So, you want to be a star, and you’re investing in your future with classes, workshops, and all the things that go along with a career in Hollywood from headshots to makeovers. Can you deduct those costs on your income taxes while you’re still working a day job while you wait to be discovered? Maybe.
The Internal Revenue Service relies on Section 183 of the Internal Revenue Code when determining what deductions can be taken by an artist. The key question, according to the IRS, is whether or not the activity is a hobby, or part of a legitimate business activity intended to make a profit.
Initially a beginning performer is given time to make a profit. If you do not earn a profit on your artistic activities after the first four years, the IRS may consider your artistic endeavor simply a hobby. Your deductions may be limited to the amount of your income from those activities. In other words, they cannot create a deductible loss in unprofitable years. As you progress, the IRS looks at a rolling span of the previous five years.
The rule of thumb is whether or not an activity makes a profit in three of the last five years. If it does, then most tax advisors will say that the costs related to the activity are deductible ─ and if it doesn’t, then they aren’t.
If you can’t meet the profit test, you get another chance to convince the IRS that you are running a business by passing the factors-and-circumstance test. Note that the IRS does not take the age of the performer into account when considering whether a child actor must file income taxes – or whether or not costs related to their training are tax deductible or not. A performer who earns more than $600 during the year is required to file a tax return, regardless of age.
If you’re the parent of the next Disney star, you can still claim him or her as a dependent on your tax return if he or she files a tax return if:
- You provide more than half of his or her income.
- The child does not take a personal exemption on his or her tax return.
It’s that second part that gets some families in trouble. Only one tax return can claim an exemption for an individual. So if the child’s tax return claims an exemption for the child, then no one else (including the child’s parents) can claim the exemption. Talk to a tax professional about the best way to handle taxes for the family.
Actors can deduct general business expenses so long as the expense was:
- Incurred in connection with your trade, business, or profession.
- Ordinary and necessary expenses (as defined by the tax authorities).
- Must not be lavish or extravagant under the circumstances (as defined by the tax authorities).
General business expenses include:
- Advertising and publicity (including the cost of required headshots, demo reels or tapes, a website, listings on online services that match potential clients with artists, and other costs associated with getting jobs, or auditions).
- Required equipment and supplies (for example stage make-up, artist’s canvases, and musical instruments).
- Union dues and license fees (including music and copyright fees paid for auditions and demo reels).
- Home office (or studio) expenses. A flat rate or per-square foot deduction for a room (or rooms) in your home used exclusively for business.
- Telephone bills for a second phone line or cell phone used exclusively for your business, including the cost of an answering machine or service and long distance. You can deduct a portion of cell phone costs if the cell phone is a second phone line and you can document the percentage of your cell phone calls that are related to your acting business – but if you have only a cell phone (no home phone), then none of your cell phone costs are deductible.
- Legal, tax, accounting, and professional services for your business (including fees paid to agents).
- Training (acting, voice, dance, music, art lessons required to improve or maintain performance skills, including rental fees for rehearsal space).
- Travel expenses (for auditions, performances, meetings with potential clients, rehearsals, and related expenses).
- Apparel (uniforms, costumes, special shoes, theatrical make-up, and wigs that are not suitable for street wear and are used exclusively for your business, including alterations, dry-cleaning, and repairs). Clothing is the first expense an auditor looks at on an actor’s tax return. If you can wear the item “on the street”, it is not deductible, even if you work as an extra and are required to bring your own wardrobe. Only clothing that is specifically used as a costume (such as a clown costume or a historical period outfit) is deductible; and formal wear is generally deductible by performers of both genders, if it is required for a performance or public appearance. Photographs of you wearing the clothing you are listing as a deduction while you are working, with specifics as to the reason, date, and place where you wore the clothing as part of earning your acting income are helpful in establishing the deduction.
- Meals (“Necessary business-related meals” are 50% tax deductible if they include direct business discussions. You must document the specific business purpose, place, date, time, and include the names of each person you met with and their business role.)
Some things are almost never deductible, even if they are related to a performer’s ability to earn a living. For example, while body image is an important part of an actor’s image, gym membership and workout costs are not tax deductible. Neither is the cost of make-up, haircuts and hair color, manicures and pedicures.
Additional Tax Deductions for Actors
In addition to the business deductions available to others, professional actors and models may be able to deduct:
- Head shots (photographer’s fees and duplication costs), resumes (printing and duplication costs), and demo reel (videographer’s costs, editing, online hosting, and duplication costs).
- Script fees, including the cost of downloading sides from a casting website.
- Acting classes, workshops, and seminars.
- Local audition travel (mileage, parking, taxi, etc.).
- Unreimbursed out-of-town travel for performances.
- Costumes, formal wear, wigs, and theatrical make-up specifically used for acting.
- Cleaning, alterations, and repairs for costumes.
- Admissions to movies and plays, cable TV subscription, TV set, DVR, DVD Player, and DVD rentals.
For more information on taxes and tax deductions for actors, click here to download a free copy of the 1-800Accountant white paper, Taxing Questions: What Makes an Artist a Professional? A Guide to Tax Deductions for Actors, Artists, Clowns, Dancers, Musicians, Singers, Variety Performers and Writers. The white paper includes details on how the IRS determines an actor’s “professional status” for tax purposes, plus additional details on tax deductions available to other performers such as singers, musicians, dancers, and circus or variety performers.