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By Michael Lodge
To deduct or not deduct, that is the question.
We have many clients in the entertainment industry and many of them actors who are not sure of what they can deduct on their income tax returns. There are many deductions actors can take to reduce their taxable income and reduce their taxes.
Can you believe it that at one point actors were not thought of too highly, they were not allowed into some of the first-class hotels. Hard to believe, since in todays world actors who have made it make millions of dollars. But there are still actors who are still trying to make it and have the right to take deductions on their tax returns in the process of getting work as an actor.
So we are going to discuss the many deductions that are allowed by actors. These deductions are quite valuable. If you are in the 25% tax bracket, each $100 in deduction saves you about $25 in income taxes. It may also save you about $15 in self-employment taxes as well. So we have to understand what deductions you are allowed as an actor.
As an actor you are treated on most gigs as an independent contractor, not as an employee. For tax purposes your acting is a business. A self-employed actor may deduct any expenses that is:
– directly related to the acting activity
– ordinary and necessary, and
– not lavish or extravagant under the circumstances.
Here are deductions that an actor may take:
Business Travel: Actors often travel out of town, or even out of the country, to work. You may deduct all reasonable expenses you incur when doing so. These expenses include airfare or other transportation costs and hotel or other lodging expenses. But, you may only deduct 50% of the cost of meals when you travel for your acting business. If you plan things right, you can even mix pleasure and business and still get a deduction.
Local Travel Expenses: Local travel may include trips to performances (both as player and observer), rehearsals, acting classes, auditions, and to pick up supplies. You may deduct trips by car or public transportation. If you like record keeping, you can keep track of all your car expenses to figure your annual deduction. But, if you’d rather not keep track of how much you spend for gas, oil, repairs, car washes, and so forth, you can use the standard mileage rate. When you use the standard rate, you only need to keep track of how many miles you drive for business, not how much you spend on your car.
Agent Fees: If you have an agent, as serious actors usually do, you may deduct all the fees your agent charges.
Office Expenses: If you have an office in your home that you use exclusively for your acting business, you may be able to deduct the cost of the home office. This deduction is particularly valuable if you are a renter because it enables you to deduct a portion of your monthly rent, a sizable expense that is ordinarily not deductible.
Depreciation: When you buy property for your acting business that will last more than one year, you may deduct the cost a little at a time over a period of years. This process is called depreciation. Examples of depreciable property often used by actors include video cameras, sound equipment, digital cameras, sound equipment, theater and film books, musical scores, computers, and cell phones. However, you don’t always have to depreciate long term business property. Small businesses have the option of deducting the entire cost of this property in a single year under Internal Revenue Code Section 179 or using bonus depreciation This enables you to get a big deduction in a single year rather than spreading it out over several years.
Supplies: Supplies are items you purchase for your acting business that you use up in less than one year. They include stationery and postage.
Union Dues: Due you pay to belong to Actors Equity or other unions or organizations for actors are deductible.
Education: Acting classes and coaching lessons are deductible.
Promotional expenses: Virtually everything you spend money on to promote yourself as an actor is deductible including photos, videos, websites (including Internet connection costs), listings in professional registries, advertisements in trade publications, and business cards.
Make-up and Hair Care: These expenses are deductible only when incurred directly in connection with a specific job. You can’t deduct make-up and hair care undertaken simply to look good.
Wardrobe: If you buy your own wardrobe, you may deduct the cost only if it is not suitable for street wear. For example, you can’t deduct the cost of a modern business suit, but you could deduct an ape costume.
Subscriptions: You can deduct the cost of magazine, journal, newsletter, and other subscriptions useful for your acting business. This would include, for example, trade newspapers like Daily Variety.
Legal and Professional Services: You can deduct fees that you pay to attorneys, accountants, consultants, and other professionals if the fees are paid for work related to your acting business.
Insurance: Self-employed people, including actors, are also allowed to deduct 100% of their health insurance premiums from their income taxes. In addition, if you have a home office, you may deduct a portion of your homeowner’s insurance.
Meals and Entertainment: The days of the deductible three-martini lunch are pretty much at an end. To deduct the cost of a meal in a restaurant or an entertainment event like baseball game or theater visit, you must have a serious business discussion before, during, or soon after the event. Moreover, you may only deduct 50% of your business meal and entertainment costs.
Home telephone expenses: You get no deduction for a single phone in your home; but you may deduct the cost of long distance phone calls and special phone services you use for business such as call waiting or message center. You may deduct the full cost of a second phone line you use at home for business, including a cell phone.
Tickets for Viewing Films and Plays: Actors need to attend plays and films to keep up with what’s going on in their industry. They may also subscribe to services like Netflix and HBO. These costs are deductible as “research.” But make sure they are reasonable. It won’t look good if you deduct every cent you spend for these items.