IMPORTANT NOTE: This was written before the Trump administration’s massive changes to the US tax code. You should not rely on it when filing taxes for tax year 2017 or later. Many (if not all) of the deductions formerly available to individual taxpayers, teachers, and small businesses may have been cancelled. As of mid-February 2018, the complete rules for deductions for actors have not been published. I will update this once they are updated. In the meantime, please check with the IRS or your personal tax advisor before taking these deductions.
My 14-year-old wants to be a star. So we’ve spent the past five years investing in his future with classes, workshops, headshots, taped auditions, and travel to and from auditions.
My grown-up son has been a stunt performer and actor since he was 19, and has worked all over the world. He has invested heavily in props, protective gear, costumes, and training.
Are those expenses tax deductible? Maybe. For my son, the rules are pretty clear because he’s been earning his living as a performer for so many years. For my teenager, however, it all depends on whether the Internal Revenue Service decides that my child is a “student or hobbyist” or a “minor working in a professional capacity.”
Tax deductions can only be taken by actors or performers recognized as “professionals” by the IRS. Section 183 of the Internal Revenue Code defines the criteria the IRS uses to determine whether or not an artist is a professional, and outlines the deductions that can be taken by an artist of any kind. These rules apply to artists, actors, circus performers, clowns, dancers, magicians, musicians, freelance photographers, sculptors, singers, stunt performers and other performers or artists.
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. Hobbyists can’t take business tax deductions for what they spend on their “hobby”, while professional artists can deduct the “tools of their trade” – even if each makes the same exact purchases.
The IRS gives a beginning artist some time before they must earn a profit. If you do not earn a profit on your artistic activities after the first four years, the IRS may decide that your “art” is just part of your lifestyle. 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.
Here are the basic rules regarding a child’s tax return. Your child must file a personal return if he or she made less than the standard deduction ($6,300 for 20105) and wants to get back any taxes that were withheld. In such a case, all the income tax withheld will be recovered.
If a child is paid in cash (which includes checks and income reported on a 1099-MISC form) and the income is greater than $400, he or she is required to file a tax return to satisfy the self-employment taxes on what was earned. Children who make more than the standard deduction must file a return to show that sufficient taxes have been withheld from their paychecks. That usually requires proof that the child’s career-related deductions are valid.
If your child works for a major film studio or production company, chances are good that their payroll department will deduct income taxes, social security taxes, and state taxes from the child’s paycheck. If not, and your child is paid as an independent contractor under a Form 1099, then you’ll be responsible for both the employer and employee portion of the tax payments.
Any income from royalties or residuals reported on a K-1 form must be reported to the IRS, so don’t forget about those tiny residual checks actors, writers, and artists sometimes get. Even if the royalty or residual income is just pennies, it has to be reported as earned income, and failing to do so can land you in fairly serious trouble.
A friend of ours learned the hard way that not all paychecks a child actor receives are created equal – our young actor performed with a friend in a live passion play put on by a local evangelical ministry. Our kid was a featured performer and earned more than $600 from the gig. He also had other acting income that year, so we reported the income from the ministry on his income tax form and paid the required taxes.
The other kid was a background player paid less than $600, and it was his only paid gig that year. So his family ignored the 1099 the ministry sent, and didn’t file an income tax form for their child. That oversight triggered a grueling audit. Why? Because any payment over $125 from certain types of religious organizations must be reported as income, even if it is the worker’s only income for the year.
In our part of the Bible Belt, a lot of churches and Christian organizations hire actors for TV shows, web broadcasts, commercials and live events. So if your child works for a church, evangelical ministry, or other religious organization, talk to your accountant about the specific rules that apply to income from a not-for-profit religious organization.
Can I Deduct My Child’s Expenses on My Taxes?
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.
If you are a divorced parent with a custody agreement in place that specifies that one parent is entitled to a tax deduction for a child, make sure that your tax filing for your young working actor doesn’t violate that court order – especially if the non-custodial parent entitled to a tax deduction is unaware that the child may be filing a tax return of their own.
What’s Deductible – and What’s Not
Actors can deduct general business expenses so long as the expense:
- Was incurred in connection with your trade, business, or profession.
- Met the IRS standard for an ordinary and necessary expenses (as defined by the tax authorities).
- Did not meet the IRS standard as a lavish or extravagant expense under the circumstances (as defined by the tax authorities).
General business expenses include:
- Advertising and publicity. This includes a website or blog, listings on online casting sites and other costs associated with getting jobs or auditions.
- Required equipment and supplies. Note that the required equipment and supplies must be specific to your art. For example stage make-up, artist’s canvases, musical instruments, or a stunt performer’s safety equipment are required – but haircuts, clothes for auditions, or regular “street make-up” are personal expenses, and are not deductible.
- Union dues and license fees including music and copyright fees paid for auditions, performances, or demo reels. (And, yes, you probably owe someone a fee if ou use their music or words in your demo reel or performance, even if you aren’t paid for your live performance. Don’t stiff another performer by abusing their copyrights. You wouldn’t like it if they did it to you. All artists deserve to be paid for their talents.)
- 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 or business 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 such as acting, voice, dance, music, or art lessons required to improve or maintain performance skills, including rental fees for rehearsal space.
- Travel expenses for auditions, performances, meetings with potential agents, rehearsals, and related expenses.
- Required apparel that is used exclusively for the business of performing, including alterations, dry-cleaning, and repairs to that apparel. Uniforms, costumes, special shoes, theatrical make-up, and wigs that are not suitable for street wear and are used exclusively for your business are tax deductible. 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 in the event of an audit.
- 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. (Example: Lunch meeting with Susie Agent, Acme Restaurant, 4/2/15, to discuss contract negotiations with Superior Productions for untitled web series.)
Some things are almost never deductible, even if they are related to a performer’s ability to earn a living. For example, while appearance is important to an actor’s image, gym memberships and workout costs are not tax deductible. Neither is the cost of “ordinary” make-up, haircuts and hair color, manicures and pedicures.
One area many parents of working child actors struggle with are the costs for child care relating to other kids in the family. I know one family that has five kids, just one of them a working actor in a Disney series. The three oldest stay at home in Texas with dad, while the youngest goes to California with mom and the working child actor. Is day-care for the youngest child a tax deductible expense? One CPA told them “yes” because the mother was the “de facto” manager for her working child, another said “no” because mom earned no direct income as her working child’s chaperone on set. I don’t know the answer, but if you are in this situation, check with a qualified tax accountant or attorney in your home state before making a decision about what to deduct.
Additional Tax Deductions for Actors
In addition to the business deductions available to others, professional performers 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 or submitting through a site that charges submission fees.
- Acting classes, workshops, and seminars.
- Local audition travel (mileage, parking, taxi, etc.).
- Audition taping fees paid to a third-party, including fees for services like HighTail or Box.com to manage large files.
- Out-of-town travel for performances or auditions. (See the IRS website for Publication 463, for the current rules on deducting travel expenses.) Be sure that you are not being reimbursed in any way for your out-of-town travel, including a per-diem or flat-fee payment. Only travel that isn’t reimbursed can be deducted.
- Costumes, formal wear, wigs, shoes (such as dance shoes) and theatrical make-up specifically used for acting or paid performances. Note: if the costume can be worn on the street, it is highly unlikely that it is tax deductible, even if it was purchased specifically for an audition or part as an extra where you have to provide your own wardrobe.
- Cleaning, alterations, and repairs for costumes. (This applies only to costumes that are otherwise tax deductible.)
- Admissions to movies and plays, cable TV subscription, TV set, DVR, DVD Player, and DVD rentals.
If you plan to deduct any of these costs, make sure that you have receipts, and that each receipt is marked with the business purpose for the expense. For example, if you rent some DVD’s to help you prepare for a role, mark the receipt: “Four Idris Elba DVD’s rented to prepare for a role in <name of project>. Casting notes for the part said, “mannerisms like Idris Elba’s in the BBC series Luther.” If your purchase special shoes for a role as an extra, mark the receipt, “1960’s style wing-tip shoes to wear on set (dates worked) in the film 11-22-63”.
Photographs of you on set or on stage wearing the specific costume pieces for which you are claiming a tax deduction will help in the event of an audit, so make sure your on-set selfies are stored in a way that makes them easy to print if necessary.
For entertainment or travel expenses, make sure to mark the receipt with the names and business purpose of each person involved. For example, when I chaperone my teen actor on a trip for a shoot or audition, I mark my own expenses as “required on-set chaperone for [teen actor’s name] on set of [show name] in [location].” Be as specific as you can — and be sure that the cost isn’t a “regular commuting cost” (which isn’t tax deductible). When my child works on a TV series in Louisiana, I can deduct a per-mile cost for the business use of my car, but any meals en route, or the cost of a night in a hotel after a 1-day shoot are not deductible. (If he works more than one day, and the production company doesn’t pay for his hotel room, then our hotel would be deductible. But if I decide not to make the drive home because I’m too tired, it isn’t deductible.) Note that my expenses as his chaperone are deductible on HIS tax return, not mine.
Don’t Forget About Self-Employment Taxes & Coogan Trusts
The kind of acting jobs you get can make a big difference in your tax liabilities as an actor. For instance, if you’re working in a featured role in a major TV show or film, things are fairly straightforward. You fill out a W-4 tax form, just like you would if you were working at the local burger joint, and the production company reports your earnings as an employee, and deducts the right taxes. But most actors wind up with at least one Form 1099 – Miscellaneous Income, and many wind up with so many W-2 and 1099 forms that they are considered self-employed by the IRS.
A self employed person is responsible for self-employment taxes, the employer and employee portion of the Medicare and social security tax, and the employer and employee portion of any other taxes (such as unemployment or disability insurance taxes) required in your home state.
A Coogan Trust is the portion of a child actor’s income withheld by law until they are adults. This applies to money earned in a SAG production, and to all earnings in some states (California, Louisiana, New Mexico and New York are the ones I am sure of — check to find out the rules in your state). Money set aside in the escrow account is treated as part of the gross income on which taxes must be paid, even though the child can’t access that money until they are over 21.
For information about the self-employment tax, and who must pay it, refer to the IRS publication on these taxes.