As a Los Angeles CPA, I often work with entertainers and industry professionals, and tax deductions are a subject that comes up frequently. Although there are many rules regarding tax deductions for self employed professionals, deductions for entertainers and entertainment industry professionals can be particularly difficult to navigate. Few entertainers can manage to toe the fine line between asking for too many deductions and not claiming enough without the help of Certified Public Accountant. Some will attempt to deduct every trip to the movies, every lunch meeting about ” booking the role” as a business expense. Unfortunately the more of these items you claim, the more likely you are to be audited, so it’s very important to be clear about what you can and cannot claim. Here are some tips on itemizing deductions for the entertainment professional:
Is it a Deductible Expense?
For something to be a deductible expense, the main reason for the entertainment expense must be to actively discuss or conduct business. When lunch can be directly tied advancing progress on a particular project, you can probably deduct it. However, be wary of where your are dining over your business lunches. The IRS may not trust that business was being conducted over lunch while on a camping trip or at a nightclub–even though you might think it perfectly appropriate especially in Los Angeles. An example might be: you are a film producer and you are selling a movie pitch or trying to attach an A-list actor to the project—it’s deductible because it’s clearly tied to a particular project. You must be attempting to make a sale or conducting business with the expectation of getting some benefit out of it. So, if you take an agent to lunch to convince him to represent you—it’s deductible. If you throw a general party–one at which industry folks just happen to be in attendance–it’s really not deductible. But if you are a personal manager who throws a party at his home, with the sole purpose of introducing his new client to the industry—it’s deductible.
Always use discretion and defer to your CPA. Using common sense may not always be enough. Rely on your accountant if you have any doubt.
Entertaining Your Employees
If you own an agency or a film company or record label and you throw an end of year office celebration for your employees, it’s 100% deductible. But here is a catch– make sure that the attendees are all employees. If the gala is mixed with family and friends, you are allowed to deduct 100% of the cost attributed to the employees. This is where it can get sticky so it behooves you to hire a good accountant.
For Business Purposes Only
A good rule: if you are planning on deducting for business purposes, keep receipts–every receipt! You may think that you can back-pedal at the end of the year and reconcile everything though your credit card or bank book, but it’s not a very wise idea. Also, make sure that after every event, lunch, party, business meeting or film premiere—you write the business purpose on the receipt. This way, if by some chance you are audited—even randomly—everything is in order.
Deducting Your Car Expenses
You can deduct mileage or, in some cases, your car payment. So keep track of the miles logged to and from auditions or to and from business meetings. This expense can add up! You will be happy you paid attention when tax season rolls around. If you typically drive 12,000 miles per year and you say that 90 % of that was for acting auditions—and remember the deductible amount is mandated by the current year tax laws—most likely the IRS is going to call this amount into question.
When in doubt, consult with a dedicated Certified Public Accountant. At our Woodland Hills accounting firm, we regularly work with entertainment industry professionals and can offer you the expertise you need. Tax laws change often, so it’ best to leave your taxes in the hands of a professional. The benefits will far outweigh the risk! Contact us today!
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