Putting the Skeptics (and the IRS) to Rest
My son recently graduated from business school and began a career in finance this past summer. Thanks to the pandemic, he’s been living and working from our home in Atlanta, his move to Boston postponed to the indefinite near future. While this hasn’t been how he had imagined starting his career, it’s given his dad and I an opportunity to really get to know him as a young adult. And we’ve had quite a few interesting conversations along the way.
Our son is very pragmatic and sees things through the lens of his training in business and computer science: facts, numbers, profit vs. loss, etc. And now that he’s back home and we’re all living (and working) in close quarters, he’s turned his financial eye to my voice over work. He sees me recording in my home studio, talking about upcoming projects, and preparing marketing campaigns. He’s curious about the industry, the clients who hire me, the equipment and software that I use, and the overall shift to home studios (even before Covid) and away from recording in outside studios. And as a financial type, he’s particularly interested in its profitability, specifically the generated income, expenses, and return on investment.
In that vein, he’s asked me how I distinguish between voice over as a business versus a hobby. The question took me a bit by surprise, because for me there has never been any doubt. Voice over is a passion of mine, I’m seriously pursuing it as a business, and that’s how I present it to anyone who asks. So, I was taken aback by the implication that, in his opinion, it may not be a serious business. Is it because many aspects of voice over are a performance art? Or could it be because I like to talk about how much fun I have doing it? That doesn’t make it any less of a business. But his question was sincere, and as I thought about it, I realized that it runs deeper than it appears on the surface.
Just because something is fun, doesn't it mean it isn't to be taken seriously.
In the minds of many people who do not work in the arts, a creative endeavor is something that is usually done on the side and in someone’s spare time. Things like painting, wood-working, playing a musical instrument, performing in community theater. Often there is no financial component in the artistic pursuit; people engage in it for its own sake and the pure pleasure they derive from it. Perhaps some money is made, but more often than not, these activities are considered creative expressions or hobbies.
To a financier, running a “business” is a serious pursuit with the objective of making money while providing needed or desired goods and services. If it’s not successful and costs overrun expenses to the point of bankruptcy, the business is either reorganized or shut down, with the operator moving on to some other venture. Losses are cut as soon as possible and ideally, the owner/operator doesn’t let emotional attachments to the business get in the way of making prudent financial decisions.
He who dies with the most toys doesn't always win.
Of course, that’s often not the way it goes in the real world. People are usually very attached to their businesses and are not willing to easily give up on them. This is especially true for very small businesses in the arts, where the owner(s) may also be the artist(s) that the business is built around. The products of this business, whether they’re screenplays, canvases, stage performances, or voice overs may be constantly changing as the owner/artist grows in talent, technique, and perspective. The audiences or buyers may be constantly changing, too, so it can be difficult to tell if and when there is no longer a viable market for the owner/artist’s work. It’s totally subjective and can change in a moment. There’s also this, too, in the entertainment industry: many artists nurture the hope that the one big breakthrough or golden opportunity is just around the corner, and that all they need is a little more time to pursue their dreams.
Dollars and sense
My son’s perspective is to treat an artist’s business as any other: if a voice over business is not acceptably profitable within a certain amount of time, then the talent should just give it up and do something else instead. Well … yes and no, it all depends. (Don’t you just love wishy-washy answers?) There’s really more to such a decision than just this logic.
First, though, let’s take the logical view and a good, pragmatic look at the expenses. Yes, there are start-up costs and the artist should have been well aware and prepared to fund the initial investment to get the business started. Money is as necessary as the time, talent, dedication, and plain old hard work that goes into a new venture. Ignore the financials requirements at your own peril or you may very well be bankrupted and looking for a “real” job in no time.
Fun and Maslow's Hierarchy of Needs
But there are other factors at play, too. And that’s because artists define success more broadly than most business people. Success comes in many forms besides financial reward. There’s the success of providing a much-needed service, such as those many non-profits perform. The success of creative self-expression and seeing it uplift the spirits of individuals and whole communities. And the personal success of responding to an innate calling to engage in such work. There are many artists who cannot imagine themselves doing anything else.
If the question of “hobby vs. business” is posed to the person involved, the answer is most likely not going to be determined by applying outside financial criteria. The deciding factor will be the artist’s own subjective assessment, factoring in the importance, time, effort, and intent poured into it. Of course, the artist has to come to terms with the financial success his or her business may realize and then decide what to do about it. But remember: a business is no less a business, just because the owner has to take on a 9-5 job to pay the bills. It just may take longer to realize those measures of success, whether it’s money, a sterling reputation, fame, or seeing your work appreciated within your greater community. True, with less time to devote to it, it can be harder to operate, but many well-known businesses have started on the side like this, in garages, spare rooms, and even converted closets. Apple Computer, anyone?
What's the point of a good argument without there also being a grey area to noodle about?
Then again, hobbies can be financially successful, while businesses may not – there is no hard and cold rule to this. And a hobby can bring in a little side money without the hobbyist wanting it to become anything more. It can be a testing ground for an idea to see if it can be pursued more seriously and turned into a business. And sometimes, it works the other way, too: an unprofitable business pursuit can be reimagined as a hobby for the person to enjoy for its own sake, without the expectation of making money from it.
When the student is ready, the teacher will appear.
For those aspiring to make voice over a full-time profitable business, and not just a hobby or side hustle, there are plenty of voice actors around the world serving as role models who make a very good living at it. Their careers often span decades, and they enjoy take-home pay in the six figures. And there are several good coaches who will show you how it’s done, such as Marc Scott and his VOpreneur group and Jay Roberts with Gravy For The Brain.
So what's the verdict?
My answer to my son’s question is essentially this: it’s up to the talents themselves to decide if voice over is a hobby or a business. If they’re doing it for fun and a little extra money, call it a hobby. If they’re actively pursuing new business, constantly training to improve their skills, making and marketing high quality demos, and trying to grow their footprint as a voice actor, call it a business.
The only caveat I’ll throw out is to be careful when writing off your expenses when filing your tax return. The IRS has a very definite idea of what constitutes a business vs. a hobby:
A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit. ... You do not need to actually make a profit to be in a trade or business as long as you have a profit motive. You do need, however, to make ongoing efforts to further the interests of your business.
Generally, the IRS classifies your business as a hobby, it won't allow you to deduct any expenses or take any loss for it on your tax return.
So, if you want to demonstrate to the IRS that you are operating a business versus a hobby, you need to be able to prove that you are working consistently to grow and improve it.
The IRS will only allow you to claim losses on your business for three out of five tax years. If you don't show that your business was profitable longer than that, then the IRS can prohibit you from claiming your business losses on your taxes.
Talk to your friendly neighborhood IRS representative for more information. Or google the details at irs.gov.
So now we know that the financial analysts and tax specialists distinguish along – surprise, surprise – financial lines. The rest of us, however, can decide for ourselves how serious we are in pursuing voice acting opportunities and what we want it to be: a business, hobby, or just play.
And my son? He’s done analyzing the ins and outs of my voice over business – for now – but he’s still interested in my work. Great! It’s always nice to have someone to talk to about these things. And who knows? Maybe one day when he’s a mogul with a successful company of his own, he’ll need my professional services.