Who doesn’t like having fun? What if you could have a great time, and legitimately deduct the cost from your taxes? You can do this if:
You have your own business, even if it is only a sideline. In the eyes of the IRS, singers (and coaches) who receive fees are business owners. Use Schedule C.
You are a singer who gets paid on a W-2 (taxes withheld) for your singing. Use Schedule A.
It doesn’t matter if you have a day job where you earn most of your income from something other than singing. Once you cross the line from singing as a hobby to singing professionally, you qualify. [See “Are You a Professional Singer?” CS magazine, Oct 2003] There’s nothing that says you can’t have fun while “doing business”—and deducting it on your taxes will make it even more fun.
Meals and Entertainment
Currently, you can deduct half the cost of meals and other entertainment that has a business purpose. There is no limit on the amount you can deduct, and you don’t need to keep receipts for expenses of $75 or less.
The IRS also allows you deductions for your transportation to the theatre, restaurant, or sporting event. If you use your car, you can deduct 37.5 cents per mile for the year 2004.
IRS requirements
• A business purpose. It may be as simple as asking the person with you if they know of any openings for a role you do. That person could be a producer, director, conductor, coach, teacher, or anyone who can legitimately further your career or get you work.
• Surroundings conducive to discussing business. The IRS won’t believe you talked business at the theater or while playing racquetball. You must set aside some time to talk undisturbed within 24 hours of incurring the expense. Even a telephone conversation will do. You could take your coach/teacher out for dinner, an opera, and drinks afterward, for example. You don’t have to mention your career during the fun time, as long as you discuss it at some other point within 24 hours.
Adequate records. These must include:
• Who was entertained
• Their position in your field
• When
• Where
• The specific business purpose of the entertainment
• The cost, and a receipt (if the cost was more than $75). If your cost was $75 or less, record the amount in a business diary or ledger on the same day you incur the expense.
Caution: You must record all six of the above items in a “timely” manner (on the date on which the entertainment occurs) for the IRS to allow the deduction. So, on the page dated, let’s say, June 20, you show: “Lunch with James Levine, artistic director of the Met Opera, at Sardis’ restaurant. Discussed me covering Renée Fleming next season. $74, tip included.” This becomes a $37 tax deduction (50 percent).
Home Entertainment
Expenses incurred while entertaining at home are among the most overlooked deductions. The IRS considers your home conducive to business, and your costs often are less than the $75 minimum that requires receipts. For costs higher than $75, keep the receipt from the supermarket and liquor shop. Regulations don’t require you to spend a specific amount of time discussing business, so it is easy to qualify everyone attending a home party as a business guest.
Example: You invite a guest and his or her spouse or partner to your home for a dinner party, or maybe you invite a large group of people. Sometime during the evening, you show a three-minute videotape of you singing an aria at your last gig. This lets you deduct half the cost of entertaining everyone there—as long as they are connected to your profession and could possibly further your career. You can repeat the process with other guests at another time.
Another example: Celebrate your birthday by giving the guests a signed, 8X10-inch glossy of you in costume, or a copy of your last review, or an audiotape. For proof, take pictures with the guests milling around, and keep copies of the invitation. The IRS loves any kind of proof—the more, the better.
Follow the Rules
Spouses and guests. For a quiet meal, if your business guest brings his or her spouse/partner or another guest, you can bring a spouse/partner or guest and deduct half the costs for all four people, even if the spouse/partner or other guest is not in the business.
Season tickets. When you purchase season tickets to sporting or cultural events, you must deduct each event separately, indicating by name the people you entertained. For example, say you have a pair of season tickets to eight different productions at New York City Opera. If you invite business guests six times, you can deduct half the cost of their tickets to those six shows only.
Of course, your ticket could always be deductible as “research” for all eight performances. When you as an opera singer attend an opera production, you are studying it (research). And if you have fun while doing it, that’s just fine.
“Dutch-treat” meals, and meals you buy for yourself. If you split the cost of a business meal with another person or pay for your own meal, you can deduct half your expense, to the extent that it exceeds your average meal cost. IRS auditors typically determine average meal costs by using a “50 percent/30 percent/20 percent rule.” Total your food receipts for one month and the IRS will deem 50 percent of the total to be for dinner, 30 percent for lunch, and 20 percent for breakfast.
For example, if your food bills average $140 per week, the IRS figures $70 would be for dinner (50 percent). The average cost over seven days would be $10 per dinner. Under the “Dutch treat” rule, your business dinners would be deductible to the extent that their costs exceed $10. Therefore, if you and a business associate (coach, teacher, conductor, etc.) spend $200 on a fancy business dinner and split the cost, you could deduct half (all the law allows is half) of $90 (you paid $100 for the meal less your average dinner costs of $10). So you have a $45 deduction on your taxes and had fun as well.
Why not have fun while conducting business?
Don’t overdo it.
All of these deductions are subject to what tax preparers call the “pig rule”—the deduction amounts must be reasonable. Don’t go overboard. One doctor, for example, deducted $35,000 for a year’s worth of meals, saying that he ate “only for business reasons.” For being a pig, he lost all of those deductions. The IRS didn’t believe him and allowed nothing.
