When deducting career-related expenses on your tax return, remember that you must have paid or incurred them during the tax year for which you're filing, and they must be "ordinary" and "necessary" in your line of work. According to the Internal Revenue Service, "An expense is ordinary if it is common and accepted in your trade, business, or profession. An expense is necessary if it is appropriate and helpful to your business. An expense does not have to be required to be considered necessary."
That said, your expenses still have to fall within the rules established by the federal tax code. Even though you and I as performers may completely agree that an expense is ordinary and necessary in our industry, it must also be "fair" in regard to those outside the industry. Let me give you a great example: the cost of watching movies, cable TV, and theatre. Every performer must be familiar with what's currently happening on stage and screen. Nevertheless, the IRS classifies these expenses as entertainment rather than education, because that's how the rest of the world sees them. That's why they're immediately denied as deductions in most audits. When you explain that without watching these productions, you can't participate in the industry as an actor (a valid argument), the IRS will ask you to produce your viewing log.
That's because it's your responsibility to prove how the expense is ordinary and necessary to your business by presenting evidence. A viewing log -- a written list of the films, TV shows, and theatrical productions you saw and what you learned from each one that will advance your career -- accomplishes that. Even if you write that you learned nothing from a project, saw no roles for yourself, and just list the director and casting director, that's enough to establish the educational value of the expense.
Every auditor has the discretion to allow or deny deductions based upon his or her interpretation of IRS rules. That's why there is no standard list of deductions that are acceptable to the IRS. You're allowed to challenge an auditor's decision with his or her manager because, even in the same office, two auditors may allow different deductions. Just bear in mind that after a few weeks, most auditors have figured out how their manager interprets the tax code.
This explains why one tax preparer may say yes to a write-off when another says no. In our office, we say yes only when we know the deduction will pass any auditor's inspection and a strong no when we know it won't. We also inform you when something falls into a gray area, meaning the decision could go either way depending on the auditor's interpretation. In that case, we let you make the choice, as you're the one signing the return. The following list is only a guide to assist you in understanding the types of performer expenses that will pass any audit. You may find more-extensive lists that include expenses not indicated here, but this one covers the significant areas.
-- Advertising and publicity (headshots, résumés, post cards, websites, ads, etc.)
-- Audition reels (video résumé, voiceover reel, etc.)
-- Gifts for business (limited to $25 per person per year)
-- Agent commissions and manager fees
-- Dues for professional organizations
-- Office supplies, stationery, postage
-- Studio rental or rent of a business property
-- Purchase and maintenance of professional costumes (only clothing not usable for general street wear)
-- Repair and maintenance of equipment used for business
-- Research supplies (sheet music, books, tapes, scripts, props, etc.)
-- Answering service, beeper, calling service
-- Business use of a telephone (the amount you spent on business calls on either your land line or cell phone; you can deduct the entire cost of a dedicated business line)
-- Business use of the Internet
-- Lessons (acting classes, dance classes, coachings, casting director workshops, etc.)
-- Trade publications (Back Stage, The Hollywood Reporter, etc.)
-- Accompanist and audition expenses (pianist fees, copying sides for auditions, etc.)
-- Union dues and initiation fees (include your 2 percent Actors' Equity Association dues)
-- Legal fees (related to your work) > Occupational taxes (such as business licenses) > Passport fees (related to your work)
-- Automobile and mass transit expenses (related to your work)
-- Travel, entertainment, meals (related to your work)
-- Major equipment purchases (such as a computer or video camera for use in your work)