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entertainers auditBy Nathan Vinson
Attorney, English, Lucas, Priest and Owsley, LLP

If you are working in the entertainment industry, the IRS has your tax returns in its sights.

In a new “Entertainment Audit Technique Guide,” the IRS recently instructed its auditors to closely examine tax returns from those in the entertainment business.  Auditors will be scrutinizing deductions claimed on tax returns for expenses which, according to the guide, entertainers have historically been “aggressive or abusive” in taking.

The IRS wants to reign in these perceived industry norms to ensure that the entertainers are legitimately entitled to the claimed deductions. In tax parlance, the expenses giving rise to deductions must be “ordinary and necessary.” As the guide puts it, “The distinction between ordinary/necessary and extravagant must be more clearly drawn.”

Those in the entertainment business can include, but are not limited to, comedians, musicians, singers, songwriters, actors, producers and those involved behind the scenes. The IRS wants to see that the deductions entertainers are taking are substantiated with legitimate receipts and records, and that the expenses truly are business-related (i.e. “necessary”).

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computer Every tax season, there are at least a few of us who have some unwelcome surprises. Some discover they were not nearly as organized as they should have been, and can’t find receipts for items they wanted to write-off as business expenses. Others may discover that they made more income than they anticipated, and they owe additional unanticipated taxes.

There are plenty more unwelcome surprises, sometimes having to do with divorce or custody issues. Couples sometimes trade off who gets to claim a child as a dependent, and misunderstanding whose turn it is leads to confusion (and fighting).

If you own your own business, or just make some side income from consulting, you may find out that you owe taxes because you didn’t pay enough estimated taxes during the year. That’s a common problem that we see often with clients.

The best time of year to address these problems is right now. Tax attorneys, accountants and other financial professionals aren’t quite as busy as they are in the first and last quarters of the year executing year-end transactions, followed by preparing returns for clients, and the mistakes you made in 2014 are fresh in your mind. A few simple tips and tricks can get you ready for April 15, 2016.

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