By Mellini Kantayya
Ah, a career in the entertainment industry. The glamor. The excitement. The taxes. When tax season rolls around, the only stars we see result from a dizzying haze of numbers and legal jargon. The confusion is compounded this year (tax year 2018, due April 15th 2019) with significant changes to the tax law.
Luckily, CPA extraordinaire Nancy Adams visited NYWIFT once again to conduct her workshop “Can I Deduct it on my Taxes?” – a presentation designed to address tax considerations for professionals working in television and film.
Please note: The following takeaways do not in any way fully encompass or encapsulate the new tax code, nor is this a substitute for professional advice—but rather a research starting point for your own magical tax journey.
Takeaway #1 (brace yourselves): Employees May No Longer Deduct “Unreimbursed Employee Business Expenses.”
Using myself as an example: I am a working actor (#blessed) but am not a series regular (#yet). Though I’m what I would think of as being a self-employed freelancer—working for many different production companies and/or TV networks with no regular or steady employer—I am considered an employee under the IRS definition because I received a W2 from each entity.
In previous years, some examples of my itemized “unreimbursed employee business expenses” would be cab fare on days I have multiple auditions and no other means to get to each on time, my union dues (though my union dues might still be deductible on my NYS return—read here and below), and my agent’s commission. Now, none of those expenses are deductible (hold me).
The above may or may not apply to your New York State return as well. New York State has “decoupled” (or as I like to say, “consciously uncoupled”) from the Federal rules and still allows “miscellaneous deductions.” However, you have to reach a threshold of 2% of your adjusted gross income. The remaining qualifying expenses are deductible as Misc. Itemized Deductions. See this memo from the NYS Department of Taxation and Finance and here for general information on NYS itemized deductions.
Take-Away #2: Self-Employed individuals can still deduct qualifying expenses.
If you are self-employed and receive a Form 1099-MISC, have a Single Member LLC, or your own “loan out” corporation (loan out corporations can be LLCs), you can still deduct qualifying expenses on your Schedule C or through your S Corporation.
Take-Away #3: What happens if you’re both self-employed and an employee?
If you have self-employment income and employee income, and expenses that can be attributed to both, you have to make a reasonable allocation between the two.
Returning to myself as an example: Again, I receive my acting income as a W2 employee. However, I am also a writer/humorist/whatever and all of that income—book royalties, speaking fees, etc.—is paid to my single member LLC. In the past I would have allocated my cell phone bill in thirds: one-third going against W2 income (actor), one-third against 1099 income (writer/humorist/whatever), and the third of the bill assigned to personal use I would not deduct (in reality, it’s closer to a 40/40/20% split, but I erred on the conservative side). When filing this year, I won’t shift the employee portion over and deduct/attribute two-thirds of my cell phone bill to writing/humorist-ing/whatever-ing. I can/will only deduct applicable the one-third portion.
Still with me? Good, because the next part kinda sorta might be a silver lining.
Take-Away #4: Your Standard Deduction has increased.
Though your circumstances might not allow you to itemize your deductions on the 2018 return, the standard deduction (the “standard” portion of income that is not subject to tax) has increased as follows:
|Head of Household:||$9,350||$18,000|
|Married Filing Jointly:||$12,700||$24,000|
Take-Away # 5: Other Items Eliminated, Limited, and Added for 2018
Personal exemptions (the specific amount of money that you were able to deduct for yourself and for each of your dependents), Entertainment Expenses, the Section 199 Domestic Production Activity Deduction, Miscellaneous Itemized Deductions (unreimbursed employee expenses, tax preparation, investment advisory fees, safety deposit box, etc.) have all been eliminated for 2018.
Also, interest on home equity loans is no longer deductible, unless the money was used to improve your home.
For Taxes—including state, local, real estate, property, and personal taxes—the total deduction is limited to $10,000.
For mortgage interest, there is a cap on the interest deductible for new mortgage loans (capped at $750,000); existing debt is “grandfathered in.”
The Child Tax Credit has doubled to $2,000/child. The income thresholds allowing you to claim it have also increased.
There is a new “Section 199A Deduction.” This allows certain taxpayers to deduct 20% of the net qualified business income (QBI) from a partnership, S Corporation, or sole proprietorship for purposes of calculating their taxable income received from a pass-through entity. This deduction reduces taxable income (not adjusted gross income). If you’re eligible, you’re entitled to the deduction whether you itemize or not. Income from the performing arts (“incorporated talent”) is subject to additional income limitations, so talk to the IRS or your tax professional.
Again, this article in no way meant to replace professional tax advice. In addition to contacting the IRS or a tax professional, you may be eligible for free tax help and services through the City of New York. Also, an arts organization or union you belong to such as SAG-AFTRA may offer tax workshops and/or assistance. Happy taxes!
Additional reporting by Nancy L. Adams, CPA
Nancy L. Adams is a Certified Public Accountant with over thirty years of public accounting experience. She is a partner with Sullivan, Field & Smith, LLC. Adams currently works with a significant number of clients in the film and television industry, including documentary and feature film companies, individual producers, actors, and other industry personnel.