Entertainers and Taxes...That's Show Biz!

Entertainers and artists face unique challenges when filing their income tax returns. To start with, entertainers and artists are typically paid by multiple entities, on an irregular basis, in many states and possibly more than one country. Having that many “employers” alone can add up to income tax headaches. In addition, depending on whether the artist is paid as a regular employee or as freelance, they may need to put money aside to cover payroll taxes. And then there is keeping track of the expenses that might be deducted on the tax return.

It’s a challenge for all you artists out there, but it can be done! The first step: keep immaculate records. Make sure you keep ALL of your receipts, even if it means just having a big envelope you stash them in. Once you meet with your tax professional to determine what is and what is not deductible, you can get a better idea of how to organize your records for future years.

Most artists have a combination of regular wages and self-employment income. With a regular job, the employer will withhold payroll taxes, including Social Security and Medicare. If you get self-employment income, you are responsible for paying these taxes to the Federal government. And your income may come in the form of cash, check or goods in trade. Whatever the form of payment is, you have to claim it all on your return.

For regular paycheck earners (typically, this will be if a certain gig lasts more than a few weeks), you will be issued a W-2 at the end of the year. This will report your earnings, as well as any payroll taxes paid on your behalf by the employer. It may also report any money you have withheld for retirement, insurance or dependent care benefits, depending on your arrangement with that employer.

If you are a W-2 employee, you will deduct any expenses on your Form 1040 by using Schedule A, under “Unreimbursed Employee Business Expenses”, or on Form 2106, which then carries to the Schedule A. The types of deductions reported here include:

• Union dues
• Purchase and dry cleaning of uniforms, special clothing (i.e. tap shoes or costumes – something you would not wear in public), makeup, wigs
• Lessons for voice, dancing, acting that improve your performance
• Photos, CDs, videos used for marketing

For independent contractors (where you don’t get a regular paycheck), you will typically get a 1099-MISC at the end of the year from each organization that has paid you for a performance or project. In the meantime, you are responsible for paying the Social Security and Medicare taxes, otherwise known as the Self-Employment tax, in addition to Federal income tax. You will need to do estimated taxes, e.g. paying these taxes throughout the year, instead of sending the IRS a check for the total on April 15. You will report your income and expenses, still on the 1040, but this time enumerated on Schedule C. Schedule C gives you a great breakdown of possible expense categories, but in addition to the ones mentioned above, these are the ones you will use most:

• Advertising, including any marketing material costs, as well as print ads.
• Legal and professional fees:  Any amounts you have paid to agents, attorneys, accountants and tax professionals to reimburse them for helping you attain work, review contracts and keep track of your income.
• General union dues can be reported here also.
• Transportation expenses. Keep track of mileage to auditions and jobs. If you use other forms of transport, keep your receipts and tickets. However, if you are a traveling to a regular gig, you might not be able to take the expense. The best way here is to keep a log with daily expenses and note what job or audition it was for and where it was.
• Lodging and meals. You may be able to take a deduction for these costs – again, save your receipts and keep a log. Your tax preparer can then review these at the end of the year and help you determine which are deductible.
• Insurance. Special insurance (such as bonds) required for you to perform.
• Other expenses. Cell phone for work purposes only, trade subscriptions – anything used to attain or retain work.
• Equipment. Instruments, recording equipment, and sound equipment will go under expenses – as well as your computer and any special software used for your business of entertainment. However, anything that is expected to last you more than one year will have to be depreciated, meaning you only get to take part of the cost on the tax return this year, and will take partial deductions in the years to come.

For all expenses you are not sure about, keep the receipt in a separate folder and talk with your tax professional.

For the entertainer or artist who has both W-2 and 1099-MISC employment, you will want to take as many expenses on the Schedule C as you can, so that you can lower your self-employment taxes. Your tax preparer can help you determine what percentage of the expenses can go on the Schedule C.

On top of all of this, if your work takes you to multiple states and countries, and you are paid by different entities, you will be required to file additional tax returns for each of the places where you got paid.

A few parting words of wisdom: Most of the entertainers who have gotten in trouble for tax evasion have not educated themselves on what and what is not deductible, and have relied on less-than-scrupulous accountants who did not understand the tax process themselves. You are responsible for keeping good records and understanding what you sign. Be vigilant and pick someone who has appropriate tax knowledge for your business.

For more information, feel free to contact a PRO-TAX professional any time of the year!

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