Whether you are just beginning to do a gig now and then, or a busy music pro making a living performing and recording, here are some helpful tips for self-employed artists. This article focuses on taxes in the USA.
If you are a professional musician, who makes a significant amount of your income at it, itís very wise to have an accountant who knows how to help you reduce your taxes as much as possible while staying strictly within the laws.
If you just have a few gigs, an accountant can still be helpful, and the simpler your taxes are, the less they will need to charge you.
The ideal is to keep meticulous records of your finances. Save and organize all your bank statements, credit card statements, bills, and receipts.
If your financial records are not organized yet, donít be discouraged. You can still progress in that direction. You will find numerous ways to benefit along the way. And you can get better at it over time.
Keeping your financial records well organized has become much easier and faster with the advent of personal finance software. The most popular personal finance software program by far is called Quicken, made by Intuit.
TurboTax, also made by Intuit, is the top rated, best selling tax software available. If you are not hiring an accountant, this is the next best thing.
If you use TurboTax and ARE using an accountant, you will better understand the process. Your accountant will appreciate how well organized and savvy you are, and they will be able to provide their services more quickly, saving you money.
Tax software is updated each year with changes in the laws.
What you paid during the year to other musicians who played with you, your sound engineer, roadies, manager, etc., reduces your taxable income.
This also applies if you paid a commission to a booking agent, or gave someone a finder's fee for getting you a gig.
So you want to be sure to keep track of it all.
Most musicians are not employees. They are independent contractors. Most musicians also donít have employees working for them.
Employees get sent a W2 Form. Independent contractors get a 1099 Misc Form.
If you pay someone (who was not working as your employee) $600. or more in a year, you are supposed to fill out a 1099 Misc form and send a copy to them, and one to the IRS. You send a copy of the form to the person you paid no later than January 31. This gives them time to use the information when they do their own taxes before April 15, and to contact you if there are any errors. You also send the IRS their copy of the form no later than February 28.
If you send the forms after those dates, there is a late fee. If you make an error, you will have to send in corrected forms.
When you receive a 1099 Misc form from a client, especially one who has hired you on multiple occasions, make sure the figures are accurate. If there is an error, contact the person or company who hired you. They will have to fill out a corrected form for you and the IRS.
Deductions (aka Write-Offs)
The expenses necessary or typical to run your music business are tax-deductible, meaning some or all of the costs are deducted from your taxable income, and you owe less tax.
Your income and expenses are reported on an IRS form called a Schedule C. The deductible items are listed there.
Here are some examples of common business expense deductions for musicians -
Musical instruments, PA systems, lessons, office equipment, computers, software, website, ISP, email, postage, phone, promo, recording, duplication, graphics, memberships, subscriptions...
As well as listing deductible items and an overall total, you will need to have the details: what the names of the items or services are, how much you paid, when and where you got them, and the receipts.
Here is a helpful form downloadable as a PDF Specialty Worksheet For Entertainers, which shows many examples of what musicians and entertainers can deduct. We all have some things we do differently, so you may have deductions that are not listed, and some of the listed ones may not apply to you.
More Good Things To Know
50% of your business related dining and entertainment is tax deductible.
Gifts to clients worth up to $25. are 100% deductible.
Promotional materials given to prospective clients are deductible at cost.
A portion of expenses for band business meetings, recording sessions and rehearsals are tax deductible, too, even groceries such as food and beverages that were used for that purpose!
Vehicle expenses are deductible, as well. Keep track of repairs, gas and mileage. The miles you drove for business add up and make a nice deduction. A percentage of the interest on your car loan (for a vehicle used for your music business) is deductible. And road tolls and parking fees are fully deductible.
There is much more very helpful information for reducing your taxes effectively and legally. If you want to talk to an accountant who specializes in musicians, other artists and self-employed people, I wholeheartedly recommend Gail Kerna at JFK Tax Service. She is very experienced, intelligent, kind and good natured (she has to be to put up with me!:-). Gail has been doing my taxes for many years.
(I receive no monetary or other compensation for this recommendation. It is solely offered to be helpful.)
I wish you the best!
If you would like to listen to or purchase music by Sabira Woolley, here is her Music Shop.