A letter we sent regarding record keeping for the entertainment industry

 

Dear Client:

 

We have always emphasized the importance of keeping records so that your tax returns can be properly prepared and any claimed business expense items can be substantiated should they be questioned by the Internal Revenue Service.   A cancelled check or credit card receipt is not enough.  The following is a discussion of records needed in connection with various business deductions normally taken:

 

        Entertainment expenses

 

To be deductible expenses must either be:

 

1.   Directly connected to business and satisfy the following three conditions:

 

a. There must be a general expectation of a future business benefit, (i.e., a future role in an upcoming movie).

b. During the course of your entertainment you engaged in a business discussion.

c. The original purpose of the meeting was the active conduct of your trade or business.

 

Substantiation must include:

 

a. Name(s) of persons being entertained and relationship.

b. Time and place of meeting.

c. Business purpose.

 

Example:

 

A Dinner with John Doe (actor) on January 8, 2003 at XYZ Restaurant.  We discussed my upcoming role in a feature film.  He gave me ideas on how to creatively plan my character.   

 

or be:

 

 

2. Associated with business:

 

In which case a bona fide business discussion need only directly precede or follow your entertainment.

 

Substantiation must include:

 

a. Name(s) of persons being entertained and relationship.

b. Time and place of meeting.

c. Business purpose.

 

Example:

 

An actor signs a major contract and then treats the producer to dinner and a show afterwards at the Tavern on the Green in New York City, February 13, 2003.

 

        Travel and lodging expenses

 

To be deductible expenses must be:

 

1. Directly attributable to the trade or business of the taxpayer or the taxpayer's employer.

2. Necessary and appropriate to the development and pursuit of the trade or business.

 

Substantiation must include:

 

a. A detailed breakdown of lodging, travel, telephone, meals, etc.

b. The time and place.

c. The business purpose.

 

Examples:

 

Filming Movie XYZ, in  New York City, staying at the Marriot Hotel,  August 1-17, room charges $1400, telephone $50, meals $100.

 

Continental Airlines to New York from California for $475 to film Movie XYZ.

 

Please be advised that documentary evidence of business  travel and entertainment expenses are not necessary for expenditures of less than $75 (the old threshold was $25).  Although you no longer need documentary evidence for many travel and entertainment expenses under $75, you must still comply with other record keeping requirements to prove deductions, such as keeping an account book, diary or similar type of daily record.  Also, you still need to keep bills and receipts for any lodging expense, despite its amount.

 

 

 

        Business gifts

 

To be deductible:

 

1. There must be a business relationship with the person receiving the gift or an expectation of a future business benefit expected as a result of the gift.

2. Business gifts are limited to $25 per person, per gift.

 

Substantiation must include:

 

a. Cost of the gift.

b. Date of the gift.

c. Description of the gift.

d. Business purpose or reason for the gift.

e. Description of the relationship between the taxpayer and the recipient.

 

Example:

 

Godiva Chocolates, $25, January 31, 2003, to director of Movie XYZ.

 

        Wardrobe, makeup or any such personal  items

 

To be deductible expenses must:

 

1. Be required as part of your employment.

2. Show proof of purchase, i.e., sales receipt.

3. Be unsuitable for general use in public.

 

Substantiation must include:

 

Proof that you were not reimbursed for the expenses.

 

Example:

 

Costumes and period clothing are generally deductible as well as stage makeup, if not included in the contract as a reimbursable expense.

 

        Checks written directly by you

 

To be deductible:

 

1. Should include an invoice for this expense, or

2. An explanation must be included on the  memo section of the check face, stating the business purpose for the expense.

 

 

Always try to maintain the necessary documentation to substantiate your business expenses.  You will need to produce them, should your return be examined by the Internal Revenue Service.

 

Should you have any questions about this or any other matter, please do not hesitate to contact our office.

 

Very truly yours,

 

Redfield, Blonsky & Starinsky, LLC.