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Band, taxes, LLC

Discussion in 'Band Management [BG]' started by Medford Bassman, Jul 9, 2008.

  1. Medford Bassman

    Medford Bassman Supporting Member

    Aug 8, 2007
    Medford, Wisconsin
    I do all the business end for my band. Book the gigs, collect the pay, draft the contracts, keep the books, pay the expenses and pay the band.

    Right now I have a checking account that lists me and the band name. $ gets deposited and I write checks to pay out the bills.

    I am concerned. I told the band members they should keep track of how much their getting paid for taxes. They blow me off. I'm more worried I will be tagged for the band's total gross income. I'm thinking about creating a limited liability corporation to avoid my personal assets from being attacked of something goes wrong.

    Any help or thoughts would be appreciated.
  2. mdiddium


    Jun 21, 2004
    Philadelphia, PA
    Yes you SHOULD be concerned. When you play gigs that don't pay in cash, they will typically ask you to fill out a W-2 so that the venue can write a check (you technically become employed at that venue for the tax year). In absence of a federal ID number (since you are not an LLC), they will require one member of the band's SS # (I'm assuming you have been using your own). You will get taxed for the entire wages earned off gigs paid in this manner.

    Now, there are three ways to go about this that will prevent you from paying all of the band taxes out of pocket.

    1. Keep doing what you are doing, then have each band member pay you out of pocket for their share of what you already paid in taxes.

    2. Since you are keeping track of all monies coming in, you can file a special form that includes all of your fellow bandmate's SS #'s, which will then mean you only pay for your share of the taxes. I can't remember which form, but perhaps one of our veteran freelancers can chime in here, if not check with an accountant.

    3. Form an LLC with the band. Each band member will be a partner and thus equally responsible for all taxes that the band owes. If you guys are in it for the long haul, this is your best option. Ask some lawyers for more details about becoming an LLC, but it's not difficult (or expensive). Basically it means that the band as a partnership is held accountable for everything the band owns. If for some reason you go bankrupt, you will not lose your house, just all possessions that have been claimed under the LLC. The LLC pays taxes from monies that were paid to it. This is the best way to ensure that you don't get screwed come tax time.

    Good luck!
  3. We are "independent contractors" and we get 1099's from the bandleader. We keep track of our own individual mileage, meals, etc. None of us has ever had a problem.
  4. Medford Bassman

    Medford Bassman Supporting Member

    Aug 8, 2007
    Medford, Wisconsin
    thanks for the good advice. I am leaning towards an LLC. My only concern is filing the annual report with my state (Wisconsin). It's my understanding the LLC will pay tax and then when the members are paid, they will pay tax on their income.
  5. jive1

    jive1 Moderator Staff Member Supporting Member Commercial User

    Jan 16, 2003
    Owner/Retailer: Jive Sound
    I'm not sure how an LLC will be for your situation. An LLC limits your legal liability, but taxes still pass through to each individual the same way a sole proprietorship or partnership will. An LLC isn't an entity in the way that a corporation is, but the rules vary from state to state.

    There's a simple way to deal with this.
    You already "own" the band in that you're the guy that receives all the monies and pays the bills. Just add your band members as expenses for professional services, and use that to deduct from the income earned until it's just your share you are liable for. Have your band members sign a receipt stating how much you paid them. You can do this at each gig, weekly, monthly, or annually. From doing that, you have a papertrail for the monies paid out.
  6. Rick Auricchio

    Rick Auricchio Registered Bass Offender

    Actually, it's an I-9 Request for Taxpayer ID. If you earn more than US$600 your income will be reported and you will receive a 1099 from the employer(s) the following January.

    This is almost a sure requirement for venues that pay by check, because it allows them to write off your wages as a business expense. Only permanent employees get a W-2; temps and contractors go the I-9/1099 route.

    If you earn less than US$600, there will be no reporting nor 1099. Whether you choose to report the income on your tax return is your own decision.

    One of our local venues has every band member fill out a check-request form after the gig. Checks are mailed or available for pickup. How the band members handle their money isn't the venue's business. But they're covered for tax purposes. And they don't have to worry about how to write the checks: the checks always go to individuals.

    +1 on Ken's LLC explanation: Though a venue could pay the LLC, you'd need a tax-id number for the LLC, probably a business checking account, and you'd have to pay each band member. That makes you a separate business, which is OK...but more work.
  7. jive1

    jive1 Moderator Staff Member Supporting Member Commercial User

    Jan 16, 2003
    Owner/Retailer: Jive Sound
    I'd like to add that becoming an LLC, doesn't necessitate a partnership. You can form an LLC as a sole proprietor. It can give you the protection of an LLC without the hassles of a partnership.

    But, for the purposes of taxes an LLC isn't much of an advantage, since the taxes are pass through. Each member of an LLC report their taxable profits on their own 1040 form. An LLC does not file it's own taxes the way a corporation does. That's a good thing since corporations are taxed as an entity, and then the shareholders of the corp are taxed for their earnings (double taxation).

    In short, an LLC will protect you from getting your pants sued off, but it doesn't offer any more tax advantages than a partnership or sole proprietorship.
  8. lneal


    Apr 12, 2002
    Lee County, Alabama
    I have run band business before and I would advise against an LLC or any other incorporation, as it is unnecessary. As long as you issue each member a 1099 under their correct SSN you will not be responsible for their taxes if they don't pay. Ball's in their court. Just be sure you actually see their SS cards. If they can't or won't let you see their card, can their ass. This is business, and as bandleader you are responsible for collecting accurate SSN data. When you pay them you will need to have them sign a receipt for it, even if by check. Do all this and your butt is covered. If you've never been incorporated, as I have in the past, you have no idea of the reams of paperwork and hair pulling you're in for.................................FWIW, YMMV:)
  9. nsmar4211


    Nov 11, 2007
    Or you could just deduct a percent out of their wages for taxes. We figure 25% withholding for taxes here. Then you don't have to worry about them not ponying up the money.

    And yes, as the check signer you get the tax bill unless you do 1099's :).
  10. wld3


    Jun 22, 2008

    Three points:

    1. The earlier mention of how it may sometimes be done with a club and a W-2 is completely wrong with a possible exception being that they hire you on as a regular and exclusive act.

    Employee or Independent Contractor

    2. You do not generally withhold taxes when dealing with independent contractors. Independent contractors are supposed to file quarterly tax returns.

    3. 1099s are not just pieces of paper you fill out or print and give to the payees. You also have to file them with the IRS.

  11. 4Mal

    4Mal Supporting Member

    Jun 2, 2002
    Columbia River Gorge

    you write off mileage ? I've been told thats a good way to get audited. Seems like the IRS views us more like carpenters. Even though we have home studio's and rehersal spaces, we essentially commute to our place of business is how they are thought to rule it. and the commute mileage isn't deductable.

    Good time to note that I'm not a CPA and I'm not a tax guy - I spent some time researching this last year and decided not to attempt the mileage write off based on that reserach.
  12. wld3


    Jun 22, 2008
    You absolutely should track mileage for tax purposes. If you have a regular practice site or studio that the band owns or rents, then travel from your home to that location may well be considered commuting but traveling from home or from those sites to play gigs at various venues is definitely a deductible business expense.

    Of course, this assumes that your band's finances are being properly handled and you are reporting your income properly anyway.

    It is worth it to check out sources like Music Law and The New Tax Guide for Artists

  13. Rick Auricchio

    Rick Auricchio Registered Bass Offender

    wld3, I presume you mean that wdiddium's W-2 message is inaccurate.

    I know that the payer files a 1099 with the IRS and mails a copy to the payee. And, yes, one who pays a contractor needn't deduct taxes.

    +1 on mileage. Miles drive to a customer site are deductible; miles driven to your normal place of business are not. 4mal, deducting mileage is not necessarily a red flag to the IRS. As long as you have documentation for everything, you're fine.
  14. rtsquared

    rtsquared Lifelike N00B

    Jul 7, 2008
    Grand Prairie, TX
    1) I am not a CPA;
    2) I have never been in a band.

    That being said, I have been a professional tax preparer in the past, and I have done some investigation on this for other related pursuits (professional game player, anyone?), so I feel fairly confident in these statements.

    1) You are not being paid as an employee; therefore, mileage is completely deductible.
    1a) It's not a HUGE red flag to the IRS unless you're claiming massive amounts of it (a friend of mine claimed huge amounts one year because she had to attend a daily meeting in San Antonio, then drive to Austin to do her work...she did get audited, but was able to support her claims).
    1b) Keep good records of any mileage you claim.
    1c) One other option would be to claim percentage of actual expenses. However, you cannot claim mileage one year and then switch to actual expenses the next. Once you have chosen mileage with a particular vehicle, you are stuck with that choice for that vehicle so long as it is in service for that. This would only be an option for someone who is meticulous about keeping records and drives a vehicle large enough that the standard mileage rate would not be sufficient. However, there are limits to the depreciation of the vehicle in that scenario, and that is something I do not have enough experience to advise on.

    2) One MAJOR IRS red flag is the office-in-home deduction. If you claim this, prepare to be audited. Do NOT claim this if you use a room in your house as a practice space (either for you or your band) unless you are prepared to argue convincingly that this is the ONLY thing you use this space for. The odds are stacked against you, so unless you're itching for a fight, don't do it.

    In-home recording studio should be a better argument.

    If you choose to claim this deduction, get your taxes prepared professionally, and pay the extra for the audit insurance.

    3) Trying to write off a computer is also another HUGE red flag. If you decide to do it, make sure you go so far as to uninstall ALL the games on the machine (even the ones that come with the OS).

    4) For overnight gigs, you can choose to claim the M&IE rate for meals. However, the IRS requires expense information on lodging even though they provide rate guidance.

    5) Remember the hobby law - you must earn a profit in 3 of every 5 years or be prepared to demonstrate that you are working towards a profit motive in order to claim a loss. Otherwise you can only claim expenses up to the amount of your earnings.

    If other things come up later, I may chime in again, but this is what I can think of now.
  15. wld3


    Jun 22, 2008
    Yes, I was referring to mdiddium's post.

    And not that the post itself was inaccurate; I expect many times things ARE handled the way he described, however, that practice itself IS inaccurate.

  16. nsmar4211


    Nov 11, 2007
    I suggested withholding a tax percent based on the OP situation:
    " I told the band members they should keep track of how much their getting paid for taxes. They blow me off. I'm more worried I will be tagged for the band's total gross income."

    He *will* get tagged for the gross income if he's not doing 1099's. So....he could just realize these guys aren't going to file properly, take the hit for the whole gross income, and take their share of the taxes out of their pay. Or he could get into the whole 1099 thing :).
  17. wld3


    Jun 22, 2008
    Yes, I understand that reasoning. It can be frustrating enough doing things properly. More so when others won't cooperate and/or aren't interested.

  18. jive1

    jive1 Moderator Staff Member Supporting Member Commercial User

    Jan 16, 2003
    Owner/Retailer: Jive Sound
    I'm not a CPA or tax attorney, but can't your band member's pay be recorded as expenses for professional services? For example, you can hire a plumber to work on your store and that's a deductible expense, but doesn't require filing of a 1099.
  19. Rick Auricchio

    Rick Auricchio Registered Bass Offender

    Technically, Ken, you are required to file & send a 1099 to any contractor paid more than US$600 in the year.

    I was a partner in a coin laundry for 15 years; we had to send a 1099 to both the equipment maintenance and janitorial contractors because each earned more than $600.
  20. Medford Bassman

    Medford Bassman Supporting Member

    Aug 8, 2007
    Medford, Wisconsin
    Thanks for all the posts and great advice. I really like the idea of just sending out the 1099s and avoid creating an LLC. I already keep a ledger book of all our gigs and what I have paid out to whom and expenses (fuel, food, etc). MAybe that is the way to go.