For example, in Publication 535, the IRS writes, "To be deductible, a business expense must be both ordinary and necessary." The explanation goes on to say, "An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary."
I can only imagine what tax deductions would include if this were allowed to be interpreted as normal people would read it. The truth is, every IRS examiner has a great deal of latitude within the tax code to determine what is or isn't an acceptable deduction. Because there is no defined list of allowable performer expenses, it is left to the auditor to decide what is "ordinary" and "necessary." A visit with an IRS examiner could be like open season on an uneducated and unprepared taxpayer.
For instance, you probably have a cell phone and undoubtedly use it for business purposes. Fine, but if you claim it as an expense, in an audit you'd have to be able to prove how much of that usage is strictly for business. Not only is this difficult if you are on the sort of plan that doesn't supply a list of the numbers on the bill, but it's normal for the IRS not to allow the costs of your primary phone (except for the proved business expenses). This intensifies the problem if you gave up your land line and the cell phone has become your primary phone.
If there is the possibility of personal usage or personal enjoyment (i.e., "fun") in your claimed expenses, you better be able to define the business value of them. Don't just try to argue that you have to go to plays and movies for the good of your career; take notes at the performances to prove the educational value you gained from spending the money on tickets.
Don't allow laziness, a faulty memory, or lack of record keeping to cause you to fall into the trap of guessing or estimating your expenses. "Guesstimates" only work until an auditor discovers your errors. This is why I spend so much time trying to teach basic rules before explaining which specific deductions might be allowed on your return.
As I have written previously, you have to keep records throughout the entire year to be able to substantiate all your expenses. These include receipts, credit card and bank statements, loan papers, and rental and/or lease agreements.
Over the next few weeks, I will try to explain what is genuinely deductible and what isn't. It will be worth the read. Don't try to improvise on your own or listen to what every other actor "on the street" says you can write off. As tough as the IRS may seem to make it, it isn't that hard to find out what's legitimately deductible and what proof you will need to justify the expenses.
Even though the IRS may not be all that helpful in providing understandable information if you haven't been playing by its rules, an examiner may choose to investigate one year's, or even two years', worth of returns. With the added interest and penalties, you can see how easy it is to get into trouble with the IRS.