Since tax time is approaching, I figured this would be a good platform to offer some pro-tips about filing your taxes as a self-employed musician. I didn’t go to school for any sort of math degree, and in no way am anything close to a C.P.A. What I can offer here are some things to think about and look into, as you get ready to file. I will try to keep this relatively brief, as I’m sure you don’t want to read about this for hours. Believe me, I would much rather nerd out about drum gear or recipes or hundreds of other things than taxes. However, the last thing you need is the IRS knocking at your door threatening to put you in jail. Just ask Wesley Snipes or Martha Stewart.
Pro-Tip #1- Get a great accountant that you trust! This will save you lots of headaches and help answer your questions. It would be best if you can find an accountant who already works with musicians. They will be more privy to what you need to do in order to make you more money (or if you are already paid like that, then save you money). If they don’t know some of the stuff I have listed below, look for a new accountant.
Pro-Tip #2- Keep detailed records. The goal is to NOT get audited by the IRS, especially if it could’ve been avoided by raising your attention to detail. When in doubt, ask a professional or don’t deduct it. (I recommend that you keep those “questionable but not deducted” receipts, though – if you ever get audited, they might be helpful.) Keep all of your tax-related records for at least seven years (preferably in a file cabinet that can be locked-no one needs to worry about identity theft).
Pro-Tip #3- Provided you are a full-time musician (you would file differently if music is only a hobby), you will need to collect all of your 1099 forms from people who have paid you more than $600 in check form. If you get paid in cash (and the other party isn’t claiming they paid you), you don’t necessarily need to tell Uncle Sam (but you didn’t hear that from me).
Pro-Tip #4- Make a list of income received vs. expenses paid. These vary, but some examples of income received might be: Payment from gigs, payment from teaching lessons, payment from recording sessions, payment from clinics/masterclasses, or winning the lotto. Expenses paid might be: rent/mortgage, groceries, credit card bills, health insurance, car note/insurance, phone bill, student loans etc.
Pro-Tip #5- Figure out your possible deductions (this is where saving all those receipts comes in handy). The IRS says in Publication 535: “To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.” Some expenses (but not limited to) could be: gear (instruments, amps, pedals, sticks, drum heads, etc), music business books/resource guides/venue directories, music publications (Billboard, Rolling Stone, Modern Drummer, etc), promotional materials (photos, copies, posters, CDs, etc), office supplies, travel expenses (gas, mileage, tolls, hotels, flights, rental cars), meals (only if they are related to your business/traveling), professional services (manager, agent, lawyer, CPA), rent for storage space for your gear (this can be part of your total home rent if you have a home studio that is solely used for business), part of your cable/electric bill (only if those also cover your home studio), part of your phone bill, website (hosting and billing) fees, copyright and incorporation fees (inc, s-corp, LLC, etc), lessons you receive as a student, clothes/uniforms (for business only), union dues, and contributions to a health savings account. I’m sure your accountant can help find more if I left anything out.
Pro-Tip #6- Consider separating your business expenses from your personal expenses with an Incorporation, or S-Corp or LLC, etc. if you are paying other musicians or a member of a band (which can be considered a partnership). If you are a member of this band, you need to have a formal agreement and not be just a sideman that plays from time to time. You will then file your personal expenses with your social security number, but your business expenses you will use a tax id number (I use my tax id number with my LLC which separates “Damon Grant the performing artist” from “Damon Grant the taxpaying US citizen”).
Pro-Tip #7- Fill out your forms correctly, per your records, and make sure you have the right ones. This is a good time to double check with your accountant, which ones best pertain to you. Along with your 1040 for filing income, there are a host of other forms. Without going into great detail, some examples of forms deal with things like: student loan interest, doctor’s and dentist’s checkups, mortgage (if you own a house), Federal taxes, State city taxes (like if you pay taxes at the end of the year for operating a car), and itemized contributions (donations and charity). I’ll stop there before I lose the last three readers from boredom.
Pro-Tip #8- What if my gear has been stolen this year? Obviously something we all hope never happens, but if it does, some of these expenses can be deducted in full, while others must be depreciated. See IRS Publication 946 (“How To Depreciate Property”) for more information.
Finally, here is a shameless reminder that I am playing in Greenwich, CT at the J House on Wednesday, February 19, 2014. I will be playing vibraphone alongside Darby Wolf on the B3 Hammond organ and Gerald Myles on the drums. Our special guest that night will be Hanan Rubenstein on the guitar, who has some time off of the road from touring with Alicia Keys. We play from 7-10pm and there is no cover. Hope to see some familiar faces!
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