Hoo boy. Sorry, can of worms here.. I'll try to brief.
First of all, you'll know it's dead when it melts into the most vile smelling ball of snotty goo. Cleaning a dead anemone from your tank is probably going to be the low point of anyone's tank hobby, for anyone unlucky enough to have to do that.
Second of all,
Heteractis magnifica has one of the worst survival records of the hosting species of anemone. It's requirements are strict but not altogether all that unknown. Compared to other species they seem to have a higher metabolism and thus require more feeding, more light, and very high oxygen saturated water (hence more water current). They will inhabit the highest point of a reef structure to try to get into these sorts of conditions. Many are starved and stressed beyond the point of recovery by the time they are ever purchased by the hobbyist, so, be advised that, even optimistically, you have an uphill struggle facing you. Be also advised that, if it does survive and does well for you ... this becomes an extremely large animal that is very difficult to house comfortably except in very large tanks. They are the second largest anemone species in terms of overall diameter, but they are far-and-away the largest in terms of both height and diameter combined. The largest I have ever seen to-date was about 30" across and about 12" tall.
An occasional deflation is not uncommon in any anemone but as a common occurence is an indication of stress, and the prognosis is rarely very good at that point when you see this. The behaviour appears to be an attempt to change out the water in its tissues, perhaps as a means for finding more oxygen. If you see this behaviour a lot, you need to increase the water motion. In an emergency situation you may even need to consider adding a venturi onto a powerhead or an airstone into your tank, to increase the air/water echange happening in the tank.
My last point I want to make is that information regarding these animals shouldn't be hard to find. For starters, you can try searching past posts of boards such as this one or reefcentral (espescially the "Anemones and Clownfish" forum over there). There are books, and also web articles.
Here are some links you can use as a starter:
Anemone FAQ
Field Guide to Anemone Fishes and Their Host Sea Anemones
Also you can try reading past issues of advancedaquarist.com and reefkeeping.com.
Good luck.