Qualified Performing Artist Deduction

1. This is an "above-the-line" deduction (or "adjustment"), meaning that it reduces a taxpayer's adjusted gross income ("AGI"). Reduced AGI increases eligibility for tax credits and other tax deductions while simultaneously reducing taxable income.
2. Since the passage of the Tax Cuts and Jobs Act in 2017, all miscellaneus itemized deductions, including unreimbursed employee expenses, have been eliminated. As a result, performing artists no longer have the option to deduct their performing artist expenses as unreimbursed employee expenses (one of several miscellaneus itemized deductions). Since 2018, the only way to deduct performing artist expenses is via the QPA provisions of IRC § 62.

To be considered a Qualified Performing Artist, a taxpayer must fit certain criteria, as stipulated in IRC § 62(b)(1):[3]

• The taxpayer must have worked as a performing artist in the capacity of an employee (as oppsed to an independent contractor) for at least two employers,
• The amount of the expenses attributed to rendering services as a performing artist must exceed ten percent of the taxpayer's gross income that is attributed to the performance of such services, and
• The adjusted gross income of the taxpayer, not counting this deduction, does not exceed $16,000.

In determining whether or not a taxpayer is a Qualified Performing Artist, the two employers stipulated in IRC § 62(b)(1) must each pay wages to the taxpayer in an amount equal to, or greater than, $200. These services must be rendered by the taxpayer, for services in the performing arts, to each respective employer, within a given tax year.[4] As a result, performing artists who are paid less than $200 per year by every employer to whom he or she renders services as an employee in the performing arts are not allowed to take this deduction.

Additionally, any married taxpayer who attempts to claim this deduction must file jointly with her or his spouse, unless they lived apart throughout the entire tax year; additionally, the $16,000 AGI limit applies to the combined AGI of both spouses.[5]

The amount of the QPA deduction is defined in IRC § 62(a)(2)(B) as "The deductions allowed by section 162 which consist of expenses paid or incurred by a qualified performing artist in connection with the performances by him of services in the performing arts as an employee."[6]

IRC § 162(a) allows for "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business." Typically, "trade or business" deductions are only allowed in situations where the taxpayer carrying on such trade or business is not redering services as an employee,[7] IRC § 62(a)(2), however, lists situations in which certain employees can deduct "trade or business" expenses. Qualified Performing Artists, along with other specified categories of employees (e.g., fee-based government officials, members of the U.S. Military Reserves) meet these specifications.

A QPA may deduct from her or his AGI all "ordinary and necessary expenses." The term "ordinary and necessary" in IRC § 162(a) has been litigated by numerous claimants over the last century, although not necessarily in the context of a Qualified Performing Artist. According to the Taxpayer Advocate Service ("TAS"), there were 106 federal court cases between June 1, 2017, and May 31, 2018, in which the term "ordinary and necessary" was part of claimants' suits against the IRS.[8] In its publication 535, the IRS defines an "ordinary expense" as "one that is common and accepted in your industry," and a "necessary expense" as "one that is helpful and appropriate for your trade or business."[9] In addition, according to the TAS, courts have consistently held that "the amount of the expense must be reasonable."[10]

Those ordinary and necessary expenses QPA's can expect to deduct include: supplies, insurance (other than health), travel expenses, depreciation, car expenses, equipment rentals, etc. These are nearly all the same expenses self-employed individuals deduct as a sole-proprietor on their Schedule C's. It is important to remember, however, that those expenses can only be included as a QPA deduction to the extent that they are attributable to your work as an employee rendering services in the performing arts. Should these expenses also be attributable to personal use or to use as an independent contractor, the expense amounts need to be prorated and attributed accordingly to those different categories.

Incorrectly attributing expenses can result in an underpayment of tax, which can result in penalties and interest being levied upon a taxpayer by the IRS and/or state tax agencies. Consultation with a tax professional may be necessary in this regard.

QPA provisions were incorporated into the IRC via passage of the Tax Reform Act of 1986.[11] The $16,000 AGI cap was never indexed to inflation, and has not been raised statutorily since inception. Consequently, very few performing artists now qualify for the deduction due to inflation. The deduction was intended for performers who incur significant expenses and who have the difficulty of spreading deductions over schedule C and schedule A.[12]