several venues or directly offer your services to people hosting parties, you’re probably an independent contractor. As an independent contractor, you’re responsible for your own taxes, but you also get to deduct your clown expenses.
How much do clowns pay in taxes?
All clowns have to pay income taxes according to their tax brackets. If you have multiple jobs, remember your tax bracket is based on your total income not per job.
Employee clowns will also have the usual FICA taxes withheld from their pay.
Independent contractor clowns don’t have any taxes withheld. Instead, you’ll need to pay a 15.3% self-employment tax rate that covers both the employee and employer shares of FICA taxes.
If you have your own clown business, you may need to get a business license, business permit, or business tax receipt from your state or local government. This is basically just an extra tax for being in business.
Some states may also require you to collect sales tax. Some people call this the “clown tax,” but it usually falls under your state’s regular sales tax rules for services or entertainment.
If you sell merch (anything from balloons to shirts), you may also need to collect sales tax on the physical products you sell.
Unlike income taxes, you usually need to register with your state to collect sales tax before you start selling. So check your state’s rules before you start clowning around.
Don’t forget tax withholding and estimated taxes.
The IRS doesn’t think it’s very funny when you don’t pay your taxes during the year. In fact, if you owe more than $1,000 when you file your tax return, you might have to pay a fine.
For employee clowns, you usually just need to make sure you submit a correct W-4 to your employer.
If being a clown is your side hustle, don’t forget to update your W-4 at your main job to reflect that you have two jobs. Otherwise, you might not have enough tax withheld.
If you don’t want your boss to know you’re a clown, you can also make estimated tax payments instead of updating your main job’s W-4.
If you’re an independent contractor clown, you’ll have to make estimated tax payments.
Estimated tax payments are due on April 15th, June 15th, September 15th, and January 15th for the tax return you’ll file the following April 15th. Each payment should usually be about 25% of the tax you expect to owe.
You can use an online tax calculator, last year’s tax filing software, or an accounting app to help you calculate your estimated tax payments.
What tax deductions can clowns take?
If you’re an independent contractor clown, you can deduct your business expenses from your clown income.
You’ll need to list out all of your expenses on Schedule C of your tax return. Don’t forget to save the receipts.
If you’re an employee clown, you don’t get to take tax deductions. But you also generally won’t owe taxes when your employer reimburses your expenses.
Here are some examples of tax deductions for independent contractor clowns:
- Travel expenses to gigs (either your actual expenses or the standard mileage deduction but also review the commuting miles rules)
- Clown costumes and clown shoes
- Balloons and other giveaways
- Your purchase price of any items you sell
- Business services such as an app to book your gigs or manage your accounting
- Advertising costs whether online, on a billboard, or on TV
- Business insurance
- Self-employed health insurance deduction (if you don’t have employer insurance)
- Qualified Business Income Deduction (usually equal to 20% of your net profit)
- Contributing to a self-employed retirement plan
Should clowns create an LLC?
LLCs almost never help with taxes. You don’t need an LLC to deduct your business expenses.
LLCs can help with legal liability protection but so can insurance. It depends on the specific laws in your state and what you’re doing, so talk to a local lawyer and insurance agent.
Talk to your tax advisor.
While clown taxes are fairly easy once you get the hang of things, it’s easy to miss something or think you understand the rules when you don’t. You might want to talk to a tax advisor the first year that you’re in business and then use tax filing software in future years.