Synopsis by Tracy Weisert
Every January for the past five years, our Casting Networks’ free Inside the Industry seminar guest speaker has been a tax professional to help our members get the most up-to-date information about filing their taxes. On January 28, Casting Networks’ attentive members asked many questions of guest speaker and Certified Public Accountant, Sark Antaramian. Sark has been Casting Networks’ CPA for the past seven years. It is uncanny how similar our actors’ questions are regarding deductions and the concern over being audited year after year! Sark also pointed out the difference in having a CPA in Orange County (or anywhere) compared to one who works most exclusively in the entertainment industry and knows industry deductions in and out. One seminar attendee has since hired Sark as her CPA and is receiving the highest tax refund she has ever received! Here is Sark’s bio-
Sark Antaramian has been a licensed CPA for the past 27 years. His clients are primarily in the entertainment industry and represents small business and individual clients assisting them with various tax matters. He has worked with actors, writers , talent agents, casting directors, producers, directors, and various other types of skilled individuals such as gaffers, grips, best boys , electrician and lighting technicians. His practice is located in the San Fernando Valley.
Below is a copy of the handout Sark gave to attendees last year that I have included here. (His more detailed worksheet is proprietary to his clients.) With so much to know about filing income taxes regarding which tax forms to use, what show biz industry people can deduct, etc. in our hour-and-a-half seminar, we barely scratched the surface but the points were valuable! This will give you an overview of some of the things Sark covered.
Types of preparers:
- Enrolled Agents
- Certified Public Accountants
Types of entities commonly used by Creative Artists (Actors & Writers)
- Sole Proprietorship (Schedule C)
- Limited Liability Companies & Partnerships
Source of Business Expenses: IRC Section 162: Ordinary and Necessary
(facts and circumstances based)
In general, the expense should be routine and directly related to the business activity. Ordinary does not require be habitual or made often; the court only requires that the expense is one that is ordinary and necessary for that business.
Most Common business expenses and most often reviewed by the service
- Meals and Entertainment
- Capital Acquisitions
Limits on deductibility
- Meals & Entertainment
Sark stated that actors have the highest ratio of expenses versus income and that we can deduct more items and services compared to other professional careers. And that our deduction categories are also the most abused.
Use of car- “Pretty much everything with an actor’s car is deductible” and advised us to get an automobile log and to document everything, including our mileage. He also pointed out that in audits, the auditor will ask for your auto mechanic records to check your odometer reading against your claimed mileage deduction.
Meals and Entertainment- Example-With any meal over $75, we will need a receipt. When we claim that on our taxes, we have to have the receipt and also have documentation of-
- Relationship to us (Example-agent, manager, etc.)
- What was the business that was discussed?
Travel is the third most used and abused category for show business with deductions. Example-If you are a Los Angeles actor and go to visit your family in New York for five days and have an audition for one day while you are there, only one day of the five days or 20% is deductible.
Sark said, “If you take workshops or acting classes, by all means, claim that as a deduction. A lot of times actors will pay cash to the acting teachers and don’t have a documentation of that. I try to tell them to write checks or print out what the workshop was. The same for people who work with personal trainers or who go to a gym to workout, if you don’t belong with a multi membership, try to get receipts for that. Other common expenses of actors are your headshots, your make-up, your hair styling and your gym workout. Besides your skill, you’re basically selling your appearance. Not just actors. I’ve had TV news reporters and anchor people. They can deduct the cost to maintain their appearance. Again, if you are going on auditions once every six months and you want to write off your haircut every two weeks, I think that you will have a harder time with making that go through.”
A parent asked about their daughter who is a young actor, filing a tax return or if the parents could claim those acting career deductions on their taxes, Sark answered, “She [the daughter] would have to file her own tax return to claim a business expense, so if you want to have her claim a business expense, she would have to file a tax return. Now if she doesn’t have any expenses and you are incurring expenses on her behalf, you can’t deduct those expenses. It’s not your business. It really depends because a lot of times with child actors, they are going to file a tax return because they have an income and they need to offset that income with expenses. The parent loses the deduction for the child, the child is better off using it for themselves anyways. If the child has a lot of expenses getting going in the industry, they file their own tax return and claim those expenses.”
Sark continued, “Even if you spend more money than you make when you are just starting out, I tell people to claim those expenses in their tax return is because the government gives you a break. The break is called Net Operating Loss. What does that mean? If you spend more money than you make, the government lets you carry back those losses two years to an earlier year or carry forward for four years, you can use those expenses to offset future years. So say you spent $10,000 and didn’t make any or only a small amount of money, you can carry those expenses back to earlier when you made money or carry it forward in the future when you think you are going to make money, to offset the income against debt. It is quite common in this industry that is up and down and up and down. Musicians have that same thing with bands cycling. They spend a lot of money on getting themselves out there, advertising, doing jobs for a low amount of money and playing clubs, then later on, when they are making a lot of money, those expenses they incurred in the earlier years, helps in the latter years when they make more money. That’s why I tell people not to shy away from filing a tax return. If you can document your deductions, still claim them. At some point, it might help you in the future.“ Sark reiterated several times the importance of documentation. I added that although record keeping is often time consuming, it is much easier to do at the time than if you get audited down the road! (Spoken from experience!)
Also from last years’ seminar that still is helpful-When asked if a writer could right-off their rent [on their taxes] because they work out of the apartment, Sark said, “This is a good question. A lot of people want to write off their rent. Basically, the IRS says that if it is a ‘dedicated space’ used exclusively for that area and you use it to meet customers, which I don’t know how that would qualify, but if you have a dedicated space and it is used for that purpose only, then it qualifies. If you sleep in that room, I think you will probably going to have a harder time utilizing it unless you’ve got a dedicated bedroom that’s not used as anything but an office. You’ve got your computer, your desk and so on. I tell people that that is a hard thing to write off. Now if you are a writer or actor and you want to write off your home office which is part of your rent and your utilities, you can do that but there is a higher probability that may be reviewed because that is what area that is abused as well. Also, you can’t use it all the time…which means if you are a writer and don’t make any money [at writing] and you want to write off your rent, you can’t utilize that expense. You can write off your other expenses such as your car and meals, but you cannot write off your home office. A home office cannot create a larger loss than there already is, but you can carry forward the loss to offset income in those future years. Have good pictures and have a diagram of the room. Make sure that there is a nothing like a bed or anything that indicates it is being used for personal use. Hopefully, you won’t have a problem with that.”
Other points Sark mentioned is-
The statute to keep receipts is three years for the United States and four years for California. “I tell my clients to keep them for six years in case there is fraud.”
“Unemployment benefits are reported and you have to claim it.”
“You have to have your gas receipts in order to deduct them.”
“If you don’t have enough W-2s [from acting] for three years, it is considered a ‘hobby’ by the IRS.”
An actor asked about income she made versus her losses over a number of years of doing non-union jobs, Sark’s response was, “That is what they call theHobby Loss Rule, so if you have not made any money in three out of five years, they tend to question that. If you have non-union jobs where you are going to get paid as an independent contractor, you should claim those expenses against that money or claim that as Schedule C even if you don’t have any income. That’s probably pushing it, but I’ve done that because I can say that that person has had an income in the past and they might have it again. Non-union jobs mean that they are not paying you through a union and are not affiliated with them. Basically, they should not be paying you as an independent contractor, but they do that for tax reasons because they do not want to pay payroll taxes, workers’ comp insurance and disability insurance and all the costs associated with that. It is common and happens all the time and you guys are stuck paying the tax bill on the situation. A lot of times, actors don’t want to rock the boat. They can go to the Labor Board and say, ‘I was paid as an actor. I should not have been paid as an independent contractor. I should have been a wage earner. I can’t get unemployment [benefits] now because they [the employer] didn’t pay unemployment [taxes] on the job for me.’ A lot of people don’t want to do that because they don’t want the word to go out that the person is a troublemaker basically and trying to cause problems. If you can’t write off your expenses against your income but if you Itemize, you can possibly put it under Schedule C right off even if you have no income in Schedule C if you have worked non-union jobs in the past.”
Sark added, “Again, it’s a question of how often you are doing this job. If this is your career and you’re doing it and you’re going out. You’re going on interviews, you’re going to see your agent, to auditions and callbacks and 2nd callbacks and you’ve got this documented, I think you are going to be okay. I think it’s the grief that we have to deal with and that we have to deal with them [the IRS]. I tell people to be strong and do the best you can. If you have it [documentation] and you have a strong case based on what I see, I say go for it.”
In closing, Sark said to the room of actors and other industry professionals, “You are lucky that you can claim deductions that IRS employees and other people with eight-to-five jobs can’t!”
Click here to get more details about personal income taxes with a full list of deductions, tax forms and how to file them.