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Tax Court Puts Spotlight on Actor-Related Expenses

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A new Tax Court case turned on whether the taxpayer’s activities constituted a “business” or a “hobby.” To qualify as a business, your client must show that you’re engaged in the activities to turn a profit.

Sep 23rd 2021
Columnist
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A new Tax Court (Gaston, TC Memo 2021-107, 9/2/21) case found that clients may be able to deduct expenses relating to acting, even if they're not the next Streep or DiCaprio.

The tax difference in the new case is critical. If you incur legitimate business expenses, they can offset taxable income, even if you show a loss for the year.

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Conversely, if the activity is treated as a hobby, your deduction is limited to the income received from the hobby and expenses must be treated as a miscellaneous expense. Under current law, deductions for miscellaneous expenses are suspended for 2018 through 2025. So now you get zero tax benefit for hobby expenses.

Facts of the new case: After working for Mary Kay for 45 years, the taxpayer pursued an acting career. She had a brief prior history in the entertainment history and also had a family connection.

To further her acting, the taxpayer retained an assistant who helped her identify casting opportunities and manage her applications. She also engaged various casting services, retained an agent and a business management company, secured professional headshots, advertised her skills and took acting and voice lessons.

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