Even though we may, as performers, completely agree
that the deduction is ordinary and necessary
within our industry, it still has to be “fair” when
compared to others outside our business.
All too many actors and performers think that if they spend money on an item even remotely connected to their career they should be able to write it off on their taxes. A lot of the time they are right, but there are still rules that have to be followed to prove the validity of the expense.
A working, professional carpenter, who uses a hammer, saw and drill every day at his job is allowed to take a deduction for those tools on his tax return. You may own the same set of tools but just owning them doesn't make them deductible. You aren't a professional carpenter, they are not normal tools of your trade. And just because you used them a couple days during the year, voluntering to help build sets at the theatre, doesn't qualify them as a write-off for you either.
On the other hand, if the theatre hired you as one of the in-house set builders and paid you for your services, you would then have a valid argument.
First, you can only deduct expenses that are paid or incurred during the tax year you are fling and they must be “Ordinary” and “Necessary” in your business.
Here is how the IRS defines those terms:
“An expense is ordinary if it is common and accepted in your trade, business, or profession. An expense is necessary if it is appropriate and helpful to your business. An expense does not have to be required to be considered necessary.”
That said, your expenses still have to fall within the rules established by the IRS Tax Code. Even though we may, as performers, completely agree that the deduction is ordinary and necessary within our industry, it still has to be “fair” when compared to others outside our business.
The cost of movies, cable TV and Theater productions that every performer must see in order to participate in this business are a great example to use. The IRS considers these expenses “Entertainment” rather than educational because that’s how the rest of the world sees the costs. That’s why they are denied immediately in most audits. When you try to explain that without watching these productions you can’t even participate as an actor (a valid argument), an examiner would then ask you for your “viewing log.”
A viewing log is a written listing of the TV shows, films and live productions you have watched and what you believe you learned that will progress you career. Even if you write that you learned nothing, discovered there were no roles for you anyway and then list the director and casting director; that still defines the educational aspects of the expense.
What this highlights is the importance of understanding your responsibility to present the direct tie-in on how the expense is ordinary and necessary to your business as well as the validity of your argument to the IRS.
Every auditor has the discretion to allow or deny expenses based upon their personal interpretation of IRS rules. That’s why there is no “standard” list of what the IRS allows for deductions. That you are allowed to challenge an auditor’s decision with their manager explains how, even in the same office, two auditors may have a different position on an expense. Bear in mind that after a few weeks most auditors have learned what understanding their manager will be following.
This also explains why one tax preparer may say yes to a possible write-off when another will say no. Within our tax office we say yes only when we know the deduction will pass an auditor’s inspection (or at least find acceptance up the ladder) and we are very certain when we know an item is a no-go. We inform you when something falls within a “grey area” (one that could possibly swing either way depending on the interpretation of an auditor.) In a grey area we let you make the choice as you are the one signing the return.
Therefore the following is only a guide to assist you in understanding the type of performer expenses that will pass any audit. You may find more extensive lists covering expenses not indicated here, including our own tax packet, but these cover most of the significant areas for performers.
ADVERTISING & PUBLICITY (Photos, Resumes, Postcards, Websites, Ads, Etc.)
AUDITION DVD (Video Resume, Voice Over/Demo Tape, etc.)
GIFTS FOR BUSINESS (Limited to just $25 Per Person per Year)
AGENT'S COMMISSION & MANAGERS' FEES
PROFESSIONAL ORGANIZATIONS / THEATER COMPANY DUES
OFFICE SUPPLIES / STATIONARY / POSTAGE
STUDIO RENTAL / RENT OF BUSINESS PROPERTY
PURCHASE & MAINTENANCE OF PROFESSIONAL COSTUMES:
(Clothing NOT usable for General Street Wear)
REPAIRS AND MAINTENANCE OF EQUIPMENT (Used in your Business)
SUPPLIES FOR RESEARCH: (Sheet Music, Books, Tapes, Scripts, Props, etc.)
ANSWERING SERVICE / BEEPER / CALLING SERVICE
Only Business Toll Calls & Long Distance fees on either your Home line or Cell Phone.
You can write off the entire cost of a second or “business” line.
INTERNET COSTS for BUSINESS USE:
Usually a PERCENTAGE of total Expense,
COACHING LESSONS: Acting Classes, Dance Classes, Casting Director Workshops, etc.
TRADE PUBLICATIONS: Backstage, Hollywood Reporter, etc.
ACCOMPANIST & AUDITION EXPENSE (Pianist, Sides for auditions, etc.)
UNION DUES & INITIATION FEES (Include 2% AEA Dues)
LEGAL FEES: Fees related only to your professional work.
OCCUPATIONAL TAXES: (such as Business Licenses)
AUTOMOBILE / TRANSIT EXPENSES
TRAVEL, TRANSPORTATION, ENTERTAINMENT/ MEALS: Related to your work.
MAJOR EQUIPMENT PURCHASES to the Percentage of Business Use:
Such as a computer, printer or video camera used in your work.
You will find many of these areas explained in greater depth on other pages of this website.