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Do Creative Types Get Screwed When It Comes to Taxes?

Do Creative Types Get Screwed When It Comes to Taxes?

In an Op-Ed in The New York Times, writer Amy Sohn posits that the current tax code weighs an unfair burden onto artists, for instance, actors, writers, directors and other unionized entertainment professionals.

“With tax day looming, you can practically hear the cries of creative professionals across the country,” writes Sohn, an author and television writer as well as a member of the Writers Guild of America East. The main culprit, according to Sohn, is the alternative minimum tax (A.M.T.). “Two provisions of the A.M.T. hit a disproportionate number of actors, screenwriters and directors: In calculating it, taxpayers can’t deduct employee business expenses, nor can they deduct state, local and property taxes,” she writes.

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Here are some of the top takeaways from Sohn’s Op-Ed:

It’s a geographic issue.

“Because of where their work is concentrated, entertainment workers also tend to live in high-tax states like New York, Illinois and California,” writes Sohn. 

They can’t deduct “employee” business expenses.

“Most unionized entertainment professionals receive their income as wages, which means that on paper, they’re employees. But unlike most other groups of workers, entertainers must pay a hefty chunk of their income (around 30 percent) to obtain and negotiate work. This is in the form of commissions to agents (10 percent), managers (10 to 20 percent) and lawyers (5 percent); job-seeking travel; office or rehearsal-studio rental; business meals; union dues; coaching and classes; advertising and publicity; and research materials,” per Sohn.

It’s not just a rich person problem.

The Tax Policy Center estimates that almost a million ‘tax units’ earning between $50,000 and $200,000 per year will have some A.M.T. burden this tax day.

“So a married actor with two kids who earns $60,000 from acting wages could get hit with A.M.T. If she does, she can wind up paying tax on money she never really sees (like commission expenses, which she has to count as income and cannot deduct as a business expense). Meanwhile, her talent agency and management firm are also paying taxes on that same money,” explains Sohn.

Working class creatives are hit hardest.

Sohn explains: “In 1986, thanks to lobbying by the entertainment unions, the Internal Revenue Service gave a tax break to performers. Called the ‘qualified performing artist’ provision, it allows certain low-income performers to receive a dollar-for-dollar deduction for business expenses. But to qualify, the adjusted gross income (from all sources) was capped at $16,000 — for individuals or for married people filing jointly. Since 1986, that figure has never been indexed ($16,000 then is about $34,000 today).”

But because the income cap remains so low, this provision which was designed help low-income actors now mainly helps child actors and older actors. Sohn suggests that the best way to remedy the problem is to eliminate the A.M.T.

“All those shows you’re binge-watching exist because of the labor of people who don’t earn red-carpet salaries. It’s hard enough for them to earn a living wage in the arts. Let’s not slam them on their taxes, too,” Sohn concludes.

Of course, it’s worth noting that Sohn is not a registered C.P.A. or a tax expert, but she does raise some important points. Do you agree that creative types are unfairly burdened come tax time? Share your thoughts in the comments section below.

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