Tax Write-offs, Receipts and Audits

Our Actor's Tax Expert Shares His Tips

"ALL MY CLOTHES ARE TAX DEDUCTIBLE" AND OTHER ACTOR-MYTHS

Early in my acting career, when I first came to LA as something of a starry-eyed visionary, I got some truly great counsel from a successful and experienced LA actor. His firsts advice was, "Wherever you park, no matter what hour of the day or night, read the signs." That little tidbit has saved me hundreds of dollars of fines and hours of frustration, and I recommend it to you heartily.

His second comment was, "Almost all actors like to give other actors advice. Only a little bit of it is good. Always consider the source."

The second comment has proved to be even more valuable–and it is particularly important when it comes to taxation issues. I am daily appalled at the amount and scope of misinformation actors receive and absorb as gospel truth. So please, always check with a true authority when it comes to taxes for actors. Here are a few very common–and very mythical–legends about actors’ taxes, which many of you will hate to hear–but better you hear it from me, now, then later from a hard-hearted IRS auditor.

Myth #1–All my clothing is tax-deductible–I’m an actor and/or model!

Wrong, almost totally wrong. And this myth is very common and very pervasive–and can cost you dearly. At almost every audit I attend, the auditors look first thing for a wardrobe deduction. If it is there, they gleefully eviscerate it. And if it is not–they look at the actor’s return with a whole new respect, because they start to believe the actor is a responsible business person.

Here’s how the Internal Revenue Code differs from the myth. All clothing is considered to be a personal expenditure if it is suitable for street wear. The Code does not say if YOU find it suitable for street wear, but rather, if it is.

In practical terms, this dramatically reduces the deduction. A young female actor who buys a gray pin-striped Brooks Brothers suit for auditions as a lawyer or banker will probably never wear that suit socially in casual, laid-back LA. IRS doesn’t care–she could wear it tomorrow, and it is certainly suitable for street wear. Ergo, no deduction.

The scope of the Code’s force means the deduction is largely limited to true costumes: a cop’s uniform, surgical scrubs, a clown outfit, historical period pieces, etc. Formal wear, for both sexes, is also generally deductible. My strong suggestion, if you buy such an outfit, is that you take a digital photo of it to document its character.

As a small consolation, you can deduct the cost of dry cleaning or repairs to clothing you wear to an audition or a performance.

Myth #2–Anytime I give a business gift to anyone, it is deductible.

There’s a kernel of truth to this myth–but again, the limitations are severe. You can deduct business gifts in the amount of $25.00 per person, per year. The law does not limit, of course, the amount of the gift–but only the first $25.00 for each person is deductible.

Although written receipts are not required for business gifts, they are advised, and in their absence, you need to note the expenditure in your business log, including date of purchase, item description, donee’s name and business relationship/reason.

Myth #3 If I drive across town for a lunchtime audition, I can deduct my meal.

Sorry, but personal business meals which do not involve other people, are only deductible when overnight travel is involved, or, if you must travel to a different metropolitan area even if you do not stay overnight.

Thus, someone who lives in Santa Monica but travels all the way to Burbank for an audition cannot take a meal deduction. But if you drive to San Diego, even if you drive back the same day, you may take the meal deduction, because you are in a different metropolitan area. And when you are out of town overnight on a business trip, your meals are deductible.

Business meals–where you pay for someone else’s meal–is a whole different subject. Here are some of the key stipulations to deducting business meals. You must have a receipt if over $75.00, and a log notation if under (I strongly recommend keeping the receipt.) Your record must show date and time, who was present, amount and business purpose. And business must be discussed AT the meal–not before or after. In addition, the meal must take place in an atmosphere conducive to business–any restaurant or even a night club will suffice. And the expenditure must not be "lavish".

How about meals when a group of actors get together and discuss career paths, agents, etc.? This is far less clear-cut. All business expenditures have to meet the test of being ordinary and necessary, and the tax courts have ruled that business meals shared by colleagues are not necessary. This becomes particularly true if the meeting is regular, and people take turns paying. So my advice is to limit such "colleague" meals, and always explicitly note the business purpose on the receipt.

We all sometimes tend to forget that all meal deductions, whether travel-related or entertainment, actually earn only 50% of the expenditure. So a hundred-dollar business dinner only nets the taxpayer a $50. tax deduction.

There are many more myths out there, and at this time of year, they spread like flu viruses on an airplane. We’ll look at some more next time.

So take some good advice–accept tax advice, which can save you or cost you thousands of dollars–only from someone who knows.