Dear IRS. Please understand that classical singers need an office!
Each gig is expected to last only for a very short time, so the nature of the career is to continually seek new jobs. Keeping contact files on prospective producers, conductors, directors, casting people and other performers is necessary. Keeping old programs of viewed performances is advantageous. Keeping past issues of Classical Singer magazine is very helpful. Access to the Internet is a must for research and e-mail. For all of these things there is a need for some office furniture: a desk, shelving, filing cabinet, computer, printer, etc. A space is needed to keep all of this handy.
Concert singers need an office! When we use part of our home for this purpose, we have created a home office.
Dear IRS. Please understand that classical singers need a studio!
The real work for which we get paid takes place in the preparation. The performance takes a few hours. The preparation for it may take months. A space to practice is needed, including room for a piano. Stereo and recording equipment is a must. A library collection of music, CDs, and video tapes is essential. We need a space to keep all of this.
Concert singers need a studio! When we use part of our home for this purpose, we have created a home studio.
Dear IRS. We know that depending on the year, your attitude toward a home office/studio deduction can be an absolute “no way” or a “well, maybe” or a “well OK, perhaps we’ll allow it this year.” We can guess the reason behind this. You do not want us to deduct, as an expense on our tax return, any items we will pay for anyway.
After all, everyone pays rent or a mortgage. To your auditors it must seem unfair: they can’t deduct part of their rent. They have a desk at home. They have a stereo—everyone has one these days. Some even have a piano! To your auditors, taking a deduction for the space for a stereo is like taking a deduction for the space for a refrigerator. Everyone has one. If all of us deducted part of our rent, there wouldn’t be enough tax collected to pay for the enormous federal budget that Congress has created.
Yes, yes, we know all of this. But we’re classical singers and we’re an exception. Our business is hard enough as it is. Competition is fierce. Perfecting our craft takes years and even the top achievers in our business still study daily. A home office/studio is a requirement. We should be allowed the same tax break as any business for deducting a necessary business expenses. Before you send out those nasty audit notices to filers who may be abusing the home office deduction, look first to the occupation of the taxpayer. If they’re a classical singer or concert artist, please give us a break. We’ll probably win the case anyway, wasting your auditor’s time.
Today, for the singer who’s paid on a fee basis, and is therefore considered to be self-employed, the tax laws are supportive of a home office/studio. But there are still rules that must be strictly followed. The home office/studio space must be used exclusively and on a regular basis as the principal place of business.
If taxes are taken out of your paycheck, you’re considered to be an “employee.” In this case, the IRS says that your employer must agree that it’s for the employer’s convenience that you establish a home office/studio. That makes the deduction a bit harder to justify.
It has taken many court cases for taxpayers to make headway in this area. The Drucker and Solomon cases are two of many that helped pave the way for a breakthrough of IRS barriers. The Drucker case involved a musician in the Metropolitan Opera orchestra who wanted to deduct the space in his home that he used for practice. The IRS said that since he earned his wage at the Met, why not practice there too? Wasn’t that his principal place of business? But he argued that the Met had limited practice space, not to mention that his music library was at home. And he spent more time practicing than performing. The court sided with the musician, agreeing that the home-practice space was a business necessity, not a personal convenience.
The Solomon case involved a doctor who worked in three hospitals. He needed a home office out of which he could bill his clients. The hospitals did not provide an office for him. The IRS argued that the doctor’s home office was not his principal place of business since he made his fees for work done in the hospitals’ operating rooms. The doctor argued that without hospital office space available to him for patient-billing purposes, he’d have no business at all. The Solomon case prompted Congress to change the law about how the IRS should examine a taxpayer’s principal place of business.
Begin by taking an area in your living room or an extra bedroom, and setting it up as an office/studio space. Furnish it with business equipment (desk, computer, piano and stereo), business supplies and a music library. Use the space only for music purposes on a regular basis. Although it’s not required, it’s helpful to have a screen or room divider separate the office/studio space from the rest of your home. Make sure you don’t keep personal items stored in your business area.
To compute the home office/studio deduction, look at the business space in relation to the entire home space. Note the proportion. This can be done by measuring the square footage of the business space and comparing it to the square footage of the entire home. Or, if the rooms are about the same size, compare the business room to the total number of rooms.
Here’s an example. Let’s say that your home office/studio space accounts for 20% of your total home/living space. If you’re a renter, then your home-office deduction represents 20% of your annual rent and utilities. If you own your home, you must then compute 20% of the mortgage interest, real-estate taxes, maintenance charges (if a condo or co-op), and utilities. Also, the cost basis of the home must be portioned off by 20% and depreciated, using IRS methods. For homeowners, this may not be such a big advantage since the mortgage interest and real-estate taxes are deductible anyway. And the depreciation savings must be recaptured (paid back) when you sell the home.
The next step is to add up all income from music. Then subtract all direct business expenses, such as travel, agent’s fees, costumes, coaching, supplies, etc. Let’s call the sum you’re left with your “net income from music before the home office deduction is taken.” The home office/studio expense may not exceed this amount. Therefore, it cannot bring your income from music below zero. But if it does, although not deductible this year, the excess can be carried forward and used in future years when you have a greater net income.
Remember that occasionally having your aunt over for tea in the living room where you also practice works against the concept of using that space exclusively for your business. Personal items in your business space also taint the space for tax-deduction purposes. Financial magazines, although helpful for investment purposes, are not music related and could kill your home office/studio deduction if they’re mixed in with a music library. If your 6-year-old child takes piano lessons and practices on the grand piano that’s in your home office/studio, it’d be considered a “personal use” of that space and would eliminate as a deduction the space that the piano takes, since the business use wasn’t exclusive—that is, unless the child is as talented as Mozart and gets paid for performing concerts with the philharmonic.
