The recent tax bill passed by Congress and signed by President Trump has sent the entertainment world into a tizzy. The onslaught of misinformation began before the ink was dry on the legislation, fueled by articles and social media posts claiming that the entertainment world would come to a fiery end because certain deductions and expenses would no longer be allowed on a performing artist’s tax return.
To add to the confusion, responses to the doomsday articles stated, in effect, “Hold on, Sparky! Those deductions and unreimbursed business expenses only affected those that itemize their deductions. For those of us that are performing artists and say we are independent contractors, we will still be able to deduct expenses like acting classes and the cost of auditioning for roles because we are self employed business people!”
Yes…..and no. Sure, you can deduct those expenses on a Schedule C (Profit and Loss from a Business), but if the I.R.S. takes a good, hard look at your return, you could be in a bit of trouble.
The biggest issue concerning many part time actors is if they are an employee of a production or an independent contractor. As much as we would prefer otherwise, the I.R.S. is pretty clear that most actors and crewmembers are to be considered employees.
The latest I.R.S. Entertainment Audit Technique Guide (this is what the I.R.S. auditors refer to when doing an audit), published in October of 2015, states:
“The majority of entertainers and technicians are employees and will receive a Form W-2 with federal income tax and FICA tax withheld. The extent of control a studio or production company has over an entertainer continues to be the determining factor in classifying an individual as either an employee or an independent contractor.
Treas. Reg. § 31.3401(c)-1(b) states in part:
Generally, the relationship of employer and employee exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished.
I.R.S. Revenue Ruling 57-155, 1955-2 C.B. 333 says in part:
An actor or actress who provided his or her own costume, delivered a few lines from a script, and took technical instructions from the producer was considered an employee; a narrator who took technical instruction from the producer and advice from the client was also an employee.
(An I.R.S. Revenue Ruling is a public administrative ruling which can be relied on as precedent by all taxpayers.)
A discussion on why someone in the performing arts business should be classified as an employee vs. an independent contractor is a subject for another article. Invariably, people will try to argue why the project they are working on should classify the performing artists they have hired as independent contractors. That’s fine, but there is a reason the movie studios pay their talent as employees.
So how does the new tax law affect actors that are paid as employees? One of the biggest areas that will affect performing artists is the elimination of most expenses you could write off as an itemized deduction.
What is an itemized deduction? When you fill out your taxes, you can reduce the amount of money the Government will tax you on by deducting some expenses from your overall income. One day, Congress said, “Instead of making our taxpayers keep track of all the things they are allowed to deduct, let’s make it so they have the option of deducting one amount!”, and the standard deduction was born. So when you fill out your taxes for 2017, and you are filing Single, you can take the standard deduction of $6,350 off of your taxable income, or you can go through the list of all the qualified deductions, itemize them, and if the amount is higher, use that figure instead of the standard deduction, so you play less in taxes.
The new tax bill eliminates many of those itemized deduction, but raises the standard deduction. The theory is that for most Americans, they will be better off using the higher standard deduction than trying to figure out their itemized deductions.
For performing artists, they will no longer be able to write off union dues, job searches, work related education, etc.
Ouch. Or maybe ouch. A lot depends on how much of a working performing artist you are. For those that don’t perform a lot, there is a good chance the increased standard deduction will make up for the expenses you can no longer deduct. If you are a mega superstar, you have probably incorporated yourself, which brings in a whole new set of rules.
If you are a REALLY part time performing artist, a quirky deduction that was introduced in 1986 established a Qualified Performing Artist category that allowed you to deduct expenses of your trade in addition to taking the standard deduction. However, to qualify, you must:
1. Performed services in the performing arts as an employee for at least two employers during the tax year,
2. Received from at least two of those employers wages of $200 or more per employer,
3. Had allowable business expenses attributable to the performing arts of more than 10% of gross income from the performing arts, and
4. Had adjusted gross income of $16,000 or less before deducting expenses as a performing artist.
So, you have no more than $16,000 in adjusted gross income; at least two W-2s, each paying at least $200, from entertainment-related companies; and performing-related deductions equal to at least 10 percent of your adjusted gross income.
One important thing to remember is that these rules don’t take effect until the 2018 tax year, so fill out your 2017 tax return like you normally do. Sometime in 2018, the I.R.S. will most likely publish new guidelines and interpretations of the new tax law, so the above may change some. Mid-term elections may introduce whole new legislation in 2019, so stay up to date and keep informed!
(Author Randall R. Reese is a part time actor, freelance writer, and also worked for the Internal Revenue Service in the Small Business/Self Employment Division for three years. The information in this article is his interpretation of federal tax laws and a tax advisor should be consulted for more information.)
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Last modified: December 30, 2017