Musicians and Taxes

[backline112]

When people have the opportunity to ask questions to experienced musicians, it's usually about technique, or music (o rly?) but most forget to ask questions about the things in life a musician must usually learn to live with, like shifted sleeping habits, transportation, exercise, injuries prevention, etc.

The other day I talked with my dad about Taxes. Which led me to ask myself, how do musicians do their taxes? Are there special forms "for musicians" or could it be called self-employment?

We also talked about possible ways to evade taxes but concluded that it's easier and more profitable to just follow the system. So, how does the Bar owner declare the money used to pay the live bands? How does he prove the money went to musicians? Do Us musicians need to provide them with some kind of receipt? How do We prove the source of our gigging incomes?

These might be silly questions. I will definitely ask at the tax office, but please, share your methods.

Mods: Is this kind of Off Topic?

[Auzzie-Phoenix]

I would say that it counts a self employment, and you'll have to file form 1099.

[Bruce Lindfield]

I was talking to the guitarist in a band I play in, who is a full-time musician and he told me about how the first year he was making all his money from music, he got a big tax bill and got in trouble sorting it out.

So every ear since he has employed an accountant to sort this out for him - provide proper returns - and has saved money by paying for this!

[One Bad Monkey]

For me, it's pretty easy. Every place I play had me fill out an independent contractor type form, which results in me getting a 1099 from every theatre I play in. I submit those to my sister (who's my accountant) and she takes care of the rest.

Remember the upside of being taxed for being a musician, is that you can pretty much write off anything, just keep the receipt. I received an IRS-approved list this year of what is considered okay and there's a lot more than you'd think.

For example, the times during the summer when I was at the theatre rehearsing for a show and had a 45 minute dinner break before that night's performance, I was able to write off dinner (because I was "land locked" and on business). Keep a mileage book in your car if you drive too; that has saved me a ton.

[JTE]

Keep really good records. Excel is your friend! Track your time, expenses, and income. Break the expenses out by broad categories like equipment, repairs, publicity, travel (keep track of the miles you drive), etc.

The reason for this is that if you can show that music is intended to be a business, you can still loose money on it and be allowed the deductions for expenses. However, if they deem it a hobby from which you derive income, the expenses are not allowed beyond the revenue, but the revenue is all taxable. It's NOT about "you have to make money every three years", it's about your intentions and how you document running it as a business.

Keep reciepts for all the expenses you plan to claim. It's really easy to set up an Excel spreadsheet to track all this stuff and then have the totals when you figure your taxes. And you do have to file as self-employed. At some point (I don't recall the level) you may be subject to penalties for not paying estimated quarterly self-employment taxes too, so if you're making a lot of money gigging, then contact a tax person/accountant who actually knows the ins and outs of the self-employment maze.

There's a TB'er named Pedro who's an accountant and has done tax work for years (if I recall correctly, he's a former IRS employee). Hopefully he'll see this thread and pop in with real and factual information.

John

[backline112]

Ugh, I remember my dad telling me like everyday to learn how to properly use Excel...
Does anyone here do their own taxes (instead of sending it to an accountant?) Everyone I talk to make it seem like it's a difficult process, filling piles of unknown forms and strange characters...
My dad offered me to include my taxes with his as a first time, and then I'd be alone. So is it possible for an average joe to keep track of receipts and everything taxable, and then just fill out the forms? I mean, how hard can it be to fill in the blanks with the information requested?

Very useful info everyone. I really thought it was: Ok here's the cash for your gig now go away, and then just count that as yearly income. I am definitely going to ask all this to the tax person, but it's nice to be aware beforehand.

[pointbass]

Everyone handles things differently, and everyone has their own pre-conceived notions about what is fair/unfair and or legal/illegal. While I have no way of really knowing this, I'd be willing to guess that a significant majority of TB members do not file using music as an expense/income.

It's really just a simple matter of keeping good records. maintaining and filing recepits and setting aside some portion of your income to be used for potential tax payments at the end of the year. If it is your sole source of income, you really need to get in touch with a qualified accountant to help you set up a system for your needs ....

[JTE]

I've used a couple of tax preparation software bundles for my own taxes. But that's only for reporting the stuff to the IRS. It'll help, but you gotta have good records going in.

Here's the deal. You need to track time so if the IRS asserts it's a hobby you can show the amount of actual time put into rehearsals and gigs (practice on your own don't count). Track miles so you can claim the mileage allowance. Track income and expenses in various categories so you can enter the numbers into the correct IRS form.

My Excel spreadsheet shows columns for date, description, hours, miles, income, and a bunch of expense categories. Then after every gig I go in and enter the data. It'll be something like this with the semi-colons showing different columns in Excel.

09/26/09; Dallas McGee @ Spanky's; 8 hours; 32 miles; $90.00 Income

09/28/09; Strings from Guitar World; 0(no hours); $0 (no income); $25.00

Mine also takes the miles and calculates the dollar amount of the current IRS mileage allowance, totals the income and expense columns, and gives me a running total of my profit/loss.

John

[CamMcIntyre]

I use TurboTax to do the actual filing.

As far as keeping track of the amounts, sources, etc. I use the OpenOffice.org version of Excel (Calc).

I keep track of what I make from every theatre, I save receipts from everything from dinner to strings. When I have a transit exception e.g. this past weekend instead of getting a ride, I took a cab, I kept the receipt for that.

2008 was the first time I filed as an independent contractor. I'm keeping receipts, credit card records, bank records, etc of what I am spending and on what. When I get audited (I feel like it's when rather than if), I want to have proof about what I have claimed.

The good thing? Strings & cables are now a business expense.

I don't claim any deductions that I have to spend much time thinking about or calculating. One of my friends (also a musician) said that I could deduct part of my rent as storage space for my equipment. I feel that deduction wouldn't be worth the hassle of calculating it.

[fdeck]

Turbo Tax FTW.

[CamMcIntyre]

Originally Posted by fdeck

Turbo Tax FTW.

Yeah, I e-filed with them and it took maybe 3 weeks from the day of filing to get my refund direct deposited. When I filed through Jackson-Hewitt, not only did it take much longer to file & get the refund, but it cost me a LOT more. My taxes aren't overly complicated, I file business & personal. Business is the music side of things where, as I said earlier, I file as an independent contractor. Personal is my day job. I believe it took me about 2 hours between finding the paper forms I had and doing the actual filing and checking online. Add in that they let you choose (for a fee-$30ish) to have their fees deducted from the refund amount and I'm set.