Taxes on Band Profits

Discussion in 'Band Management [BG]' started by Filkarri, Feb 6, 2014.


  1. Filkarri

    Filkarri

    Joined:
    May 31, 2012
    Location:
    Albuquerque, NM
    So this past year, the cover band I am in actual started to experience some local success. Nothing crazy, but we had consistent gigs at some casinos, restaurants, weddings, and a few corporate parties, and all made a few thousand bucks throughout 2013. Now that tax season is here, all those 1099s started showing up on our doorsteps. Fortunately I, unlike some of my other band members, saw this coming and kept a savings account that I added money to at the end of each month to the tune of what I expected to have to pay in taxes. Fast forward a bit, and I did my taxes and it turns out I was about right, so I'm in good shape. Some of my other band mates did not realize this however (and they didn't listen to me when I warned them), and are now freaking out because their tax returns have them owing some pretty large sums of money.

    For those of you out there who have been doing this longer than I have, any advice on the best way to handle this? Should we set up the band as a business? If so, what kind do you recommend? Would it be best for us all to just set up separate sole proprietorships? It seems to me there has got to be a better way of handling this, particularly since I know we can write off expenses (mileage, strings, etc) on our taxes if we have it set up properly, and end up owing uncle sam less. Any advice you can offer would be GREATLY appreciated.
     
  2. BurningSkies

    BurningSkies Supporting Member

    Joined:
    Feb 20, 2005
    Location:
    Seweracuse, NY
    I have limited experience. The band that I was in that had the most monetary success and exposure (CD's, distro, merch and touring proceeds that were paid by check) we set up as a limited partnership with a dedicated bank account, a tax ID number and a post office box.

    We actually had an accountant that did the paperwork, helped us with paying the appropriate sales taxes and end of year tax forms, as necessary.

    I also have experienced in another band where we make pretty good gig money...one of our regular places paid us in cash for regular gigs, but I never received a 1099 and didn't expect to need to claim it...and got hit with an ugly letter from the IRS. It's HARD to collect cash from gigs past from band members (if they're even still in the band).
     
  3. elgecko

    elgecko

    Joined:
    Apr 30, 2007
    Location:
    Anasleim, CA
    We're they individual 10-99s or made out to the band?
     
  4. theduke1

    theduke1 Supporting Member

    Joined:
    Dec 22, 2010
    Location:
    Manitowoc WI
    What I have always done is at the start one band member collects keeps track and splits all monies paid to the band . At the end of the year he or she presents each member with a 1099 for their share of all monies paid to said band. What happens after that is each member responsibility.
    My self I track all money spent making the band money and file long form as a single performer. If you go the llc route there may be unemployment taxes and other things attached to a small business.
    Hope that helps.
     
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  6. fdeck

    fdeck Supporting Member

    Joined:
    Mar 20, 2004
    Location:
    Madison WI
    Disclosures:
    HPF Technology: Protecting the Pocket since 2007
    This tells you all that you need to know about whether to get entangled in a business entity with these guys.

    Note that I am not an accountant.

    Here's what I do. I treat myself as a business. I keep records of all incomes and expenses, and file my own taxes. I suspect that creating an LLC doesn't make anything easier at tax time, and makes things more difficult of the members are not all good business people. "Every man for himself" is a better system. I wouldn't shed too many tears for the guys who were in for a shock at tax time.

    Above and beyond recording your own gig pay, the only other thing that needs to be dealt with is if you collect the pay for the entire band and then distribute it. It's a good idea to write checks to the band members to create a record of your expenses. The first time you pay money to anybody, you get their SSN and address, so you can send them a 1099 if necessary.

    There are books on how to run a small business. Read one.
     
  7. fdeck

    fdeck Supporting Member

    Joined:
    Mar 20, 2004
    Location:
    Madison WI
    Disclosures:
    HPF Technology: Protecting the Pocket since 2007
    Probably not to the band unless the band has a business ID number.
     
  8. Gaolee

    Gaolee The Fat Violin Supporting Member

    Joined:
    Jan 13, 2010
    I don't know why you would set up an LLC to work as a musician. I suppose there might be some liability issues if you are supplying a PA, but I don't really know. It seems like an unnecessary complication unless you set up the band as a legal entity with some percentage of ownership for each band member. If you do that, it makes accounting a little more complex. Make sure you keep track of all of your expenses including mileage, depreciation, materials, travel expenses, etc. It adds up.
     
  9. Ukiah Bass

    Ukiah Bass Supporting Member

    Joined:
    May 10, 2006
    Location:
    Mendocino County, California
    If there is no legal entity for the band (such as a LLC), the members are individually liable and can file Schedule Cs to handle their share of the income. If the band was paid for a gig or gigs by check(s), probably someone in the band gave those respective customers a Social Security number so that band member (or members) will receive 1099s from the clubs, etc. Those band members need to, in return, issue 1099s to each other band member who received distributions from the corporate check(s). Otherwise the band member(s) who received the original lump sum payment(s) will be liable for 100% of the tax on the total sum.

    At this point it sounds like your band has become a real business. You need to treat it like one and get your legal ducks lined up so there are no more surprises. Consult a CPA and possibly a lawyer to get the facts on your particular situation. Do it now. Tax forms must be filed by April 15th.
     
  10. BawanaRik

    BawanaRik Supporting Member

    Joined:
    Mar 6, 2012
    Location:
    New Jersey
    Having the partnership was a real good idea. It appears you were in a position of responsibility. That can stink.

    When I was young my first apartment was setup with roommates. I put the gas and phone in my name.

    Never again. It's like being a parent.
     
  11. Kmonk

    Kmonk

    Joined:
    Oct 18, 2012
    Location:
    South Shore, Massachusetts
    Disclosures:
    Endorsing Artist: Fender, Spector, Ampeg, Curt Mangan Strings
    If each member received a 1099 for their share of the earnings, they are responsible for paying their own taxes. If they didn't save money for this, they can set up a payment plan with the IRS. If the band is well established and expects to continue playing this year, they can pay estimated quarterly taxes this year to avoid owing a large sum when they file next year.
     
  12. BurningSkies

    BurningSkies Supporting Member

    Joined:
    Feb 20, 2005
    Location:
    Seweracuse, NY
    The band that was set up as a limited partnership needed that to keep things straight and legal. We had proceeds from the label, gig money, merch related money coming in while expenses like shirt printing, additional CD printing (non label) and/or recording and travel money going out.

    Also, to make things more complex, we had the original members, who were full partners, then we had a member leave (bought out by the rest of us as he left), and his replacement was a subcontractor rather than a partner. We also had a horn section, which had some rotating members, who also acted as subcontractors. It also allowed us to have a Tax ID number so no one person got hung with the responsibility, and allowed for an actual band bank account.

    I never wrote off expenses for my part of any take, since I was not necessarily very sophisticated in my own finances (this was me in my mid 20's).
     
  13. BawanaRik

    BawanaRik Supporting Member

    Joined:
    Mar 6, 2012
    Location:
    New Jersey
    It sounds like you did everything right. Writing off expenses can get tricky.

    You had a band that was successful enough you had to pay taxes. Congratulations!
     
  14. BurningSkies

    BurningSkies Supporting Member

    Joined:
    Feb 20, 2005
    Location:
    Seweracuse, NY
    Thanks. I didn't know I was so lucky at 25. :) It was a fun ride for a while.
     
  15. modulusman

    modulusman

    Joined:
    Jan 18, 2004
    Location:
    montana
    I guess that makes me super successful since I have been paying taxes on band income for about 30 years.:confused: I wish the IRS would go after musicians that didn't pay. Maybe it would make them find another hobby and leave the band business for people who actually treat it as a business.:D
     
  16. Mark Nye

    Mark Nye

    Joined:
    Sep 18, 2012
    Location:
    Columbus, OH
    +1.

    This is the easiest way to run a cover band. Put all the 1099s in one person's name, and have that person issue 1099s to the other members.

    I had a cover band for a few years that was playing 175-200 shows/yr and grossing $100-120K/yr. When those numbers started happening, I consulted my accountant once about an LLC, and he basically said it was "an unnecessary extra step." Being the money handler, I was worried that it would look like I was making all of that myself, and thus I'd be on the hook for the taxes. But it really was as simple as just issuing 1099s for the 2/3 of the take that wasn't mine to the other two band members. Once you tie a person's salary to their SSN with a 1099, your hands are clean.
     
  17. Steve

    Steve

    Joined:
    Aug 10, 2001
    Yep.

    And since you now have 1099 self employment income, you get a nice package of self employment income tax deductions to play with. If working part time, you can't take that profit or loss from a business schedule with all it's write offs and turn it to your advantage...you really need to get another accountant.
     
  18. Warfender

    Warfender

    Joined:
    Oct 25, 2009
    This is what we do as well for several years. only issue is to make sure that you pay each over $600 to 1099 them otherwise you have to itemize each expense. Each can write off expense such as equipment, travel, purchased music and movies if they are for research (these are pushing it), etc.
     
  19. Pet Sounds

    Pet Sounds

    Joined:
    Mar 8, 2009
    My band has an LLC, and I'm the president. Prior to its establishment, another member ran the band as a DBA and handed out 1099s. When he left, I didn't want to assume the liability for the band, so we set up the LLC. It works very well and really isn't very complicated. In fact, I think it's a better system because everyone has ownership in the company. It's more of a professional set-up than before.
     
  20. bass81800

    bass81800

    Joined:
    Dec 7, 2011
    Location:
    Southern CA
    In my experience of playing for numerous bands, and also being a tax preparer, what seems to work best is to have each member sign a contract of sorts clarifying that their wages will be reported on a 1099 form. This also involves you getting their SS or EIN number.

    Then, at the end of the year, issue the 1099's to each band member. It is their individual responsibility to report this. It is out of your hands.

    In my experience, just earning a few thousand, deductions off set expenses when you factor in mileage, equipment expenses, insurance, and depreciation - do not overlook that big one called depreciation. Most likely, you can write this off, for tax purposes, as a loss.

    Yes, you can go to a CPA, but there are also so very fine tax preparers that may even have more tax specific training and are less expensive at H&R Block or maybe another franchise. They will set you up with a preparer who has experience with businesses. Regardless, you need to work with a tax preparer who has experience with Schedule C's and can help you maximize deductions.

    Also, there may be a way to write this off as hobby income if it is not a lot of earnings, and a good tax preparer can fill you in on the details.
     
  21. iriegnome

    iriegnome Bassstar style Supporting Member

    Joined:
    Nov 23, 2001
    Media:
    20
    Location:
    Kenosha, WI 53140
    Yea, we formed a LLC. Each member now gets a K-2 form at the end of the year to file our band taxes with. Easier that way. 1099's come in the band name and our acountant does the magic
     

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