ENTERTAINERS TO LOSE SIGNIFICANT TAX DEDUCTIONS UNDER TAX REFORM
The benefits to entertainers of forming a loan-out company through which to conduct business are likely to become much more enticing when the so-called Tax Cut and Jobs Act (the “Tax Reform Bill”) is signed into law. Indeed, the Tax Reform Bill will suspend all miscellaneous itemized deductions for the 2018 through 2025 tax years, cutting off a substantial means of entertainers to minimize their tax liability.
Historically, entertainers have been able to deduct unreimbursed employee expenses to the extent they exceed two-percent (2%) of adjusted gross income. Those expenses typically included items such as agent and manager’s fees, legal fees, professional membership dues, travel, transport and meals, among other similar expenses. The Tax Reform Bill however, will do away with such miscellaneous itemized deductions for the foreseeable future.
To the extent an entertainer has been utilizing such itemized deductions they might see their tax bill rise, for example, if the new standard deduction does not provide a sufficient offset. As previously discussed in Entertainer Inc: Loan-Out Company Benefits and Burdens, entertainers should carefully consider whether it’s in their best interest to form a loan-out company. The Tax Reform Bill’s elimination of an important tax deduction, however, seems to have significantly titled that analysis towards the benefits of operating through a loan-out company.
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