Psst... Ready to join TalkBass and start posting, make new friends, sell your gear, and more?  Register your free account in 30 seconds.

Do you deduct your music expenses as a hobby?

Discussion in 'Miscellaneous [BG]' started by Gabu, Apr 12, 2003.


  1. Gabu

    Gabu

    Jan 2, 2001
    Lake Elsinore, CA
    I have been reviewing my taxes, and I noticed that it seems you can deduct your hobby expenses if you report your hobby income. I had quite a bit of hobby expenses last year. ;)

    So, do you report your gig income and deduct your musical expenses as a hobby?
     
  2. jive1

    jive1 Moderator Staff Member Supporting Member Commercial User

    Jan 16, 2003
    Alexandria,VA
    Owner/Retailer: Jive Sound
    No, report it on a Schedule C - Profit or Loss from Business.
     
  3. Mike N

    Mike N Missing the old TB

    Jan 28, 2001
    New York
    Wouldnt your band need to be set up as a business to do that? I know guys who deduct their drag racing expenses from their taxes, but their racing operation is set up as a legal business. I asked my CPA about that and was told Id need to show a profit in a certain number of years, or else Id have a problem just writing stuff off.
     
  4. jasonbraatz

    jasonbraatz

    Oct 18, 2000
    Oakland, CA
    my band is a corporation, so technically all of my gear expenditure is un-reimbursed expenditures towards the band, or something...


    anyways, i still need to do my taxes, and it isn't going to be fun :( i have this nasty 'corporate income schedule' form in addition to my normal W-2 from my 'real job' and i really have no idea what i'm supposed to do yet :( except file for an extension :(
     
  5. Richard Lindsey

    Richard Lindsey

    Mar 25, 2000
    Metro NYC
    No, your band doesn't have to be set up as a business. You can say that you're self-employed and put everything on Schedule C. But, yeah, you do have to show some profit some of the time. I forget what it is now--3 years out of 5 or something like that. If there's never any profit, the IRS tends to regard it as a hobby rather than a serious business. And they won't let you deduct hobby expenses. You may think of it as a hobby, but don't tell the IRS that! You have to tell them it's a business.
     
  6. Gabu

    Gabu

    Jan 2, 2001
    Lake Elsinore, CA
    The strange thing is that in the tax software "Turbo Tax" it actually is asking about deducting your "hobby" expense. That is what gave me the idea. I should post a screen cap.
     
  7. Gabu

    Gabu

    Jan 2, 2001
    Lake Elsinore, CA
    Here is a screen cap:
     
  8. jazzbo

    jazzbo

    Aug 25, 2000
    San Francisco, CA
    Yep.

    I use a Schedule C myself.
     
  9. cassanova

    cassanova

    Sep 4, 2000
    Florida
    If you are self employed, you are a business, you're an entrepaneaur and sole proprietorship. Thats if you wanna be really nitty gritty about it.

    Some food for thought for you Gabu and I hope it helps you out a bit.

    If you play only part time and your income is less than a certain amount. (not sure of what that is, sorry) you may not have to pay quarterly and you might be able to raise the deductions on your W-2 form from your day job to cover any amount due.

    If your self employed you must estimate your tax liability in advance and pay part of it every three months. If ya dont the IRS is gonna fine you pretty hard.

    To pay quarterly, estimate your income for the year and pay 1/4 of it every quarter using 1040-Es form.

    Thats of course if you file your band as a business.

    Usually if youre reporting self employment income, you'll use the Schedule-C form. (Profit or loss from a business/profession) and list any allowable deductions on it.

    Typical deductions for self employed musicians might be:

    Auto Expense, Pro Publications, Books, Uniforms (work related. Ex: Tuxido, Costumes, etc.) payments to subcontractors, advertising costs (postage, printing, photos taken) Rent (ex: warehouse/rehearsal space), cd's and sheet music, if you need them for your job, Business entertainment expenses (not sure of the limit) Accounting Fees, Commissions you pay to any types of agents you may have. Instrument/Gear repairs (maybe even auto if you can prove you only use that specific vehicle to get to and from your jobs) Telephone Bill, Office Supplies, Gear aquisitions like bass and amp, p/a, (expensive stuff) note that these have an accumulation depreciation value, so you'll only be able to claim a certain percentage of the cost each year for a certain amount of years, some obviously longer and shorter than others) even any gifts you may have sent to paying customers as a thank you. Subcontractors (if the others in your band are getting paid, you might be able to put them as a subcontractor, I would'nt do that though unless an accountant says its ok OR you actually write them a check yourself for playing the gig)

    Heres the crappy part of it all. You have to be sure that your business isnt just a hobby because the IRS will limit the amount you can deduct.

    A pretty good way to prove your a legitmate business is to turn a profit 3 out of 5 years. The government is just kind enough to give us 5 years to turn a profit before they consider it an expensive hobby. You wanna make a bit of a profit anyway right? ;)

    There are always ways you can prove that you are trying to make a profit, a decent accountant should be able to help you find a way to do that.

    I know this was long winded and more than you probably wanted to know, but I figured when it comes to the IRS and taxes its better to provide you with more info than you might have needed. I also could'nt read the screen cap you linked, was too small for my bad eyes.

    I got this information from books Ive read in the past as well as prior experiences. Since tax laws change every year and that as usual I could be wrong and you risk a heavy fine if your wrong, its best to seek the advice of an accountant. Any old schelp in the field should know this. So an inexpensive one should do.

    Oh yeah, I use Schedule-C
     
  10. jive1

    jive1 Moderator Staff Member Supporting Member Commercial User

    Jan 16, 2003
    Alexandria,VA
    Owner/Retailer: Jive Sound
    I do, but that d@mn GAS keeps getting in the way!
    ;)
     
  11. brianrost

    brianrost Gold Supporting Member

    Apr 26, 2000
    Boston, Taxachusetts
    The "hobby expense" has to do with income generated from a hobby. Since it's income it's taxable but you can deduct expenses...you just can't claim a loss!

    Example:

    You earned $500 from gigs. You spend $2,000 on gear.

    If a HOBBY you can deduct $500 of expenses against the $500 income, net $0. You eat the other $1500.

    If a BUSINESS you deduct all $2000 and claim a $1500 loss (which lowers taxes for your day job).

    The catch is if you are claiming as a business you must evntually show a profit, otherwise the IRS assumes it's a hobby and will come after you about the losses you claimed.

    Hobbyists can write off expenses up to income earned (i.e. make sure you spend all your gig money on gear :D ) and need never show a profit.
     
  12. Gabu

    Gabu

    Jan 2, 2001
    Lake Elsinore, CA
    Thanks for the clarification! :)
     
  13. Bryan R. Tyler

    Bryan R. Tyler TalkBass: Usurping My Practice Time Since 2002 Staff Member Administrator Gold Supporting Member

    May 3, 2002
    Connecticut
    I'd advise not filing for self-employment from a hobby if you don't have to. I've had to file as a self-employed business, and there's a lot of hassle that goes with it. Aren't your taxes done yet? It's the 15th! :eek:
     
  14. Gabu

    Gabu

    Jan 2, 2001
    Lake Elsinore, CA
    All done now. But hopefully I will be better prepared next time. :rolleyes: Oh, well! :D
     
  15. brianrost

    brianrost Gold Supporting Member

    Apr 26, 2000
    Boston, Taxachusetts
    Following up on Bryan's comment about not filing if you don't have to:

    The IRS has no way of knowing if you made any money as long as no 1099 is issued in your name (or you suddenly deposit millions in
    the bank :D ).

    Most low-level bar gigs pay in cash but those gigs that pay in checks and ask for SSN may be filing 1099s and then the IRS can come after you.

    If your gig income is a SIGNIFICANT percentage of your total income (like you make 1/2 as much gigging as on your day job) you should also consider filing :rolleyes:
     
  16. Bryan R. Tyler

    Bryan R. Tyler TalkBass: Usurping My Practice Time Since 2002 Staff Member Administrator Gold Supporting Member

    May 3, 2002
    Connecticut
    Word. I've made a lot of money selling paintings in the past, but I only had to start filing self-employed when a gallery started sending me 1099s for more than $400 (below that you don't have to file self-employed).