My 15-year-old actor, musician, and circus performer files a tax return every year. He meets the IRS standards as a “working professional”.

IMPORTANT NOTE: This blog post was written before the Trump Administration’s tax code changes. Many (if not all) of the rules for individual taxpayers and small business owners have changed.  You should not rely on old information when filing taxes for tax years 2017 and beyond. I will update this when the final rules are published, but as of mid-February 2018, it is unclear which (if any) of these deductions for artists will remain. DO NOT RELY ON OLD INFORMATION, PLEASE.

It’s tax time. This (long) blog post is written for:

• Actors
• Artists
• Sculptors
• Potters
• Photographers
• Writers
• Dancers
• Musicians
• Singers
• Clowns
• Jugglers
• Magicians
• Aerialists and circus performers
• Comedians
• Drag queens and female impersonators

In short, it’s for most people who work as performance artists or those who create works of art for sale. The same rules may also apply to other kinds of “performers” such as rodeo contestants, stunt performers, and those who supplement their income working as a film or TV extra.

The purpose behind the post is to try to de-mystify some of the most common questions about what you can (and can’t) deduct when it’s time to pay taxes, as well as who has to file a tax return and what has to be reported. Additional information for the parents of minors who work as entertainers or artists can be found here.

I am neither an accountant nor an artist. I do prepare taxes for a son, grandson, and cousin who work as performance artists, however. And I’ve linked directly to IRS notices and rules wherever possible in this post.

You should definitely check with a qualified tax professional in your home state to make sure that the deductions and rules listed here apply to you.

Are You a Professional?

My son Geoff McAlister has performed as a stunt rider for over 20 years. He’s invested heavily in props, safety gear, and training for his career. Sometimes he performs in live shows, and sometimes he works in film or TV. Some of his expenses are deductible — prop swords and special Medieval costumes, for example — but others (like riding boots) are not.

For a writer, artist, actor, circus performer, model, singer or musician, thousands of dollars in taxes can often ride on a single question: Are you a professional or just a talented hobbyist? At first glance, it might seem like an easy question to answer ─ but there are some surprising twists in the rules, especially in state and IRS rules on tax deductions.

Consider the case of the transgender artist Venus de Mars. Minnesota Public Radio told the story of a tax audit that resulted in a bill for thousands of dollars in back taxes for de Mars.

De Mars doesn’t have a day job, and earns about $20,000 a year entirely from music, painting and other artistic endeavors. Some years, she earns more than she deducts in expenses ─ and sometimes, she doesn’t, resulting in what she thought were tax deductible losses.

De Mars had filed Minnesota state tax returns since the 1990’s, each one prepared by an accountant and claiming deductions related to her art and music projects. In 2012, after the completion of a state audit for 2009, 2010, and 2011, the state determined that de Mars was not a professional artist, and disallowed all of her deductions for the three years covered by the audit.

The state’s main reason was the department’s determination that de Mars enjoyed her work too much, and didn’t work hard enough to make a profit. After being ruled a hobbyist, de Mars was left with a bill for thousands in back taxes. But de Mars didn’t go quietly. She fought – and nearly two years later, she won. But it was a costly battle.

If you are a musician, artist, dancer, actor, clown, circus artist, or otherwise earn your living from your talents in the arts, there are some ways to avoid finding yourself in the same situation that de Mars did. The transgender artist even published her own list of five tax tips for other artists, which you can find here.

What Makes Someone a Professional Artist?

Demonstrating the intent to earn a profit, by treating your artistic endeavors like a business, is the first step to saving money on your taxes. Careful records, and keeping personal and professional expenses separate, are vital to avoiding tax trouble.

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. The same standards apply whether you are a performer or create tangible works of art that can be sold.

The IRS allows artists four years to earn a profit. If you do not earn a profit on your artistic activities after the first four years, the IRS may decide that what you do is 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.

The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations. So artists, writers, and performers who are facing losses should talk to a qualified business advisor about whether or not forming a legal entity (a corporation or LLC) could help them lower their potential tax liability.

If you can’t meet the profit test, you get another chance to convince the IRS that you are running a business by passing what the IRS calls “the factors-and-circumstance test”. Here, the tax agency takes a subjective, individualized look at your pursuit.

The IRS fact sheet on determining whether the costs incurred by artists, musicians, performers, and writers are deductible or not poses these questions:

• Does the time and effort put into the activity indicate an intention to make a profit?
• Do you depend on income from the activity?
• If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
• Have you changed methods of operation to improve profitability?
• Do you have the knowledge needed to carry on the activity as a successful business?
• Have you made a profit in similar activities in the past?
• Does the activity make a profit in some years?
• Do you expect to make a profit in the future from the appreciation of assets used in the activity?

If you can answer yes to a majority of these so called “factors and circumstances questions”, then it’s likely that you are conducting a business. If the IRS determines that your artistic activities are part of a business, then the “ordinary and usual” business expenses incurred in your artistic activities are deductible on your federal income taxes.

What If I Fail The Profit Test?

My stunt-man son has acquired a number of unusual (and tax deductible) costume items and props over the years, including this custom-made jousting helmet. Items like these, which can’t be used except as part of an actor’s performances, are almost always tax deductible.

Since the IRS does not automatically decide that an artist who fails to turn a profit for three of five years is not running a business, there are four options to consider if you fail the profit test for any three years in a row.

• Cut your losses, and do something else. This option makes sense if you don’t think that you are ever going to be profitable, or you are tired of the rejection and difficulty of making it as an artist.
• Keep doing what you’re doing, and continue to file tax returns showing the losses you are incurring. Just make sure that you’re being extra careful in documenting deductions and the steps you are taking to try to make a profit. Why? Because three years of losses is likely to trigger an audit. If an audit is triggered, it is likely to cover at least the three years of losses, not just the current tax year.
• Start a new company, and file the appropriate paperwork to create a legal entity that is entitled to more than three years of losses. Be aware that this can also trigger an audit, since the IRS may be suspicious of someone who suddenly changes their filing status.
• Stop declaring losses, and pay the taxes on your income without the benefit of the deductions. This can be a costly option, but it may be the only choice for some artists or performers.

If you have confidence in your talent, and have a solid business plan that outlines how you are going to turn an unprofitable business around, then you have nothing to fear from the IRS if you keep good records, get advice from a knowledgeable tax advisor, and manage your artistic endeavors in a businesslike manner.

Who Has to File a Tax Return?

The IRS website has an “online interview” you can use to see if you have to file a tax return. It’s online at this address. Of course, you  may want to file a tax return even if you earned less than the minimum amount that would require you to file a tax return.

For instance, I know a child actor who didn’t hit the $10,350 minimum requiring him to file this year – but he earned enough from network television and major films that deducted taxes and social security from his paychecks that it was worth the time to file for the refund he was due. His parents opted not to take any deductions this year, and filed a short form solely to get the taxes he had paid in returned. Make sure that if your child files a tax return he does not claim himself as a dependent if you are also claiming him on your tax return –  your individual circumstances will determine whether it’s better for you to take the deduction for your child, or use it on his or her tax return instead.

In general, for tax year 2016, you (or your minor child) must file a tax return if you earn more than the amount shown on this chart:

There are exceptions to the minimums on this list. For instance, 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.

I live in the Bible Belt, and a lot of churches and evangelical organizations hire musicians, actors, and other performers. A friend of ours learned the hard way that because churches and ministries are exempt from some IRS rules, there are special rules that apply to reporting payments from religious organizations.

Their child earned less than $600 for his sole acting gig one year – but the check was from a “ministry”, which sent a 1099 to the child’s parents. They ignored it, which 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. If you were paid for any kind of service by a religious organization, refer to this IRS document before ignoring a 1099, or talk to your accountant about the specific rules that apply to income from a not-for-profit religious organization.

Withholding and Self-Employment Taxes

How you get paid makes a difference in how much you owe on your taxes. If you work as an independent contractor, work for tips or donations, or book your own gigs and bill for your services, you’ll receive a Form 1099 at the end of the year. You’re responsible for both the employer and employee portion of taxes, social security and other withholding amounts, as well as the self-employment tax.

If you work as an employee – even if it’s just for one day – you’ll be asked to fill out a Form W-9 that tells your employer what to withhold from your paycheck. If you work as an independent contractor, your employer won’t withhold taxes, social security, and other deductions, and you will be required to pay those at the end of the year.

Don’t forget to set aside money during the year to pay the employer and employee portion of taxes (including the self-employment tax and social security) if you are working as an independent contractor or a sole proprietor who bills clients for goods or services. This section of the IRS website can tell you if you are considered self-employed, and lists the rules (such as paying your estimated taxes every three months instead of waiting until the end of the year) that you must follow if you are considered self-employed.

Managing Your Art Like a Business

Safety gear, training and rehearsal space, classes, costumes and the cost of travelling to and from performances are usually deductible for performers. But regular commuting costs to and from a local performance venue are not.

To make an air-tight case for being a “real business” instead of a simply pursuing a hobby, it’s critical to manage your art in a businesslike fashion. Here are the five basic steps to take to prove that you are running a business based on your talent:

1. Separate Business and Personal Expenses. Keep your business bank account completely separate from your personal account, and don’t pay personal expenses from a business account. Get a separate phone line and email address for your business.
2. Keep Good Records. Track every expense with as much detail as possible. Keep receipts and document the business purpose for every expenditure. This is especially true of business entertainment costs. If you meet an agent, prospective client, or customer at a restaurant, write down the business purpose of the meeting, who attended, and the precise date, place, and cost.
3. Document Your Marketing Efforts. Email, flyers, profiles on casting websites, headshots, sample prints sent to galleries, demo reels, online videos – those are the forms of advertising that most artists, writers, musicians, and performers rely on. Make sure that you keep copies of all of the advertising materials you use to reach potential clients or employers, so that you can show it to the IRS. Business cards, flyers, and videos or photos of your work are often the deciding factor in an IRS determination.
4. Keep a Business Calendar. Put important dates and milestones for your business on a calendar or scheduling app. It’s another way to show the IRS that your business is pursuing the concrete goal of profitability.
5. Get State or City Permits & Licenses. Do everything strictly by the book. Register your business entity with the state, get any required permit or licenses, and follow all local ordinances to prove your case for tax deductions to the IRS. This is especially true for performance artists who may require a city permit for street performances, or anyone who accepts commissions for art work or photography that require a business license. Check state and local ordinances, and comply with them all. If you sell a product that is taxable, make sure you file for your state sales tax ID number, collect and pay the required taxes on time.

Tax Deductions for Artists & Performers

My grandson Kameron Badgers worked on Season 3 of the WGN TV series Salem. The amazing costumes for the period drama were provided by the production company — but actors and other performers who provide their own costumes can deduct the cost of the costumes so long as they aren’t suitable to be worn “on the street”. So a period costume like this would be tax deductible.

Tax deductions can be quite valuable, because they reduce taxable income for the year. For example, someone in a 25% tax bracket can save $25 in income tax for every $100 in deductions, while also saving as much as $15 in self-employment taxes for every $100 deduction from taxable income.

Detailed records and receipts are the keys to tax deductions. Some tax deductions are available only to certain kinds of artists and performers, while others are available to any business, including an arts-oriented business.

To be deductible business expenses, a cost must be:

• 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 commissions, jobs, or auditions). Note that social media applications that help you promote your business – such as YouTube videos, Facebook pages and ads, and scheduling apps to manage your social media postings – are part of your advertising and publicity expenses.
• Equipment and supplies required for your business (for example stage make-up, artist’s canvases, and musical instruments).
• Union dues, license fees (including music and copyright fees performers pay), and business registration fees required for your business.
• 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 used exclusively for your business, including the cost of an answering machine or service and long distance.
• Legal, tax, accounting, and professional services for your business (including fees paid to agents and managers). (Note: If you are a parent who manages a minor’s performing career – check with a qualified lawyer or tax professional who understands the rules that apply to child performers. Rules vary from state to state. Additional information for families who have child or teen performers or artists who can be claimed as a dependent on a parent’s tax return is available here.)
• Training (acting, voice, dance, music, art lessons, workshops required to improve or maintain your 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).
• 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 a performer’s image, a gym membership and workout costs are not tax deductible and are considered personal expenses. Neither is the cost of make-up, haircuts and hair color, nor or manicures and pedicures.

Clothing is one of the first things that an auditor will look for in the itemized deductions on a performer’s tax return. Even if you work as a film extra, and are required to bring your own wardrobe, clothing that is suitable for street wear is considered a personal expense.

Only clothing that is primarily worn for protection (such as a welder’s mask and gloves purchased by a sculptor) or specifically used as a costume (such as a clown costume or a historical period outfit) is deductible. Formal wear is generally deductible by performers of both genders if it is required for a performance. Examples might include a symphony musician who wears a tuxedo or evening gown during performances, or an actor who purchases something to wear while walking the red carpet at the Oscars.

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 are helpful in establishing the deduction. For example, if you bought a pair of wing-tip shoes to get work as an extra on a film set in the 1960’s, photograph yourself wearing the shoes, and file the photo with the receipt for the shoes with a note that says, “1960’s style wing-tip shoes required to work on the set of the 11-23-63 miniseries.”

State laws may be different than federal rules, and just because something is deductible on your federal tax return doesn’t mean it’s deductible on your state return, and vice versa. So talk to a qualified tax advisor frequently. Also, the tax code changes frequently, so just because something was deductible last year doesn’t mean it will be deductible this year or next.

The most important thing for any artist to do to secure the maximum allowable tax deductions is to keep detailed tax records, and do it on a regular basis. This means keeping every receipt, and writing on the receipt its business purpose, along with the date, time, and people involved in the purchase. If you do it at the time you make your purchase, you’ll never have to guess what an expense was for ─ and you’re prepared in the event of an audit.

The truth is that auditors expect artists to be disorganized. When you show up like an efficient, organized business person, their attitude towards you and your tax return can change rapidly in a positive way. Whether you’re an actor, painter, sculptor, dancer, musician, writer, juggler or other kind of artist, you work hard for every dollar that you earn. Good record keeping will help you keep more of what you earn. So don’t cheat yourself out of your own earnings by overlooking deductions ─ or missing out on them because you didn’t have the right records.

Additional Tax Deductions for Professional Writers

Many writers fear taking the home office deduction, but recent changes in the rules have made it easier to provide proof of home office expenses to the IRS.

In addition to the business deductions available to others, professional writers may be able to deduct:

• Research expenses such as the cost of books, or hiring a researcher.
• Outsourcing costs, such as the cost of hiring a copy editor to review your work, or a fact-checker to verify facts.
• Errors & Omissions (E&O) insurance ─ the writer’s equivalent of malpractice insurance that covers slander, libel, and other potential legal problems with your writing.
• Photography expenses, such as the cost of a digital camera, and the software required to manage and edit digital photos, may be deductible if you provide photographs with your manuscripts.
• Membership fees or dues (including the allowable portion of union dues) paid to professional organizations such as the American Society of Journalists and Authors, the Mystery Writers of America, the Writer’s Guild, or other organizations that provide professional training and services to working writers.
• Subscriptions to professional magazines, journals, and newsletters relating to writing as well as the cost of subscribing to periodicals for which you write.

Additional Tax Deductions for Professional Artists

The supplies artists use to create the art they offer for sale are tax deductible, but good records are essential. Some equipment — like a kiln, a computer, or other “capital” expenses for durable goods have to be deducted according to an amortization schedule rather than deducted at once.

In addition to the business deductions available to others, professional artists may be able to deduct:

• Studio expenses, whether the studio is in your home or outside it.
• Art gallery rentals or membership costs.
• Photography costs relating to marketing your work.
• Art supplies and frames for the artwork sold during the year. (Any items unsold at the end of the year are inventory, and are not deductible until they are sold.)
• Specialized equipment and supplies such as a potter’s wheel, kiln, clay, paints, canvas, paper, pens, and other supplies.
• Membership fees or dues paid to belong to professional artist societies.
• Fees to enter juried shows.
• Art classes, including workshops and lessons.
• Subscriptions to professional magazines, journals, and newsletters relating to your art business.

Additional Tax Deductions for Musicians and Singers

Musicians often forget that the cost of marketing themselves and their music — such as the cost of filming YouTube videos, getting promotional headshots and photographs taken, and promoting their music through a website, blog, or iTunes, is tax deductible.

In addition to the business deductions available to others, professional musicians and vocalists 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).
• Musical arrangements, downloads, CDs, and recordings.
• License fees paid to other musicians/performers for the rights to record or perform their music.
• Music or voice training & lessons.
• Insurance for equipment & instruments.
• Recording studio costs.
• Rent for storage, equipment, rehearsal space.
• Repairs for instruments and equipment.
• Musical instruments and supplies.
• Sheet music.
• Accessories or consumable parts of your instrument (strings, picks, cords, reeds, drumsticks, etc.)
• Classes, private lessons, and workshops.
• Audition travel.
• Out-of-town travel for performances.
• Competition fees.
• Audio systems, microphones, and amplifiers.
• Soundproofing and electrical costs for a home studio or rehearsal space.
• Costumes and formal wear.
• Cleaning, alterations, and repairs for costumes or formal wear.
• Tickets and admission fees (performance audits).

Additional Tax Deductions for Dancers, Circus & Variety Performers

Grandson Kameron Badgers (L) and circus coach and performer Julio Furlon could deduct the cost of the wigs, juggling clubs, props, and make-up used to create the characters in their comedy juggling routine, since none of the clothing or props is usable except as part of their performance.

In addition to the business deductions available to others, professional dancers, circus performers, and other variety performers such as magicians, jugglers, mimes, and stunt 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).
• Musical arrangements, downloads, CDs, and recordings.
• License fees paid to other musicians/performers for the rights perform their music.
• Training & lessons related to your art.
• Insurance for equipment & props.
• Safety equipment such as aerial harnesses, nets, mats, and pads.
• Rent for storage, equipment, rehearsal space.
• Repairs for props, safety equipment, and performance equipment.
• Specialty shoes (not suitable for street wear) and costumes.
• Audition travel.
• Demo reels.
• Out-of-town travel for performances.
• Costumes, wigs, and theatrical make-up.
• Cleaning, alterations, and repairs for costumes.

Additional Tax Deductions for Actors & Models

Professional workshops and classes are one of the best investments a working actor can make — and they are generally tax deductible. Grandson Kameron Badgers studies at Nancy Chartier’s Film Acting Studio in Dallas.

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.
• Audition travel.
• 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.

Photo credits: I shot the photos of my son’s helmet, my son & grandson, Nancy Chartier and her students, and Julio Furlon. All other images are by the artists credited in the file name, and are used under a Creative Commons license from Pixabay.