Memo to File

Client: Sam Adams

Subject: Deduction from Adjusted Gross Income
For: Tax Partner
Researched by: Rachel Grande
Date: November 19, 2014
Facts
Sam Adams is a CPA who is also an aspiring actor. In 2013, his AGI (before any deductions for
performing arts expenses) was $42,000 and was from the following sources:
CPA practice: $30,000
Acting jobs (4 employers): 12,000
Expenses associated with his acting career were $9,000. Sam is uncertain of the proper tax
treatment for these expenses. Sams two options are to either to deduct these expenses under
section 162 and classify them as deductions for AGI under section 62 (a)(2)(B). Or to classify
these expenses as miscellaneous itemized.
Issues
1. Should $9000 be considered as acting expenses or miscellaneous expenses?
2. What is the appropriate tax treatment?
Conclusions
1. $9000 should be considered as miscellaneous expenses and not as acting expenses.
Discussion of Reasoning and Authorities
1. Section 62(a)(2)(B) states that 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.
a. Section 62 (b)(1)(C)For purposes of subsection (a)(2)(B), the term qualified
performing artist means, with respect to any taxable year, any individual if
(A) Such individual performed services in the performing arts as an
employee during the taxable year for at least 2 employers,
(B) The aggregate amount allowable as a deduction under section 162 in
connection with the performance of such services exceeds 10 percent of
such individuals gross income attributable to the performance of such
services, and

(C) The adjusted gross income of such individual for the taxable year
(determined without regard to subsection (a)(2)(B)) does not exceed
$16,000.
2. Since in the present case adjusted gross income of Mr. Adams is $42,000 i.e. more than
$16,000, the deduction will be allowed as miscellaneous expenditure.

Client Letter
November 19, 2014
Mr. Sam Adams

Dear Mr. Adams

Thanks again for requesting my advice concerning the tax treatment on which deduction
method is most appropriate when handling you performing arts expenses. Unfortunately your
AGI exceeds the $16,000 ceiling that allows you to deduct these expenses and classify them
as deductions for AGI. Instead you can now deduct the $9,000 as miscellaneous itemized
deductions.
In researching this conclusion, we consulted relevant provision of the Internal Revenue Code.
The facts as we understood them are as follows:
Mr. Adams is a CPA, who is also an aspiring actor. In 2013 his adjusted gross income was
$42,000. Mr. Adams had acting expenses of $9,000 and wanted to know if he could deduct
these expenses as deductions for AGI. Due to Mr. Adams adjusted gross income exceeding
$16,000, he can deduct the $9,000 incurred as performing arts expense and classify them as
miscellaneous itemized deductions.
Please call me at 555-4444 so that we may discuss any questions you have concerning this
conclusion.
Sincerely
Rachel Grande
(Tax Partner)