In Actor Speak
Obviously the use of a telephone is a necessary tool for a performer. However, the cost of simply having the phone is not a deduction. There is a long standing rule within the IRS stated below:
"You cannot deduct the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even if you have an office in your home. However, charges for business long-distance phone calls on that line, as well as the cost of a second line into your home used exclusively for business, are deductible business expenses."
You must be able to establish the amount of business use of the phone line to determine the amount of your phone bill you can write off on your tax return. This presents a quandary if you are audited in today's world when so many people no longer have a "land line" and have instead decided to use a cell phone for all of their communication needs.
Most cell phone plans charge a single monthly amount which covers all usage. While the IRS position above indicates the basic cost of local telephone service for your primary line is not deductible, only the business toll calls, there is no "basic charge" for local service on a cell phone plan and frequently no breakdown of long distance charges as well.
How then can you define the "business use" of your cell phone costs during an examination with the IRS? As far as the IRS is concerned, only the actual expense related to business usage or seeking employment is a legitimate write-off.
We cannot stress enough that you MUST be able to prove which calls are business related. This is the most important aspect of proving a legitimate deduction.
Consider keeping a land line (or perhaps a second cell phone with pre-paid minutes to save money) to validate the use of the cell phone you use for business purposes.
Keeping your land line or procuring an additional cell phone for your personal calls allows you to establish that you have met the criteria of the IRS that you have a "primary" phone line for personal purposes and therefore all of the use of your second line (your cell phone) is for business purposes at 100%.
We urge you to be realistic when you make your decision as to business usage. It is almost never 100% unless you have a single phone strictly dedicated to business calls entirely and you can prove that to an auditor. You might pay attention throughout the day to how many personal calls you take. Just because all your friends may be performers does not make the calls business related.
In today’s world the entertainment professional is consistently using the internet to generate work. From accessing multiple casting networks to corresponding with agents and producers to using online mapping sites (MaqQuest, Google Maps), the internet is key to managing one’s career. Again though, although we understand how important the Internet has become (and is becoming every day), that doesn't mean an IRS auditor has equal appreciation. You will have to be able to prove both the applications you use on the Internet as well as the actual cost of the Internet service during the year.
This may not be as easy as it seems. Since almost every home has Internet service it is no longer considered an "automatic" deduction for business usage. We have been to audits where the examiner asked the taxpayer if they were on Facebook and when the answer was yes, immediately denied the expense. It was an uphill struggle to regain any of the deduction because the examiner believed the monthly cost was personal in nature rather than business related. It was her contention that the taxpayer “would have had the service for personal reasons anyway.”
At another audit the examiner allowed all of the expenses the taxpayer claimed that required Internet service (L.A. Casting, Breakdown Services, etc.) but then denied the cost of the Internet plan entirely.
Again, don’t think you can write off the entire amount of Internet service as business usage. Even if you only receive a few emails from friends each month, there is some personal use on your computer. If you are reasonable, the IRS will be more reasonable.
In the Words of the IRS:
"To determine the allowable deduction amount, the taxpayer must show how the allocation was derived. A general verbal explanation is not sufficient. Sepcific allocation through monthly sampling would probably be the best technique."
This deduction is common among taxpayers in the entertainment industry. The expense must be ordinary and necessary to the taxpayer's trade or business. More specifically, it must be necessary, which will be the key to allowability.
Answering services are usually allowable in full. Car phones should only be allowed for those trades or businesses in which the income potential depends heavily on prompt communication. Therefore, MACRS will only be allowed if the cellular phone is used more that 50 percent for qualified business use (7-year property). If the business use is 50 percent or less, alternative MACRS must be used (straight-line over a 10-year period). As listed property, cellular phones are also subject to the record keeping and substantiation requirements.
Any telephone expense must be incurred as a result of work and be required by the employer who has hired you. In general, most productions do not require performers to use a phone for most of the work that a production entails.
If the expense is incurred for job search, the taxpayer must document which calls are business calls.
Generally, you can deduct internet-related expenses including domain registrations fees and webmaster consulting costs. If you are starting a business you may have to amortize these expenses as start-up costs.