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tax question

S

Scott549

Oct 26, 2009
427
11
Madison, Wisconsin
www.willsband.net
#1
I've got a tax question. Here's the scenario. Band only plays a few paid gigs/year. Most of us probably spend more on equipment than we get paid. But the venues sent the checks to one band member, who we'll call the band leader, and he then paid cash to the other band members. All was fine until the band leader got 1099's and had to pay income tax on all the band's money, even though only about 1/8 of it was his own income.

What's the best way to avoid this? Setting up an LLC seems to be a lot of trouble for a hobby band like ours.

Thanks.
 
#3
I can't speak to US tax laws, but I've been in that situation, both as the one disbursing the funds and as a recipient. If you're spending money on anyone or anything, be it a set of strings, paying a soundman, or splitting up money among band members, you should get it in writing from the person receiving the money - or you are potentially on the hook for the whole thing, as with the aforementioned band leader.

I'll also note, I now refuse to put myself in the position where any substantial amount of money comes in my name which I then split up with other people.
 
#4
hmm...what I'm trying to figure out is how they got wind to send a 1099? The best way to avoid it is not applying for it in the first place. Someone did. I assume the member who got the 1099.

Perhaps he proclaimed his profession as "musician"? 1099's don't just drop from the sky.


I believe there are stipulations for such things. If you're only doing it as a "hobby", there are 'loop-holes' that would allow you to avoid paying taxes. I'm still a work in progress in regards to that stuff (not band related, business related) but that's a fart I caught wind of.

Anyone can correct me if I'm wrong though. :)


And yes, you can write off equipment as deductions if it's "business-related". So if you spent more than you made, you will not need to pay anything.
 
#6
Writting off more than you spend is pretty easy to do with a band. Again, in my band because we are a LLC, we get a K2 statement from our tax guy every year. Our "leader" brings all the receipts and payments to the accountant and they work their magic. Never did understand taxes, but we have a tax guy. Since we are a LLC, each of the "owners" pays their own portion of the net gains for the band for the year. That way everyone who is in the LLC pays equally depending on the split in the LLC. There are also Owners and share holders. It really can get as complicated as you want or keep it simple. Dont take checks. If the bar hands you a check, have them cash it first.
 
#7
Venues are supposed to file a 1099 form if they've paid out $600 or more per year to a "contractor."

I'm guessing the band leader was asked for his Social Security Number, which would have been put on each venue's IRS filings. As was mentioned, I'd have each band member reimburse the leader for their share of the taxes.

The best way to avoid this situation is to set up an LLC or S-Corp. (Of course these can get confusing to maintain). Your band will get a Tax ID Number, which will be used instead of any one person's SSN. Then, the organization is liable for the tax, rather than an individual.

Otherwise, I'd recommend getting the venues to pay in cash or write separate checks to each band member. (Though a venue is probably going to resist that idea).
 
#8
Luckily, most small time venues pay in cash and don't 1099.

In the above case, the venue must have insisted on either a SSN or a TaxID before issuing the check, so they could send a 1099.

If a venue insists on 1099ing, the only way to avoid is to not play that venue.

Perhaps if you give the venue the SSN's of each individual member you can get them to send individual checks and 1099's.

Otherwise, you have to form a legal business entity, get a tax id, and file taxes for the company. You could theoretically show that the company had income of x dollars, but then paid individual members each y dollars, so the total income for the company is $0 and no taxes are due from the company. Then you can 1099 each band member...

Also, remember you can deduct expenses but not assets. Gas money, strings and other consumable accessories, advertising costs, etc are expenses. Equipment are assets, so you cannot deduct equipment purchases. You can depreciate equipment values...fun.
 
#9
There is a lot of bad information in this thread.

The best answer is this: the band leader should talk to a tax professional, and get competent, accurate tax advice.

If he declared the income on a Schedule C, then he should have been able to deduct the amounts he paid to the other members of the band as an expense. If he did not do this, it may be possible for him to amend his return to do this, depending on when it was filed. Again, he should seek the advice of a tax professional.
 
#10
Febs said:
There is a lot of bad information in this thread.

The best answer is this: the band leader should talk to a tax professional, and get competent, accurate tax advice.

If he declared the income on a Schedule C, then he should have been able to deduct the amounts he paid to the other members of the band as an expense. If he did not do this, it may be possible for him to amend his return to do this, depending on when it was filed. Again, he should seek the advice of a tax professional.
Click to expand...

Exactly! He didn't have to include all the income as his own. He obviously didn't have someone competent do his return. Definitely have him find someone that knows what they are doing.
 
#11
Febs said:
There is a lot of bad information in this thread.

The best answer is this: the band leader should talk to a tax professional, and get competent, accurate tax advice.

If he declared the income on a Schedule C, then he should have been able to deduct the amounts he paid to the other members of the band as an expense. If he did not do this, it may be possible for him to amend his return to do this, depending on when it was filed. Again, he should seek the advice of a tax professional.
Click to expand...

I agree.

I am not a tax professional, but a tax professional recommended to me what you just said. Expense out what I pay to the musicians as professional services using the carbons from checks or a written and signed receipt as substantiation. If I paid more than $600 to an individual, I would be required to issue a 1099 to them.

LLCs are for liability and protecting your personal assets, and offer no tax advantage over a partnership or sole proprietor. And, if the the LLC is only owned by one person, you will have no change in the situation the OP is in.

But before you take any of that as fact, talk to a tax professional. People have different situations, in different states, and different years that have different laws. There's many avenues to dealing with the situation from incorporating in some form, using a partnership, hobby income/expenses, etc. But, you'll need to talk to a tax professional, not just because you might get bad info from a message board, but because they can work with you on your personal financial situation which you may not wish to divulge publicly.
 
#13
If you want to play, the 1099s are a sorry fact of life. Of course, if you know you're going to have to file a Schedule C, keep track of your expenses, including mileage. I've filed a Schedule C for years, as a "Musician for hire". Every year I show some income, but then also show expenses to, in most cases, take the income below $600, thereby eliminating self-employment tax. I also have bought equipment that can be depreciated, which also helps.

I agree with the advice to consult a tax professional before forming an LLC, or even and S corporation. Most of the time, a Sole Proprietorship is adequate, and whoever takes in the money just has to deal with a little extra paperwork to show where the bulk of it went.
 
#14
Always a ton of "LOLZZZZ" here around tax time.....


1) Consult a Tax professional.

2) That said, I have to wonder what is wrong w/people....... "How to avoid..." "How to 'write off'..." etc.... You live and work in a country that has tax laws - you are only getting taxed if you are MAKING $$$$.... just like your regular job... (uh, you DO have one of those, right? Or how do you afford to live/have a car/have a home/have a computer to waste time here on TB...?) Figure any $$$ you make, you will pay 15-20% in taxes (legally).

3) You make very little playing in a band, the amount you owe is very little. You make a lot of money playing in a band, well, YOU MAKE A LOT OF MONEY!

4) Consult a tax professional. And stop whining.

5) Listen to the advice on here and pick and choose what sounds 'good' to you, or what works out 'best' $$-wise, and when you get audited, you are screwed, and are going to sound like an idiot when you try to explain where your tax advice came from.

6) Consult a tax professional.

7) If you DON'T consult a tax professional, and do what sounds best to you from the mis-advice you've gained from here and/or other websites or friends, PLEASE PLEASE PLEASE post your experience here when you DO get audited....... thanks in advance.
 
#15
ric stave said:
...and when you get audited, you are screwed, and are going to sound like an idiot when you try to explain where your tax advice came from.
Click to expand...

Oh stop. First off, I think it's something like 4/100 people who make less than 250k get audited. Second, most of the low-level audits of this kind are via mail, just asking for someone to substantiate the information on their tax forms. Generally, this happens when people deduct piles of stuff.

Third, the IRS has zero interest in chasing after someone for a $100 bill. That is an absolute waste of their time and money. A few times a year I would assume to equate to less than $1000. That means, roughly $200 in taxes and after deductions probably close to half of that.

Fourth, nobody gets "screwed by an audit". You fork over the books (in this case, the few gigs) and they look them over and administer the tax and penalty amount.


Making an audit sound like a death sentence over such a small amount of money is ridiculous.
 
#18
DBCrocky said:
Also, remember you can deduct expenses but not assets. Gas money, strings and other consumable accessories, advertising costs, etc are expenses. Equipment are assets, so you cannot deduct equipment purchases. You can depreciate equipment values...fun.
Click to expand...

You can depreciate the entire value of an asset in the same year as it was purchased under Section 179. But, if you don't understand it, it's best for the OP to talk to a tax professional to see who and what qualifies for Section 179 and Bonus Depreciation.
 
#20
Chuck_Hill said:
The best way to avoid this situation is to set up an LLC or S-Corp. (Of course these can get confusing to maintain). Your band will get a Tax ID Number, which will be used instead of any one person's SSN. Then, the organization is liable for the tax, rather than an individual.
Click to expand...

You don't need to be a LLC, S-Corp or Corp to get a tax ID number. A sole proprietorship or partnership can get a tax ID, as well as a DBA that will allow you to get checks written in the business name.
 

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