Deductions for Actors

Actors classified as employees can no longer deduct their expenses under the Tax Cuts and Jobs Act.

Earning a living as an actor has always been tough. Unfortunately, due to the Tax Cuts and Jobs Act (HR 1, “TCJA”), it’s going to get even tougher. One of the provisions in the massive tax bill enacted by Congress will make it impossible for professional actors classified as employees to deduct their job-related expenses from their taxes. As a result, many actors, particularly those classified as employees instead of independent contractors, will end up paying more tax.

Deductions for Actors

Prior to the enactment of the TCJA, any ordinary and necessary expenses that actors paid for out of their own pockets that were directly related to their acting activity were deductible. If you were an employee-actor, you deducted the expense as an unreimbursed employee expense. Independent contractors deducted the costs as a business expense.

Typical deductible expenses for actors include, but are not limited to, the following:

  • Business Travel: Airfare or other transportation costs and hotel or other lodging expenses, and 50% of the cost of meals.
  • Local Travel Expenses: Deductible local travel may include trips to performances (both as player and observer), rehearsals, acting classes, auditions, and to pick up supplies.
  • Agent Fees: All fees an actor pays to an agent.
  • Manager Fees: Talent manger fees.
  • Office Expenses: An outside office or office in the home used exclusively for an acting business.
  • Property and Supplies Used for Acting: The cost of video cameras, sound equipment, digital cameras, sound equipment, theater and film books, musical scores, computers, and cell phones.
  • Union Dues: Dues to belong to Actors Equity or other unions or organizations.
  • Education: Acting classes and coaching lessons.
  • Promotional expenses: Photos, videos, websites (including Internet connection costs), listings in professional registries, advertisements in trade publications, business cards, and other promotional expenses
  • Make-up and Hair Care: Deductible only when incurred directly in connection with a specific job.
  • Wardrobe: The cost of any clothing not suitable for street wear--for example, the cost of a modern business suit is not deductible, but an ape costume is deductible.
  • Subscriptions: The cost of magazine, journal, newsletter, and other subscriptions useful for your acting business--for example, trade newspapers like Daily Variety.
  • Legal and Professional Services: Fees paid to attorneys, accountants, consultants, and other professionals.
  • Tickets for Viewing Films and Plays: Actors need to attend plays and films to keep up with what's going on in their industry. They may also subscribe to services like Netflix and HBO. These costs are deductible as "research."

All of these expenses can really add up for professional actors, easily equaling 20% to 35% of acting income.

Actor/Employees Can No Longer Deduct Expenses

Unfortunately, the ability of actors classified as employees to deduct their ordinary and necessary job-related expenses (listed above) is strictly limited under the TCJA. Prior to 2018, employee-actors were permitted to deduct their unreimbursed acting expenses as an itemized personal deduction on IRS Schedule A. These business-related expenses were deductible only if, and to the extent, they exceeded 2% of the employee’s adjusted gross income (AGI). For example, an actor whose AGI was $100,000 and had $20,000 in unreimbursed expenses could deduct $18,000 (2% of $100,000 = $2,000).

The TCJA completely eliminates the deduction for unreimbursed employee expenses for 2018 through 2025. This means, for example, that an employee-actor who spends $20,000 out of his or her own pocket on business-related expenses during 2018 through 2025 will not be able to deduct the expense. As a result, professional actors with substantial unreimbursed expenses will end up paying more income tax. Actor’s Equity says that some working actors could see their taxes almost quadruple. Actors may seek pay increases to pay the extra tax, or have some of their expenses reimbursed.

This change under the TCJA regarding the deductibility of unreimbursed employee expenses will impact the many actors classified as employees. Professional actors in the United States are ordinarily members of one or more entertainment unions: Actor’s Equity, American Federation of Television and Radio Artists, and the Screen Actors Guild. When producers hire professional actors to do work covered by these unions’ collective bargaining agreements they are ordinarily required to be classified as employees for tax and other purposes. They are issued IRS Form W-2 by the producer, and the producer withholds their taxes from their pay. The producer must also pay half the Social Security and Medicare tax due on their wages.

Actor/Independent Contractors Can Deduct Expenses

Actors who are classified as independent contractors instead of employees are not subject to the limitations discussed above regarding unreimbursed employee expenses. Their expenses are fully deductible business expenses and there is no 2% of AGI limit. These expenses are not affected by the TCJA’s elimination of the deduction for unreimbursed employee expenses because they are business expenses, not employee expenses. The TCJA places no new limits on the deductibility of business expenses (except for certain entertainment expenses).

Qualified Performing Artist Deduction

The tax law takes pity on actors who earn little money by providing them with a special “qualified performing artist deduction.” The deduction is unaffected by the TCJA. However, you qualify for it only if your adjusted gross income (AGI) from all sources, not just acting, is $16,000 or less (including income your spouse earns). If your AGI is this small, you qualify for the deduction if:

  • you perform services in the performing arts as an employee for at least two employers during the year
  • you receive at least $200 each from any two of these employers, and
  • your performing arts business expenses are more than 10% of your gross income from performing.

If you meet these requirements, you may deduct all of your performing expenses as an “above the line” deduction without itemizing and not subject to the 2% of AGI threshold. Few actors earn less than $16,000. Most who earn less than this from acting have other jobs, or a spouse who earns income.

Actors Who Form Loan-Out Corporations

Highly successful professional actors often form personal service corporations, referred to as “loan-out corporations” in entertainment industry parlance. Instead of hiring the actor individually, a producer contracts with the actor’s corporation and pays the corporation, not the actor. The actor is an employee of his or her corporation. In this arrangement, the corporation is entitled to deduct all of the actor’s unreimbursed expenses as a business expense. Thus, the limitations on deductions discussed above don’t apply. Due to the expense and complexities involved, however, an actor must earn enough to make this economically feasible.

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