How Working Hollywood Loses Under the New Tax Bill

Tax experts weigh in on what the GOP tax plan means for entertainers

Hollywood Tax Reform

The GOP tax plan that passed Wednesday is a victory for Donald Trump and the wealthy Hollywood elite who will benefit from tax breaks. But working actors may find themselves struggling more than ever because of deductions they may not be able to take anymore under the new plan.

Pasadena-based CPA Michael Di Pietro thinks the bill will cause a “miniature crisis” in Hollywood over the next 18 months. The Writer’s Guild of America West calls it “a disaster.”

If studios want actors and actresses to be available to them, they’re going to have to negotiate some sort of compromise, Di Pietro said, whether by increasing hourly wages to make up for no-longer available deductions or by some other means.

It’s going to be something the industry has to work out, otherwise they’re gonna end up taking a major hit tax-wise,” Di Pietro told TheWrap in an interview Wednesday.  

The new bill is hitting those who earn wages under a W2 the hardest, because employee business deductions are no longer allowed. Those deductions have, until the bill, covered expenses ranging from acting lessons to travel costs for auditions.

Other expenses, like gym memberships or plastic surgery, have always been in a “gray area,” Di Pietro said.

Tax attorney and treasurer for the Actors’ Equity Association Sandra Karas said that some physical expenses could be deducted if written into an actor’s contract — for example, if actors were required to dye their hair for a role.

Karas suspects that entertainers will scale back by taking fewer auditions and signing up for fewer acting classes. Agents may end up with fewer signed clients. Photographers will take fewer head shots.

Some, Karas fears, will leave the industry all together.

“People won’t have money to spend. Money never trickles down, ever, it always moves up,” Karas said. “And it moves up pretty quickly — it doesn’t trickle up, it moves up.”

WGAW’s statement on the bill echoed Karas’ sentiment, saying that the American economy “has become increasingly tilted toward inequality and the disappearance of the middle class.”

“Congress and the President have skewed the tax system heavily in favor of the rich; next they will use the resulting budget crisis to defund Medicare, public education and Social Security, all things that working Americans fought for and pay for,” the statement continued. “Middle-class writers are not immune to the forces of inequality. We will be doing our best to help writers understand the implications of this legislation for them. The WGAW stands with those who will resist.”

“Our members are spending anywhere from 10 to 30 percent of their gross income on these business expenses in a given year,” added Actors Equity communications director Brandon Lorenz. “So that’s just a huge chunk… losing that ability [to deduct those expenses] is a huge, huge, huge hardship.”

Karas reworked some Actors Equity members’ returns from last year under the new bill, and found increases in the thousands. One member would face an increase of $5,094, or 39 percent.

“The word ‘huge’ is not hyperbole,” Karas said.

One possible work-around, Di Pietro said, is to go to one’s employer and ask for an 1099 instead of a W2.

“These individuals, their best course of action is to get their income in the form of 1099, then incorporate,” he said. “Because being a sole proprietor also has its drawbacks… So if they want to maintain those deductions and then some, and get the benefits of the tax bill… they need to become an independent contractor, and they need to become a corporation.”

Karas pointed out that while some members of the AEA, herself included, do some work on 1099, it’s usually not the main source of income. And still, employee business expenses “are going to be gone, gone, gone.”

Karas said that while a career in the entertainment industry has always been “precarious,” the new tax plan may deter middle- and working-class people from continuing to work in it.

“It’s a joyful life but it’s very unpredictable,” she said. “If they can’t maintain that, many of them might say, ‘You know, why don’t I find a regular nine-to-five gig and settle down with my dog and my significant other and call it a day. Maybe this industry’s not for me.’ And those are the people I fear we’ll lose from the sound stages, from the theatrical stages, from the dance classes, from everywhere.”

“And it’ll be a shame,” she said.