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The Internal Revenue Service allows performing artists to deduct the costs of equipment required for work. For example, materials to make magic illusions or the cost of purchasing copyrighted magic effects may qualify if the prestidigitator meets the IRS qualifications as a professional, and if the materials used meet the IRS tests. Some states, including Massachusetts, also allow performing artists who meet federal qualifications to deduct the federal taxes on state forms.
The terms "ordinary" and "necessary" are used by the IRS to describe trade tools that can be deducted. The definitions apply to anyone working as a business, including artists doing performance work. The agency divides performing artists into professionals and hobbyists. It categorizes professionals as those who conduct a business in a professional manner and spend time developing the firm in order to make a profit. The IRS looks to see that an artist depends on the profits from the performance business to live. Artists, under IRS rules, also must have the training or education to operate as a professional.
Self-employed artists file Schedule C, Profit or Loss of a Business, or the short form C-EZ, Net Profit from a Business, as an attachment to the IRS 1040 tax form to claim federal deductions. Artists with a personal practice studio, or space used exclusively for storage of performance materials or equipment, have the option of filing IRS Form 8829 to take a deduction for a home office -- in this case a studio or storage area.
Performance deductions, according to IRS regulations, qualify only when a performer uses the items exclusively for performances. A clown nose qualifies, but a black business suit required for an orchestra musician does not. Few non-professional events outside of work offer an opportunity for a clown to wear a rubber nose, but musicians can wear a suit for personal occasions. Qualified tools for musicians, for instance, include an instrument and required accessories to use the instrument, such as a protective case for a trumpet. The IRS requires artists to depreciate equipment that has a useful life of more than a year. This means that an artist can write off only a portion of the purchase price each year over several years using IRS Form 4562. The tax code lists the years of the allowable useful life for equipment depreciation.
Profit and Losses
The IRS also reviews an artist's tax filings to track the yearly profits from performances. The IRS allows losses for a startup period, losses due to write-offs, and some years of loss due to things beyond the performers control, such as time away from performing due to an illness. Any deductions must show that the artist is not simply a hobbyist using the deduction for personal use. An artist must make a profit in three of the previous five years of consecutive business operations to qualify for the performance federal deductions.
Performance artists collecting a salary from an employer can deduct expenses under the miscellaneous category by using Form 1040 Schedule A. This form allows an artist to deduct expenses above 2 percent of the artist's adjusted gross income, or the total income minus deductions. Performance artists operating as a business don't have any general limits for deductions, but must follow the limits and the qualifications listed for the various deductions on the federal profit and loss form -- Schedule C or C-EZ.
- IRS: Publication 529 (2012) Miscellaneous Deductions
- Massachusetts Department of Revenue: Certain Qualified (Miscellaneous) Deductions
- New York Times: Clowns, Remember Your Balloon Deduction
- Performer Magazine: Legal Pad -- Tax Tips for Musicians
- IRS: Business or Hobby? Answer Has Implications for Deductions
- Internal Revenue Service: Instructions for Form 8829
- Internal Revenue Service: Instructions for Form 4562
- Internal Revenue Service: Publication 535 -- Business Expenses
- Internal Revenue Service: Schedule C -- Profit or Loss From Business
- Internal Revenue Service: 2012 Instructions for Schedule C
- Internal Revenue Service: Schedule C-EZ -- Net Profit From Business
- IRS: Should I File Schedule C or Schedule C-EZ?
- Internal Revenue Service: Form 8829 -- Expenses for Business Use of Your Home
- Internal Revenue Service: Form 4562 -- Depreciation and Amortization (Including Information on Listed Property)
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