2018 Tax code: no write offs?

[BassAndReeds]

Hi all,

So let’s try to keep this as politics neutral as possible, considering TB rules.

But rumor around some of my musician friends is that musicians will I longer be able to write off music expenses related to our 1099 forms this year and into the foreseeable future.

Is this correct? I’m not a lawyer or accountant.

I get between $6,000 - $10,000/year in 1099 income. And I’ve grown accustomed to writing off mileage, strings, instrument purchases, pedals, books, food, etc... I even have a CCard dedicated to music write offs. Is this no more?

Update: So my situation is clear. I have a non-music day job on W2, where I take the standard deduction. The 1099 income is related to the business of music. I file a schedule C for music and deduct from there. (TurboTax)

 

[Coolhandjjl]

Set up your music as a business. Can be an LLC, but doesn’t have to be. But if it is a business, then you can do your income and offsetting expenses on Schedule C.

Consult with a CPA for specifics.

 

[Richland123]

Set up your music as a business. Can be an LLC, but doesn’t have to be. But if it is a business, then you can do your income and offsetting expenses on Schedule C.

Consult with a CPA for specifics.

Yes, Schedule C can be used as a musician. I do it. Keep all your receipts.

 

[T_Bone_TL]

Yes, Schedule C can be used as a musician. I do it. Keep all your receipts.

And don't forget schedule SE, if applicable.

 

[Coolhandjjl]

And don't forget schedule SE, if applicable.

Forgot about that one.

 

[ashtray]

THere were a ton of changes to the tax code for 2018, but I’m not sure there was much change to Sch C. I haven’t researched it, but I haven’t heard anything mentioned either - at least nothing major related to Sched C deductions. But check with a CPA to be sure. Or go on irs.gov and research there.

 

[two fingers]

If this gets into politics, please delete. My intent is to be "matter of fact" about it.

I have no dog in any political fight.


I do, however, follow such things intently.

From what I understand, the intent of the changes was to both lower rates AND simplify the tax code (in increments.... this being the first step).

So, rates would be lowered, but some write offs are done away with, thereby simplifying filings.

If you wish to go the LLC route, go for it. But with a reduced rate, you should still come out ahead without doing that. You'll just come out more aheader-er by forming an LLC and filing as a business. For the few hundred dollars difference it makes in how much actual cash I keep, it's not worth the hassle to keep receipts, use special credit cards, etc.

If it allowed you to gain $5,000K+ in actual dollars you keep, it MIGHT be worth all that hassle. As it stands, for me personally, I need less hassles in my life a lot more than I need several hundred dollars annually. And filing receipts for bass strings sounds like a gynormous hassle. I'm glad to be rid of it. My reduced tax rate more than makes up for those few hundred dollars..... according to my accountant's projections. As a fun experiment she took our 2017 income and plugged it into 2018 tax policy. Let's just say we're pleased. Between our reduced corporate rates for our businesses, and our reduced income rates, it's a rather larger sum of money we actually keep.....

......so much so that I will not be keeping up with music expenses and forming an LLC for music.... stuff. If I get 1099 forms from any of the acts I work with I'll just give them to the accountant as another income source. She can deal with it however she sees fit.

 

[T_Bone_TL]

You don't need to form a Limited Liability Corporation (LLC) to file schedule C. If you have a business (even if the business is just you, but then C-EZ may apply) you file a Schedule C for each business. It's not optional; it's how you report business income, and being an independent contractor (you get 1099's rather than W-2's for work you do) means you have a business in the eyes of the IRS. If you haven't been doing that, you are in deep doo-doo if they ever bother to audit you.

That income is also self employment income and (if more than a figure between $400 and 500 which is detailed on schedule SE) subject to self employment tax. What delightful changes have been wrought to the system is something I'll concern myself with more next year, not this year...half the implementation details will remain unclear until the IRS casts them in ink, among other things.

If you are pulling in hundreds of thousands of dollars, there might be some reasons to get fancy, per a quick search on what's known or inferred right now. Less than $157.5K single/$315K married, no need. And thats about preserving a new discount, mostly.

Perhaps this will shed some light: Basically, employees (W-2 income) get scrod on deductions for unreimbursed employee expenses. So if your band is super businesslike and you are a W-2 employee and you have to provide your own (whatever) for work, yes, you are scrod. Businesses (including a simple sole proprietorship, aka, it's just you, getting paid by 1099's) not so much. Deductions for the business remain in place (but the two have been mixed up by half the internet.) They also supposedly will get a new 20% off the business income. That might be the point where the LLC thing comes up, actually. Unlikely to affect me, so I'm not wasting any more effort on penetrating the murk right now. Something about "pass through businesses."

And I repeat, if you are paid for work via 1099, you had better already be filing schedule C - there are OTHER types of 1099 income that can just be filled in on a line (you win a prize, say) but you can't do that with work income (even if taking no deductions from it) and be on the right side of the law. I've been dealing with that one for ages, mostly for amazingly small sums where the paperwork is quite annoying, but the instructions are quite clear on that point. You don't have to track and take deductions (but you had better not take any you cannot document if needed) but you still have to file at least C-EZ to report it, and SE if required by how much it is.

 

[PolkaHero]

I think you heard about changes to itemized deductions on your 1040, some of those got eliminated for 2018.

 

[skwee]

As I understand it, what you won't be able to deduct are W-2 Employee expenses. 1099 freelance income would be fine to deduct as usual.

 

[T_Bone_TL]

There may be changes to itemized deductions (don't know, don't care, has never been better than the standard for me) but the items in question would be before you get to that - form 2106, entered on line 24 of form 1040, reducing your gross income. I believe that the educator expense deduction on line 23 is also going away. When the IRS has the new forms and instructions ready to go, we'll actually know what the deal is.

 

[Coolhandjjl]

I wonder if there's some confusion going on here. The OP should have been filing Schedule C and SE all along anyway, and putting his music expenses on the Schedule C, not using the Employee Business Expenses section on the 1040.

The now axed Employee Business Expenses were for wage earners, known as W2 earners. Any qualified personal expenditures related to your W2 employment could be entered, and there was a formula to deduct a certain percentage of those costs over a certain threshold. If that is what the OP was doing, he should go back and re-do the past three years of returns and put those expenses on Schedule C for a full offset against his 1099 income. The OP will have to pay self-employment taxes (if he wasn't), but that amount will be credited towards his future social security income.

If you're a gigging musician, your 1099 income should be put on a Schedule C, whether you are set up as a business or not. If you have the music set up as a business, it's easier to track and accumulate more legitimate expenses to offset that income. You have access to the home office deduction if you're a business as well. Even if a particular job was for less than $600 and you didn't get a 1099, you are still obligated to report it.

Pay attention to Schedule SE as well. Self employment taxes need to be paid on what's still showing as income after all expenses are deducted.

Perhaps the OP's accountant was doing that all along and the OP didn't really know what was going on under the hood.

One of the reason we see so many employment agencies, and companies now hiring staff only through those agencies, is there was so much unreported self-employment tax going on when a company would hire a freelancer or independent contractor direct. it was a real mess that resulted in much confusion on who was an employee and who was an independent contractor, and companies got caught in the middle, some having to cough up FICA payments as a result. Now, most large companies only hire through a staffing firm to insure someone is paying those self employment taxes. In the case of a staffing firm, the freelancer is now an employee of the staffing firm. That sucks for lots of freelancers as many lost their independent contractor status and can no longer use the home office deduction or other types of business expenses as many have been reclassified as employees of the staffing firm and are now W2 earners.

It really is important to see a CPA to make sure everything is working in your favor so you pay only your legally required amount of taxes, not more, not less. For example, if you are set up as a business and take credit cards, and the bar owners pays your band after the gig with his company credit card, you swipe his card with your Square device on your cell phone, etc, you may get a different type of 1099.

It can get complicated, so please see a CPA.

Also, as an individual, you have to decide how you want to roll. A bar you play for may pay you in cash. A company you play at for their corporate event will issue you a 1099 if the fee was over $600. And maybe even if the amount is under. And there will be no 1099 required to issued by anyone when you play at a quinceanera or wedding unless an event planner is hiring and paying everybody. Then you will probably get one.

It can get complicated, so please see a CPA.

 

[pglaser01]

Yeah I think it was changes to 1040.

I had expenses that I was able to write off and didn’t get flagged yet.

 

[Pirate Captain]

it's really worth it to hire a tax-preparer who knows this stuff.

 

[Coolhandjjl]

For the record, LLC's can be cheap to set up and maintain. In my state, It's $130, and then $25/year. All done on-line.

The Limited Liability part of the term is a bit misleading. In the case of a sole proprietor LLC, you can still be personally sued, and personal assets can still be seized even if the judgement is from something you did as the LLC.

 

[Coolhandjjl]

it's really worth it to hire a tax-preparer who knows this stuff.

Yup. Doesn't have to be a CPA.

 

[obimark]

IMO- My understanding is they will double the standard tax deduction--- so while you COULD choose to write-off misc business expenses, it may not be worth it, as you will get more with the standard deduction.

I go through this now, as I am a full time W-2 employee making good $, but my wife is a "Contract" employee makign about half of what I make. BUT- I file a joint return so I write off a boatload of small business expenses for her. (Literally about 40% of her income).

I am not sure how much if any of those they would take off, or if I am better off with the standard deduction...

 

[ashtray]

Note, some of the confusion and misdirection has been that the standard deduction is roughly doubled, but personal exemptions have gone away. Those were roughly $4k/person. Married filed jointly had a standard deduction of $12k. That goes to $24k ($12k increased deduction) - but if you’re a family of 3, you lose $4k x 3 in personal exemptions - ie, $12k. So the net effect is nothing. If you have 2 kids or more, you lose $16k+, and will have a higher taxable income.

And if you are a home owner and used to itemize your deductions, you’re losing some tax deductions and you also lose those personal exemptions.

In my case, property and income taxes are high in CA. Let’s say I pay $25k combined for those. That is now limited to $10k. So my taxable income increases by $15k. Also say I have 2 kids, plus my wife. So my taxable income increases another $16k. Combined, I’m paying taxes on an additional $31k in income. At 25% tax bracket, that’s $8k coming out of my pocket each year.

If I had an extra $8k to just throw around, I’d have quite the bass collection!

Now the actual tax rates on taxable income have come down 2-3%, so people will see some savings there. And those not phased out of child tax credits will see some additional relief there.

If you are single or married with no kids and don’t own a house, you should see some reduced taxes.

 

[T_Bone_TL]

IMO- My understanding is they will double the standard tax deduction--- so while you COULD choose to write-off misc business expenses, it may not be worth it, as you will get more with the standard deduction.

No, no, no, no no.

The standard/itemized deduction has NOTHING to do with business expenses, which are all done on schedule C. You deduct business expenses from your business gross income to arrive at your business net profit. The standard or itemized deduction is completely unrelated, and happens later in the process.

 

[Coolhandjjl]

Yes, Schedule C can be used as a musician. I do it. Keep all your receipts.

Keeping receipts is easy with most stuff done on-line or on a cc now-a-days.

IMO- My understanding is they will double the standard tax deduction--- so while you COULD choose to write-off misc business expenses, it may not be worth it, as you will get more with the standard deduction....

Bad advice. Music expenses have nothing to do with the now axed employee business expenses or the standard deduction.

Schedule C is on top of or in addition to anything happening on the 1040. Not related to the standard deduction at all, never was. For anyone who was not already doing a Schedule C beforehand, you were applying music related expenses incorrectly and loosing out on deductions.

Note, some of the confusion and misdirection has been that the standard deduction is roughly doubled, but personal exemptions have gone away. Those were roughly $4k/person. Married filed jointly had a standard deduction of $12k. That goes to $24k ($12k increased deduction) - but if you’re a family of 3, you lose $4k x 3 in personal exemptions - ie, $12k. So the net effect is nothing. If you have 2 kids or more, you lose $16k+, and will have a higher taxable income.

And if you are a home owner and used to itemize your deductions, you’re losing some tax deductions and you also lose those personal exemptions.

In my case, property and income taxes are high in CA. Let’s say I pay $25k combined for those. That is now limited to $10k. So my taxable income increases by $15k. Also say I have 2 kids, plus my wife. So my taxable income increases another $16k. Combined, I’m paying taxes on an additional $31k in income. At 25% tax bracket, that’s $8k coming out of my pocket each year.

If I had an extra $8k to just throw around, I’d have quite the bass collection!

Now the actual tax rates on taxable income have come down 2-3%, so people will see some savings there. And those not phased out of child tax credits will see some additional relief there.

If you are single or married with no kids and don’t own a house, you should see some reduced taxes.

Yup. After an analysis, our Federal Taxes will increase.