by Michael Lodge
Since our firm is in the heart of Hollywood we do a lot of entertainment tax work. The question that always comes up is what can I deduct as a performing artists, film production and other areas of entertainment. As I always tell all of my clients that I meet with is that documentation is the key to any expense you are taking – however the expense has got to be a legitimate expense. There are tax rules that we have to follow in order to help you in taking the correct deductions on your tax return. By the way – your friend who is an actor is not a tax professional and if he/she tells you that you can take a deduction for xyz – don’t listen, he/she is probably doing it wrong. I have to stress this – tax record documentation is the key to success in taking legitimate tax deductions on your tax return, I can’t stress that enough. When you purchase something or go out and have a dinner and you paid by your credit or debit card, on the back of the receipt write what the item is for. Document – document – document!
BEING AN INDEPENDENT CONTRACTOR
When you are working on a film or independent project you are probably going to be paid as an independent contract and at the end of the year you will receive a 1099-MISC to report your income. However, no taxes will be taken out, that is your responsibility to pay the taxes on what you earn. Now here is the key, since you are an independent contractor you are running a business. Which means at the end of the year you are going to have to file a tax return, report your income on a Schedule C – Business or Profession, and report all of your income and take deductions for legitimate business expenses. You are running a business so that means you have to document your income and expenses. It is not hard to do if you take 30 minutes a day, list all of your expenses for the day, all income that has come into you, and log it into a spreed sheet or if your good at record keeping technology use canned software to help you. Just make sure you take the time to run your business and log in all transactions. At the end of the year your tax accountant will take your business information prepare a Schedule C, maybe a form 8829 for home office expense, depreciate some equipment you may have purchased.
Some of you may have set up S Corps or C Corps to run your business, that is good. But the same principles apply on recording your income and expenses. Nothing changes, you still have to keep track of everything that you do.
If some of you are under contract on a series or other engagement, you may be a W-2 earner, which means that you will have taxes taken out of your payroll. Make sure that you file a good W-4 with your employer, do not go tax exempt because there specific rules and at the end of the year you will owe taxes. There are certain deductions as an employee that you can take if your employer is not reimbursing your for them. Again, make sure you keep a copy of everything you paid that is the benefit of your profession.
COMMON QUESTIONS ON EXPENSES
Clothing Expenses – this question gets asked all the time, can I deduct clothing? The IRS looks at clothing as a personal expenses, not a business expense – unless it is part of your wardrobe. Such as costumes (police officer’s uniform, surgical scrubs, special clothing that may be historical period, etc). Formal wear is also normally deductible if you use it for photographs, digital productions, or special awards or promotion events. You can also deduct the dry cleaning and repairs to clothing you wear to an audition or a performance, as long as it was used for your business.
Business Gifts – $25 dollars, remember that number. You are allowed to deduct business gifts in the amount of $25 – per person – per year. Now you can give really nice gifts to your business relationships, give them a GUCCI bag for $1,500 – but you can only deduct $25 of the purchase. Keep your receipt – make note on the back what the expense was for.
Gym Membership – Everyone in show business wants to look the part of sexy so they join gyms. However, the IRS says this is a personal expense – not a business expense. But there are always exceptions – if you sign a contract for a special part where you have to bulk up or tone down for a part, and the production company is not paying for this expense, you may ten deduct the fees paid to a gym and/or personal trainer.
Personal Grooming – everyday expenses that you do for makeup, haircuts and other personal care is considered personal expense – not deductible. But if you need to have your hair color changed for a part or a special type of cut for a role, it is deductible if the production company does not pay for it. Theatrical makeup is deductible, because it is not normally used as street wear, what you would use everyday. If you are doing head shots and you need to have your hair and makeup done – it is deductible. If you have your nails done it is not deductible – unless you are doing hand modeling, same goes for foot work if you are being a foot model.
How About Movies and Plays That You Go To? – have you heard the term “this is a gray area”? Well it is because the IRS looks at each case on an individual basis. If you have excellent records, especially if you are researching a movie for a role you may be playing, can be deductible – again records. You have to prove and show this is part of your job.
Mileage – Places to be – people to see, your car is very important to you getting from gig to gig or auditions and is a deductions used by most professionals in entertainment. As I have told you before that documentation is vital to proving the deduction, you have to maintain a mileage log that shows from where to where, time, date, and reason for the travel. Document as much as possible. Lucky for us there are now apps out there that can do all this for you. Make it simple and download the app. Keep it in your records on a monthly basis. Remember, you are running a business and you must show the backup to your mileage on your tax return. Do not include personal mileage when you drive to McDonalds to get a big mac. Or in entertainment language – a tofu burger.
Other Business Expenses – Professional fees, commissions to agents and manager, attorney fees, tax preparation, required licenses, insurance, union and professional dues, meals (subject to the 50% rule), training for acting / voice/ dance lessons or other education related to improving or maintaining your performance skills, supplies for your office etc.
Again, remember you are running a business so document everything, if you have a question call your tax accountant, be independent and understand the business side of entertainment, and document – document – document.
One thing I must stress please make sure you know what your contracts say about you as an entertainer and what you can and can’t say about what you are working on. Be careful what you post on your social media networks, if you are working on a project make sure you discuss with the production company what you are allowed to say. Most of the time they will write your own press articles for you. Just make sure you say the right thing because if you say anything negative about anyone or the production itself it may wind up in court – attorneys are very expensive. Also, send a copy of your contract with a NDA to your tax accountant to go over any tax issues that may affect you. In every contract there is language about income that may involve points, PPV numbers, etc that will affect your tax situation. Have your tax accountant review contracts along with your legal counsel before you sign. Just a good suggestion for you to follow.
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