I have heard that illusions and other props can be tax deductible. Is this true? Has anyone one done it? Is it legal?



Thanks,
Mike

If you are in business then you can write off your business expenses. A magician who is earning money from his/her magic is making income that should be reported.

Expenses incurred while making this income that should also be reported: props, give aways, advertising, business books to learn how to market yourself, clothing that you would only wear in a show, milage to and from the show, your business license, that three day magic seminar in Las Vegas, plane tickets to get there, hotel room.

It goes on and on but it all starts with treating your hobby as a business. Taking a class, or reading something about small business might help. Your state or city and even the IRS have information about what is a business and what is deductable for a business.

I would recommend finding the services of a good accountant. I've had one of the best in my city for years. Every April he finds deductions I hadn't thought of, and advises me on stategies. This guy specializes in freelances of all kinds, especially performers.

To find someone of equal skill, I would start calling around to actors, musicians, magicians, freelance writers and see who they use. Photographers would also be a good resource.

There is only so much we as lay people can know about the tax code, so I've always relied on the services of an expert. Sure, they cost a couple of hundred dollars, but they're worth it. They will save you that amount, and, their fee is tax deductable.

Side note: it may be you don't have to generate all of your income from performing to write off many of the expenses. If I remember right (and I'm not claiming this to be gospel), that if you consistantly show you're earning something from performing, it can be considered the start up of a small business. As I said, check with an expert.

rkrahlmann -

The advice you give above is golden. An accountant can also assist in setting up your books, show you how to keep your records, tax saving strategies, retirement plan options, tax planning, accounting software options, etc.

In the interest of full disclosure, I am a certified public accountant and my firm is primarily a tax firm. I am lucky to have a few magicians and one mentalist as clients, which is how I got back to magic after a long absence. The advice above can come from an accountant or an experienced business person whom you trust. Referrals from others are your best bet in finding an accountant. The point is, if you are planning to make magic a business, it's much easier to start off "right" from the beginning.

"Side note: it may be you don't have to generate all of your income from performing to write off many of the expenses."

You are correct here. As long as it is in fact a business, whether full-time or part-time; your performing expenses would be deductible.

The "grey" area is what the IRS calls the
"hobby loss rules". If one consistently reports losses from a magic business the IRS will contend that it is not a business but a hobby and disallow any losses.

Courtney,

Ha, Ha, Ha... IRS strikes again!! If THEY determine you are a hobbyist they may disallow your expense deductions. Bet they count your "hobby" income as revenue for taxation, regardless. And that is why you need an accountant, because nobody and I mean NOBODY, really understands the U.S. tax code.

Steven

Steven -

You are correct and win the bet! IRS requires hobby income to be reported. Expenses may be deducted as a miscellaneous deduction, up to your hobby income. IF you itemized your deductions!

Courtney

As a hobbiest, you can claim your expenses against your income. You do not have to be a corporation to do so. But let's say you have no income & don't ever expect to have any income. There is a way to claim some of your expenses against your taxes, if you have an occupation that allows you to do your magic for clients or the like. If you feel that doing magic helps cement business relationships or make you or your service stand out from the competition, you are allowed to claim a percentage of your magic expenses against your regular non-magic income. Say 50% of your magic expense becomes deductabe & the other 50% is a non-deductable hobby expense.

You could actually claim that all your magic expenses are used to help you earn your non-magic income, but you would then have to lie & say that it is not your hobby but just a gimmick to help you do better on your job.

If you ever start a magic business, you can then go back & claim the other 50% as start up expense for your business.

Check with your accountant to find out any limitations that may apply.

To clarify my above post - if you have hobby income, which is reportable, then you can deduct hobby expenses up to the amount of gross income reported. A hobby loss is not allowed to offset other income. Hobby expenses are deducted on Schedule A - so one must itemize their deductions to deduct the expenses.

If magic expenses are directly related to one's occupation I could see a potential deduction. For example, I know a teacher who teaches her mentally disabled students magic tricks to improve motor skills, etc. The items she buys for her kids would be deductible as any other teaching supplies. Beyond that, I think deducting magic expenses in connection with another occupation would be questionable. For example, if I buy golf clubs and take lessons in order to entertain clients, the expenses are still considered personal in nature and not deductible, even if some business relationship can be established. Ultimately, to be deductible any expense must be "ordinary and reasonable" in the course of one's occupation.

Regarding start up expenses, the Internal Revenue Code states that start-up expenses are expenses connected with setting up or investigating the creation of purchase of a trade or business. Incurring magic expenses with the hope one day of becoming a performer would not be a start-up expense. If one does incur start-up expenses a statement is required to be attached to one's tax return detailing the start-up expenses. The amount is then deducted over a five year period once the business starts.

Courtney

I am a high school football official. As such I declare my income from officiating and deduct my expenses (mileage, equipment, uniforms) from that and report my net income. Then I pay both regular tax and Self-Employment tax on that figure. This was told to me by an IRS examiner in the Austin District Office.

I have shown a loss a couple of times. It seems like the IRS publication I read said that if you showed a loss for a few years in a row, they considered it a hobby and subject to the terms stated above.

I am not an accountant but have filled our well over 50 Schedule C's for my officiating and my engineering consulting businesses.

If you make money doing magic, keep separate books showing income and related expenses, then fill out a Schedule C and file it with your regular return. That's $.02 (deductible??)

If I am missing something here, please correct me.

If you work a lot; and travel as well, don't worry. Your travel alone will take care of a great deal of your allowed expense.

If you're going to deduct anything, be sure you can show income from it. In other words, claim your shows. It can come back to haunt you.

Troy Roark

Troy's closing comment brings to mind another reason to get a good accountant: if the IRS comes after you, you have someone on your side to battle them. At least my accountant has; I can't swear that this is standard practice.

RK is right! My company has been audited three times in three years. The first year we did it ourselves and it lasted a few days. The second year we had an accountant, and it lasted a few hours. The third year we used the same accountant, the audit lasted less than an hour.

Troy Roark

Someone in the know can correct me here, but yet another reason to have an accountant prepare your taxes is that the IRS is less likely to go after you. Basically, they're bullies; and they try to pick battles they can win. They'd rather pick on regular folks than professional accountants.

Ray -

In the circumstances you described for yourself you are correct because both your engineering activities and coaching activities are clearly businesses. Or as the IRS likes to say "an actual and honest.... profit objective in engaging in the activity".

The question that came up was how one treats hobby income. (Specifically, the question that was posted was someone asking if illusions and props were tax deductible). If one truly has a magic business based on all facts and circumstances including the ones you mention, then a Schedule C would be appropriate. The distinction was, if one has a hobby such as magic, stamps, coins, crafts, horse breeding, etc. that may occassionally generate a fee.

For example, a hobbyist magician is paid a fee to perform at his child's school; and that hobbyist is not in a magic business and rarely, if ever, is paid to perform, nor does he hold himself out to be a paid performer. Since it is not the performer's trade or business (or one of them whether part-time or not), the income is hobby income and a Schedule C would not be necessary. Reporting the hobby income as mentioned in a previous post would be appropriate.

You also brought up a good point about Self-Employment taxes. Hobby income is not subject to self-employment taxes.

Note - magic does not have be be a full-time business. You can have a part-time magic business and deduct your appropriate expenses like Ray does with his coaching activities.

The real question is whether or not one conducts his magic as a business or not.

If not completely bored yet by my going on about taxes, I will be glad to post the factors the IRS looks for and some suggestions.

Finally; regarding reporting sucessive losses in a business (and I swear I will stop after this) an activity is considered a for-profit business if gross income exceeds deductions for three or more out of five consecutive years. If a profit is not made in at least three out of five years; or if profits are small in the three profit years and losses are large in the two loss years, the activity must prove that is it a for-profit business under the facts and circumstances test.

I am not an expert. I have read a few things on the subject. It depends on the book, year and situation. As I understand it, you must show a profit within 3 years or the Magic or other performing art will be considered a hobby.

After the 2nd year you can ask/write for an
extention so that you will show profit 3 out of 5 years.

I just received two books on the subject through Interlibrary Loan-World Cat. I do not have the books in front of me. If you put in things like income tax for actors, performers or other show biz folks you will come up with the book. There is also a book (recently updated) specific to magicians and taxes.

I use my props as part of my salaried job (counselor/prevention specialist as well as
my freelance stuff.)

Accurate records on income and expenses are crucial.

Have fun with your show and keep track of what is going in and out. I/You don't want to be a headliner or opening act at your local IRS office.

Harris

Great line!

For some free information, these IRS publications are good and available in PDF format from http://www.irs.gov.

Publication 334, Tax Guide for Small Business, is designed for the taxpayer who files a Schedule C and has lots of useful information in it.

Publication 535, Business Expenses, is good and goes into the details of the "hobby" loss rules described by Harris and what needs to be demonstrated to show that a business is not a hobby.

Can you wite off magic books and videos?

Very true, as long as it is a business than you can write props off. In some cases with larger purchases you have to depreciate the item over a set time.

MDS

The best advise is mentioned above, seek out a good accountant.

If you report income you can deduct income for educational purposes, such as books, videos, and conventions.

If you are incorporated there are a ton of other deductions allowed, including taking a loss if you went into debt getting started. (See an Accountant)

I know this is an old thread, but it came up when I searched it in 2020. I did ask my CPA accountant the following questions concerning how to write off expenses for my magic business. I am a teacher and professional magician. Here is the advice he gave to me. This does not mean it applies to everybody, and I also echo the sentiments above that each person should check with their own CPA.

QUESTION 1) I bought a new MacBook AIr this year, which I use for work and pleasure. Should I straight-line depreciate it for five years or use double declining balance for 5 years? Also do I need to estimate how much is used for business and apply that ratio.

ANSWER 1) You need to first figure out what percentage is business and personal. If over 50% for business, write the whole thing off in the first year provided that write off does not add to or create a loss in the business. If it does, then double declining balance for 5 years.

QUESTION 2) I usually just expense my magic tricks, but I bough one that is $1,400. Can I expense that entire amount or do I need to depreciate it like I would a computer?

ANSWER 2) I would expense it.

QUESTION 3) I have a family plan for my phone. Five lines for $250 per month. So should I simply just take one fifth ($50) for me and use half of that (I use my phone for business and personal)? In this case I would write off $25 per month.

ANSWER 3) Yes if 5 people are on your phone line then divide it by 5 then take your 1/5 and figure out how much of that is business and personal.