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, inNew 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 businesstravel 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 personalitems
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 thememo 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.
