Dear Mr. Voorhees:
I attended a summer [pay-to-sing] program this year, and I’m wondering what I can deduct from my taxes. It cost a lot of money! I had to pay airfare to Italy, taxi to the location, taxis while there, the program fee, which was several thousand dollars, and extra meals out. Plus I had to spend a lot of money getting ready for this program. I had many lessons and coachings to learn the role I was assigned. I’m also wondering if I can deduct the money I spent for the costume pieces I had to buy for myself. The company had a terrible costume for me, so I bought some things to make it look better. I saved all my receipts.—Summer Singer
Dear Summer Singer:
All business expenses are allowed as a deduction as long as you have established yourself in that business. What are not allowed, generally, are expenses to “break in” to the new occupation. Therefore, medical school costs for aspiring doctors are not allowed, as the person has not established his/her position earning money in the medical profession.
There are also many amateurs or hobbyists who have business-related expenses. These folks probably do not (and never will) earn more than their business costs. They can also deduct expenses, but not expenses that exceed income from that activity.
For example, many people like to try their hand at painting art. They always have some expenses, such as paints, canvas, etc. But unless they sell their work for amounts that exceed their expenses, they are just hobbyists.
Many sing in church every Sunday. Some take lessons to improve their vocal production. Are these lessons deductible? If the church does not pay them, they are amateurs, and their lessons are not deductible. If the church pays them a small amount which is less than the cost of their lessons, the cost of their lessons can eliminate tax on the church’s stipend, but not reduce the tax on other income such as non-singing wages.
To summarize, the first thing the IRS will look at is whether the taxpayer is a working professional, a hobbyist, or someone trying to “break in” to a new field. Professionals can deduct all of their business expenses, including all of those you ask about above. If you are already a professional singer (as the IRS defines professional) then the airfare, taxi, program fee, meals, lessons, coachings, costumes, etc. are deductible. Others can only deduct expenses up to, but not more than, their income from that business.
So the big question is: How does one know when they’ve crossed the line from student/amateur/hobbyist to professional? Well, there isn’t a quick, sure answer. The facts and circumstances need to be looked at on an individual-case basis. For example, take someone who earned a living a few years ago as a singer (professional) but took a year off to change from baritone to tenor. During the year, that singer worked in a restaurant to pay for the lessons and his living expenses. The singer could still deduct the cost of the lessons (and all other singing expenses), because he was already established as a professional singer. They were not an amateur, hobbyist or student breaking into a new profession.
Many businesses show losses (expenses exceeding income) from time to time.
Also, having professional status may not rest solely with earnings. Someone who is a member of AGMA, has an agent, auditions for professional jobs, is listed in Musical America, etc., could have a great argument that they are a professional singer even if their earnings from singing never exceed their expenses.
They might have crossed over the line when the agent signed them. I say “might,” because some IRS auditors might agree and some might not. Again, the facts and circumstances need to be looked at on an individual case basis.
Gray areas are argued all the time, with the taxpayer sometimes winning and sometimes losing. But remember, not claiming the expenses disallows them from the start. As long as you have grounds for an argument, claiming these deductions gives you tax relief, at least until they are challenged, which may or may not occur.
Gordon Voorhees is an Enrolled Agent (EA) whose financial planning and tax practice has been located in NYC for more than 30 years. His client base is primarily in the performing arts. Enrolled Agents are Federally Authorized Tax Practitioners who have technical expertise in the field of taxation and are empowered by the United States Treasury Department to represent taxpayers before all administrative levels of the IRS. You can contact Mr. Voorhees at
gvoorhees@classicalsinger.com
