Special Provisions for Qualified Performing Artists' Employee Business Expense Deductions

Article Highlights

• The World of Performing Arts
• Understanding the Basics
• Qualifications for Performing Artists
• Special Considerations for Married Performers
• Maintain Adequate Records
• Types of Deductible Expenses
• Recordkeeping Requirements

Despite its vibrancy and dynamic nature, the performing arts industry presents a distinct set of financial issues. Keeping track of company expenditures is one of the biggest issues facing performing musicians. Fortunately, under some conditions, the U.S. tax legislation allows low-income performing artists to deduct their employee business expenditures, which offers some assistance. This article offers performing artists a thorough guide to managing their tax responsibilities by exploring the requirements and the procedure for claiming these deductions.

Understanding the Basics

Costs that employees incur while working are known as employee business expenditures. These costs are heavily restricted for the majority of employees and are only deductible if they surpass 2% of the taxpayer's adjusted gross income (AGI). Furthermore, the deduction for employee business costs is banned until 2025. A specific rule, however, permits qualifying performing artists to deduct these costs "above-the-line," which means they can be subtracted straight from gross income, lowering AGI and perhaps cutting total tax obligations.

Qualifications for Performing Artists

To qualify for this special deduction, performing artists must meet specific criteria outlined by the Internal Revenue Service (IRS). These criteria ensure that only those who genuinely rely on their performing arts income and incur significant related expenses can benefit. The qualifications are as follows:

• Multiple Employers: The artist must have performed services in the performing arts as an employee for at least two employers during the tax year. Importantly, nominal employers who pay less than $200 are not counted towards this requirement.
• Minimum Earnings: The artist must have received at least $200 in wages from each of at least two of those employers. This ensures that the artist is actively engaged in the performing arts and not merely participating in occasional or hobbyist activities.
• Business Expenses: The artist's allowable business expenses attributable to the performing arts must exceed 10% of their gross income from the performing arts. This criterion ensures that the expenses are substantial and directly related to their work in the performing arts.
• Adjusted Gross Income (AGI): The artist's AGI before deducting performance-related expenses must be $16,000 or less. For married performers filing jointly, this limit applies to the combined AGI of both spouses. This requirement ensures that the deduction is targeted towards lower-income artists who are more likely to need financial relief. The $16,000 AGI limit, which goes back to the Tax Reform Act of 1986, is not inflation-adjusted annually as many provisions in the tax law are. If it were, the AGI limit after 38 years of inflation adjustments would be nearly $45,000. Unfortunately, performing artists are stuck with the $16,000 cap.

Special Considerations for Married Performers

Unless they resided away from their spouse for the whole year, a married performing artist is required to submit a joint return. When filing jointly, each spouse is responsible for meeting the minimum earnings and multiple employer criteria independently. However, their total income is subject to the $16,000 AGI cap. This clause makes sure that both spouses participate actively in the performing arts and that higher-income households do not unfairly benefit from the deduction.

Maintain Adequate Records

Taxpayers are required by the IRS to keep accurate and timely records of all business costs. This entails preserving canceled checks, receipts, and other records attesting to the stated costs. Every cost should have a thorough and well-organized record that includes the amount, date, location, and business purpose.

Types of Deductible Expenses

Qualified performing artists can deduct a variety of business expenses, provided they are directly related to their work in the performing arts. Some common deductible expenses include:

• Travel Expenses: Costs for transportation, lodging, and meals while traveling for work. This includes airfare, hotel stays, and meals consumed while away from home on business. The meal deduction is generally limited to 50% of the cost of the meals.
• Costumes and Makeup: Expenses for costumes, makeup, and other performance-related attire that are not suitable for everyday wear.
• Equipment and Supplies: Costs for purchasing or renting equipment and supplies necessary for performances, such as musical instruments, sound equipment, and props.
• Training and Education: Expenses for classes, workshops, and other training programs that enhance the artist's skills and are directly related to their performing arts work.
• Union Dues and Professional Fees: Membership dues for professional organizations, unions, and other industry-related groups.
• Home Office Expenses: If the artist uses a part of their home exclusively and regularly for business purposes, they may be able to deduct a portion of their home expenses, such as rent, utilities, and maintenance.

Recordkeeping Requirements

To successfully claim these deductions, performing artists must adhere to strict recordkeeping requirements. The IRS mandates that records be kept in an account book, diary, statement of expense, or similar record. These records should be supported by receipts, canceled checks, and other documentation that provides sufficient detail to establish the elements of each expense.

For travel expenses, the artist must keep records that show:

• The amount of each separate expense for travel, lodging, and meals.
• The dates of departure and return, and the number of days spent on business.
• The destination or area of travel.
• The business purpose or benefit gained from the travel.

For other expenses, similar detailed records must be maintained, showing the amount, date, place, and business purpose of each expense. It is essential to keep these records organized and readily accessible in case of an IRS audit.

The ability to deduct employee business expenses is a valuable tax benefit for low-income qualified performing artists, providing much-needed financial relief for those who incur significant costs in the course of their work. By meeting the specific qualifications and maintaining meticulous records, performing artists can take advantage of this provision to reduce their taxable income and potentially lower their overall tax liability.

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