October 24, 2024

Special Provisions for Qualified Performing Artists’ Employee Business Expense Deductions

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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

The world of performing arts is vibrant and dynamic, but it also comes with its unique set of financial challenges. One of the significant concerns for performing artists is managing their business expenses. Fortunately, for low-income performing artists, the U.S. tax code provides some relief by allowing them to deduct their employee business expenses under certain circumstances. This article delves into the qualifications and the process for claiming these deductions, providing a comprehensive guide for performing artists navigating their tax obligations.

Understanding the Basics - Employee business expenses are costs incurred by employees in the course of their work. For most employees, these expenses are subject to stringent limitations and can only be deducted if they exceed 2% of the taxpayer's adjusted gross income (AGI). In addition, through 2025, the deduction for employee business expenses is suspended. However, qualified performing artists are granted a special provision that allows them to deduct these expenses "above-the-line," meaning they can be deducted directly from gross income, thus reducing AGI and potentially lowering overall tax liability.

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 - If the performing artist is married, they must file a joint return unless they lived apart from their spouse for the entire year. When filing jointly, the requirements for multiple employers and minimum earnings must be met separately by each spouse. However, the AGI limit of $16,000 applies to their combined income. This provision ensures that both spouses are actively engaged in the performing arts and that the deduction is not disproportionately benefiting higher-income households.

Maintain Adequate Records - The IRS requires taxpayers to maintain timely and adequate records of all business expenses. This includes keeping receipts, canceled checks, and other documentation that supports the expenses claimed. Records should be detailed and organized, showing the amount, date, place, and business purpose of each expense.

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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