Bandleader Accounting/Tax Help
I'm a bandleader of a jazz trio. I read this thread about filing taxes, and it was extremely helpful.
Aside from 1099'ing my bandmates for the money that I pay them, are there any other accounting practices I should pay attention to?
Currently, I have a second checking account devoted to my band, and I am extremely honest about reporting income (including depositing cash earned to the bank). What kind of software would you recommend I check out (for Windows)?
I'd like to phase in a good system of accounting in 2014, so my only worry will be making music, not tax headaches!
The software I use was phased out (no more upgrades or support) a few years ago, so I won't answer that specific question--I'm trying to make the leap to quickbooks now, but only half heatedly since my current package still works.
I have some thoughts that may be helpful (some you probably already know; and I didn't read your link yet). As a 6-year small biz owner with licenses for both my day job and my music, here are the things that stand out as important to know:
1. You can depreciate your equipment, if it's expensive--anything under $100 I just list as one time expenses, but computers and amps and basses I took the section 172 depreciation over a couple of years--the strategy on where you draw the line has more to do with anticipated income. If you have a big year income-wise, or expect one, decide where you want more deductions. Keep receipts. If you are ever audited, they can ask for several years back tax returns and receipts--so I keep mine forever.
2. Mileage has been my single biggest deduction. Keep good records. Or keep track of your gigs and your start/end mileage for the year and estimate (not actually legal). I use google maps, not actuals for every trip anyway, so that I'm using a consistent tool. Avoid guessing wherever possible, but if you do, don't get in the habit of using the same final digits for your records. This might be overkill.
3. I use turbotax home & business--after the first year, anyway, when I paid a CPA and got familiar with everything.
4. Finally, the IRS considers music and art a hobby (they can approach anything that way, really) if you *aren't making money*. I have been advised that reporting a loss 3 years in a row will spark an audit. Don't know if it's true because I combine both of my endeavors (I'm a tech writer--proposals and grants) into one filing, and always have income to show (and also have a great story about how they go together as a single endeavor if asked).
Oh, one more--if you NEED to show a healthy income for a year, as a result of preparing to apply for a loan, say, you don't HAVE to take all your deductions. I learned this the hard way--the bank doesn't look at your gross. I thought I was smart to not pay extra taxes, but there you go.
HTH! Pm if you have any questions about the list above.
*Not a professional, you should always seek counsel from a tax attorney, ymmv, yadda, yadda...*
Jeff, thanks a million... that's EXACTLY the kind of advice I'm looking for!
I just thought of a few more:
A. You can deduct 50% of meals purchased for meetings. If the banjo player and I go out and get wings and talk about set lists or venues, I keep the receipt (NOT the itemized copy, just the total I used my credit card for) and make a note of the meeting on it. I don't do that all the time, but if we talk business, it's a business meeting. Same goes if I buy a booking agent or recording engineer a cup of coffee...
B. If you also use your phone for business, and don't have a dedicated line, you can deduct 1/2 of that bill, too.
C. Read up on the "home office deduction" online and see if you can make your rehearsal/recording space fit the necessary criteria. If yes, you'll need the sq footage of the space vs. your entire house, and then you'll be able to deduct that same percentage from your annual water/sewer and electric bills. Turbotax does the math on that for me.
D. Keep track of quotes. When someone asks for your price, make a note who and for when and whether it turned into business. This is just good record keeping, and builds a picture of a pro organization, plus...
E. Most accounting software tracks by converting quotes into invoices. Even if you don't provide your customers with an invoice (I've done it once for the band in three years), it's the official record that the system will use to track accounts receivable, etc, for reporting.
Last one (for now, I guess!)--on your Schedule C there's a place to note whether you discounted the price of your service(s) to a customer. If you cut someone a break on the band's normal price (and can show that you HAVE a normal price) there's a place to write off that loss.
I'm sure there's plenty more others could offer. Those are the big ones for me. I use the "Cash" accounting method--you probably do, too. The alternate is "Accrual" method. Read on the difference--the software will probably ask you to state that up front.
If you end up using quickbooks, I might be asking YOU about this later!
Lots of easy stuff to do re: mileage, receipts, etc.
I will let you know how it goes!
This all seems like good advice. Jeff, I think you're right on the money. I would just recommend being very careful with the deductions.
I once sold a saxophone to this guy from CL. I got to his house, he paid me, then he asked if I wanted to learn about "a business opportunity." Ended up that he wanted to sign me up as a seller of deregulated energy under him, Ponzi-style. I had to do some serious convincing to get him to stop emailing me.
The point, though, was that one of the points he made was "but if you sell this stuff, you can deduct your whole life as a business expense! Mortgage, meals, mileage, phone.. If I'm networking with the lady at Starbucks, then I can deduct my coffee!" (this is an actual quote from him.)
I told him that maybe he shouldn't be giving this advice to people, because a) it's terrible advice that will likely get him and anyone else audited and b) he's not an attorney or other tax professional. Suffice it to say that he didn't listen to me, and I imagine I'm going to read about him in the papers sometime.
Long story short, as an attorney, I recommend keeping as much documentation as possible on your purchases. But beyond that, and almost more importantly, I'd err on the side of paying too much. The real damage from being audited isn't the penalties if they catch you doing something, it's the cost and hassle of being audited in the first place. If you can avoid that by not looking shady at all (i.e. deducting a ton of stuff, deducting your entire income, etc) then that's the best way to go.
Great points, dangerouscello. I'm reminded of how we used to say "yeah, rear wheel drive will get you out of a ditch, but front wheel drive keeps you from getting there in the first place."
I NEVER want to be audited. I have my documentation, but you're right; my time and hassle-free life is pretty valuable.
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