tax question

[warnergt]

Writing off more than you spend is pretty easy to do with a band.

+1 Get all of your receipts for expenses and equipment
together and he should be able to deduct most of the income.

I"m told that it's good to show a profit to avoid raising red
flags. However, you want to keep the adjusted income below
the threshold for Social Security (like $600); that is another
can of worms.

I have done this with success for contract work where I was
paid and received 1099 forms at the end of the year.

 

[Steve]

If he hasn't paid out more than $600, then it's unecessary to do a 1099.

I think you'll find that, if you look into it, That little loop hole has been closed as of this year. It's one of the tax changes that have been made as an effort to pay for the changes to the health care system.

At least that's the story I got from my tax guy.

 

[jive1]

I think you'll find that, if you look into it, That little loop hole has been closed as of this year. It's one of the tax changes that have been made as an effort to pay for the changes to the health care system.

At least that's the story I got from my tax guy.

Hence why it's good to talk to a tax pro, tax laws change every year.

 

[MNAirHead]

If he hasn't paid out more than $600, then it's unecessary to do a 1099.

As an overall fail safe - everyone in the band gets a 1099 - easiest to only have one person handle the money and forms

 

[Freddels]

I think you'll find that, if you look into it, That little loop hole has been closed as of this year. It's one of the tax changes that have been made as an effort to pay for the changes to the health care system.

At least that's the story I got from my tax guy.

Maybe you should talk to another tax pro.

[Invalid or Expired Link Removed]

 

[jaywa]

I am in a "weekend warrior" covers/original band that played just over 50 dates last year (for which my BL has 1099'd me), and I also played about a dozen other paying gigs with various other bands on a sub basis (for which I expect none of them will 1099 me). What I did is set-up an Excel spreadsheet listing the date, band, venue/event, city and state of every paying gig I played in 2011. The spreadsheet includes expense columns for mileage, lodging, any food-and-beverage purchased over the course of the job, and miscellaneous supplies (e.g., batteries, strings, suntan lotion, stage apparel, bug spray for outdoor gigs, toiletries for overnighters, you name it). Every itemized expense is tied to a specific date and gig and has a corresponding receipt. When I go to my tax professional next week I will simply take the 1099, the spreadsheet, and all my receipts and let her sort it all out. I have followed this practice for the last several years and it's always worked out pretty well. I'm interested to see what happens this year as 2011 was by far the busiest and most profitable of my "semi-pro" career. I'm hoping my writeoffs will bring my taxable income down to a level where I don't just get killed but as a hedge I have been banking away a portion of my gig pay to cover taxes just in case.

And +1 to everyone above who advised being paid for your gigs in cash as much as possible. It just makes things a lot easier for everyone.

 

[DiabolusInMusic]

That won't work around here. Back in the day, I remember when places would cash the check at the bar, but not anymore around here.

Really? That is still how we do it up round these parts. I thought they gave you a cheque to cash at the bar so it worked like a pay stub, it's proof you got cash. Do you guys just get a cheque you have to take to a bank or what? Sorry to go off topic...

 

[T Bassman]

Im not sure if its the same in the US as in Canada, but be weary of writing off your instruments/amplifiers against your music income, especially if its not your principle income. In some cases you will have to register them as 'Capital Gains', not that that is bad in itself, but it could open up a whole can of worms if you buy/sell/trade often and have to be accountable for that. Starts to make a fun passion/hobby not so fun come tax time potentially

Incidentals like strings, cables, picks and aforementioned soundmen fees, even mileage in some cases may be fair game as write offs though. I've heard some horror stories regarding tax surprises for some casually working musicians out there over the years....

 

[T Bassman]

Hence why it's good to talk to a tax pro, tax laws change every year.

This is excellent advice

 

[Toastfuzz]

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.

You know what dude, you're quick to tell everyone how to live their life (don't do any work or learning yourself, allow people to cradle you like a helpless newborn) but maybe, maybe, just maybe not everyone goes to tax professionals. Maybe some people see the need to consult a "tax professional" as simple exploitation. I mean, its as simple as you said, right? Make $$$, tax out a certain %, and you're done. No, it must be more complicated than that if you need to pay even MORE of your hard earned $$$ to a professional with multiple accounting degrees to figure it out for you.

Luckily we have things like Turbo Tax and TaxAct to do some of this grunt work ourselves, along with alittle education provided by the great Internet. So when you pretty much have all your taxes in the bag yourself, but only have one small question to find an answer to, you do what OP does and FIND THAT INFORMATION. You don't necessarily throw in the towel and drive to your local HR Block. So stop being so condescending just because you can't figure out your own taxes. Some people can.

EDIT: I read through the rest of this thread, and see pretty much everyone depends on tax pro's for their stuff these days. How much do you guys pay these guys??? I have no issue with the act of using a tax professional, just the above quoted guy's position that thats what EVERYONE should do... but for me personally, my employer sends me the forms I need, the government establishes the rules, TaxAct / TurboTax update their software according to the rules, and I just get real drunk and punch in numbers (tax day is fun day in Toastfuzz house!) And you know what, it works out, and the one time I DID go to HR Block to do my return, TaxAct found more credits and deductions I was eligible for than they did. My issue, if I can get alittle ranty here, is that I already work 40+ hours per week just to see 25% of my earnings stripped from me, everything I buy has additional taxes on top, some specialty items I buy (liquor, tobacco, gasoline) have specialty taxes on top of normal taxes, and just to be a functioning human being I pay for health insurance / car insurance / renters insurance. Of the money I make, at the end of the day about 40% is in my pocket and the rest is sucked into taxes and government-mandated expenses. So the last thing I'm gonna do after this global slap in the face is pay some guy who picked "Business" as his major because bonging beers wasn't an option to do my taxes for me.

For context, I'm 25 yrs old /IT degree/IT job, so probably have more "F the system" mentality than you guys too. So excuse me if my rant sounded rash. But I did just graduate from a state University (not to brag, just to express the diverse culture there) so I got to see how alot of Business/Accounting majors picked their field of study, and it wasn't a passion for numbers.

 

[jeffbrown]

+10000000 etc. to seeking out *professional* tax advice, i.e., an accountant who is familiar with the -entertainment industry-. If you can't find one who is conversant with entertainment, at least find one who does small business on a very regular basis, not some joe who has a hobby office in his cellar.

When I owned my video production company, early on I found a guy who is a whiz at business, and he discovered lots of stuff (deductions) I had never considered, most of which have now been mentioned here. Even though the business is gone, I still use the same guy, because he's just plain GOOD, and honest; and remember, his rate is DEDUCTIBLE!

Ask/network with other SB owners and find out who they use. Use those critiques and hire the best you can afford.

 

[steveksux]

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.

That's the best advice.... seeing a tax professional. HOWEVER: it is not legal for him to pay taxes on what he was 1099'd for and you guys pay him back what he paid in taxes. And he needs to 1099 them, not claim them as expenses.

You don't need to do an LLC, band leader needs to 1099 all the people he paid the money to.



You all need to file schedule C's, deduct the equipment bought (you have receipts, right?) If you made money, pay your tax. If you lost money, you don't pay taxes.

Now, if you lost money because you spent more on equipment than you made, you can deduct those losses, and essentially the band is more like a tax shelter than additional income, it cost you money. It'll reduce the taxes owed from your day job. Its a business that lost money. Losses are deductable.

HOWEVER! You have to make money with the band at some point. Otherwise, its no longer a business, its a hobby. With a hobby, you can offset your earnings with expenses, but if you lose money, you can NOT deduct those losses that are more than your earnings against to reduce taxes paid on your day job. You can ONLY offset your band earnings with band expenses if its a hobby.

If it ends up as a hobby a few years from now, you'd have to go back and amend tax returns where you lost money. You can only end up at 0 with a hobby, if you spent thousands on equipment and made hundreds, tough. Once you get to 0 income, the rest of the expenses beyond your band earnings can't be deducted.



Day job: 25,000
Band : 5,000
Band expenses: 10,000

BUSINESS:
If you make money often enough, its a business. Meaning make more money than you spend. This year you lost money though.

25,000 + 5,000 - 10,000 = pay taxes on 20,000. You just saved money on taxes paid on your day job because your other business (band) lost money.

HOBBY:
If you lose money too many years in a row, its a hobby, not a business. Losses from the band only offset earnings from the band, losses beyond that can not be applied to your total income. Its no longer a tax shelter.
25,000 + 5,000 - 5,000 (-5000) = pay taxes on 25,000. The 2nd -5,000 in expenses are not deductible since band is a hobby. Now you have to go back and fix prior year returns where you claimed the extra 5,000 expenses as a deduction in prior year returns when you thought it was a business. Its not a business, and becomes a hobby, retroactively.

In a nutshell, that's my understanding. I'm not a tax attorney, so take my advice with a grain of salt and see a tax professional. Turbo Tax is great, but first time through you probably need to hire a pro and understand the process. After that, maybe going forward Turbo Tax will be fine.

Randy

 

[warnergt]

...not everyone goes to tax professionals...

+1 Taxes are challenging but they're not rocket science.

 

[nutdog]

+1 Taxes are challenging but they're not rocket science.

True, but that doesn't mean a lot of the info in this thread is correct.

A tax pro could cost more than the tax bill on a few gigs per year. I use turbotax or taxcut. I have some self employment (non-music). It handles the income, expenses, assets, depreciation... No corporation required. I might save some tax with a pro, but probably not as much as it would cost.

 

[steveksux]

True, but that doesn't mean a lot of the info in this thread is correct.

A tax pro could cost more than the tax bill on a few gigs per year. I use turbotax or taxcut. I have some self employment (non-music). It handles the income, expenses, assets, depreciation... No corporation required. I might save some tax with a pro, but probably not as much as it would cost.

I've been using Turbo Tax as well, for years, good results. Still with all the misinformation floating around, if you believe the wrong stuff, you can still do the wrong thing with Turbo Tax pretty easily.

First time through taxes as a band/musician/business, wouldn't hurt to have a good understanding of what you can/cannot do from a tax professional.
Clothes? What's deductible, what isn't. How to depreciate equipment purchased, which depreciation method to use. Which are expenses which would not be depreciated, and just deducted outright. Schedule 179, when to use it instead of normal depreciation schedules. Which expenses are deductible, as in mileage? When it is, isn't deductible.

Randy

 

[Staccato]

In short, the band leader will want to show appropriate expenses to offset the income that was reported. If he were a prudent businessman, he'd be showing all income-regardless. He can send every band member a 1099, if it is appropriate. However, if he did not collect their social security number when they were offered a spot in the band, he's sticking his neck out, or trusts everyone to cough up their tax ID when requested, later.

Some of the myriad of points to consider...

1. If the band leader (or any band member) shared their social security number for 1099 purposes (in the U.S.), then they are basically wide open-unless a reported amount is later disputed. Disputing reported amounts is often like opening a can of worms-depending on how it is handled.
2. Is the band generating any income, or considered a business? Some bands do not charge/receive a dime when all they do is practice, and never play outside of the practice location.
3. Some hobbyists attempt to run under the radar, and ignore any of this discussion.
4. Is the equipment part of the business-purchased for the biz, or is it considered personal gear? Is some of the gear mixed-use (for business, and for personal use)? In that case, the band would be responsible for formulas indicating (percentage) business use for tax purposes. You’ve also got the tax treatment complication when band-owned equipment is sold-if it is band owned, and not considered personal gear. Any proceeds 100% band gear sales stay in the band account (or pocket). Personal gear that is never paid for (or expensed) by the band would not be considered in this instance. If each band member is sub-contract labor for 1099 purposes, they may be buying their own strings as they report their income/expense on their tax returns, and strings would not necessarily be a direct expense of the band/band leader operator.

 

[onosson]

Maybe some people see the need to consult a "tax professional" as simple exploitation

... you need to pay even MORE of your hard earned $$$ to a professional with multiple accounting degrees to figure it out for you.

stop being so condescending just because you can't figure out your own taxes. Some people can.

I read through the rest of this thread, and see pretty much everyone depends on tax pro's for their stuff these days. How much do you guys pay these guys??? I have no issue with the act of using a tax professional, just the above quoted guy's position that thats what EVERYONE should do...

I would say that whether or not you choose to see a tax professional is up to you - but if you choose to do so it's to protect yourself from having problems with [insert appropriate national tax agency here].

I have been going to an accountant since the mid-90s, as I spent most of that decade in a touring, signed band. I have continued to see him even though I earn most of my income as a sideman/studio player for a few reasons:

1. Track record - both for the sake of Revenue Canada, as all of my records are at his office, and for my own knowledge that he has continuously done a good job

2. Changes in tax regulations - he's a professional and keeps track of these things, it would be easy for me to miss stuff. There was legislation brought in during the past few years that has saved me more money than I have probably paid him for the entire period I've been going to him, which I would have never known about.

3. He's very reasonable. I pay no more for his services than I did when I started seeing him (my situation has actually become simpler as we no longer have the band partnership to deal with). Of course, YMMV depending on your own accountant. For my wife and I together, we pay him less than $150 per year.

So the last thing I'm gonna do after this global slap in the face is pay some guy who picked "Business" as his major because bonging beers wasn't an option to do my taxes for me.

For context, I'm 25 yrs old /IT degree/IT job, so probably have more "F the system" mentality than you guys too. So excuse me if my rant sounded rash.

This part makes you just sound mad that you didn't go into business yourself! Seriously, if you want to make music your business, then you have to deal with business. I agree it sucks if you don't like bringing $$ into the equation (I feel the same way), but no need to resent anyone else for one's own choices.

 

[singlemalt]

Relax, your Turbo Tax program will guide you through. Turbo tax is your tax pro, and it updates automatically to keep up with the laws. Turbo Tax's purpose is to help you pay less in taxes, but keep you out of trouble. It's not perfect, but for most people with a job, a few investments, a few deductions, and a side job, or even a business, it's a great tool to figure out your taxes.

In this tight economy, businesses of every kind are looking to reduce costs. Taxes are a big part of the cost of doing business. So, here's how it works: You play once a month at the "Local Watering Hole". They hand your spokesperson, bandleader, whatever, $500 cash at the end of the night. He hands everybody $100. (lets keep it simple, 5 guys, even split) you finish your last comp drink and head on home.

Comes late January and bandleader gets a surprise 1099 from LWH, LLC, INC, or whatever they are DBA'ing. (Doing Business As). LWH paid you guys $6000 in 2011. They want to reduce their taxable net income, so they sent out 1099's to any band they paid over $600 to in the tax year. Good for them, they just wrote off somewhere around $25,000 total. ($500 a week for a band on Sat. night x 50 weeks)

Back to you guys. It shouldn't have been a surprise that you got a 1099. Simple solution, band leader, in turn, gives 1099's to each band member for the cash they received. Each guy then reports this 1099 under income.

The 1099 income is reduced by expenses incurred in earning the 1099 income: milage, meals, lodging, gig specific clothing (those Star Trek costumes and Devo hats that make you guys so popular) and the ever popular gear expense. Who can't lose money playing music? Add it up and you have no added tax liability.

Problem with the music business and bars and night clubs is that there is lots of cash flying around. The IRS figured this out long ago. They suspect, and rightly so in many cases, that the $3000 in music income that is showing up in 1099's, was accompanied by another few thousand in unreported cash. The private parties, weddings, venues that let you take the door cash, ect..

The IRS has lots of experience with "creative" people. Keep a record and receipts. It's not that hard. Audits are common. Usually triggered by an error, they just need the right documentation to set things right. Get caught under-reporting, or hiding income, and it will hurt. The IRS loves that kind of thing! You get hit with penalties, interest, and the "audit colonoscopy" follow up exams. They can garnish your wages, keep your tax refund, send you to prison. Don't mess with them.

1099's, "non employee compensation" are the currency of our "grey" economy as business of all kinds attempt to skirt the cost of "real" employees. Whether those "independent contractors" will pass various IRS tests is anybody's guess.

My advice is to try learn a little about taxes. A huge chunk of your dough goes out in taxes. You can't play the game if you don't know the rules.

Actually ended up the year making money on your music income? Jeez, buy some gear next year so you can write it off! Reduce last year's liability by funding a IRA, SEP IRA, putting money in your kid's 529 college fund, making a charitable donation.

That $1000 1099? Don't sweat it. Just report it, (you don't get choice, it's already reported, that's right, they ratted you out!) reduce it by expenses. You just turned semi-pro. Good Luck!

 

[mrpackerguy]

If an organization is going to 1099 us, I have them make out individual checks to each band member. I put that in under the payment portion of our contract. I've not had an issue with it.

 

[Toastfuzz]

This part makes you just sound mad that you didn't go into business yourself! Seriously, if you want to make music your business, then you have to deal with business. I agree it sucks if you don't like bringing $$ into the equation (I feel the same way), but no need to resent anyone else for one's own choices.

I debated deleting my whole post after I read through it but figured why not add it to the discussion, since thats the way I look at it. I really don't resent anyone elses choices, the first part of my post was in response to homeboy I quoted, who I felt was kinda doing the same thing (you're an idiot of you don't go to a pro and you will PAY DEARLY.)

Honestly thats what the audit department is for, when you screw up. They aren't a line of executioners with black masks and axes, they're accountants who are doing the same thing a tax pro does. I have had my taxes sent back to me from the gov't, once for a discrepency that was truly my error, and I corrected it.. again because I completed/printed my return but forgot to sign it! That one actually made my taxes technically late, but the back-and-forth with them was logged and I was not charged anything additional. Yes, if you are not honest and make claims for things that don't exist, the audit will bite you in the ass. But if you sit down and enter your taxes honestly, and the auditors find an issue, they may audit you. Its not a death sentence, its a re-verification of what you stated, and if you have the documentation to back up your claims its not even that painstaking.

So like I said, I harbor no resentment for those who use tax pro's, and you can see my PERSONAL frustration at the whole tax system, that you have to essentially pay extra money to pay tax money.

Now to try to be alittle more constructive::

My tax day is 10% entering numbers and 90% doing Google research. Tax programs will "suggest" deductions/credits and then I do my own research to see if I'm eligible. Tip: you can set Google to only provide results that were updated in the last year. I do this research from the other side as well, I'll Google my personal situation with the word "tax advice" at the end and then if I find something applicable, dig around Turbo Tax and add it. Examples include "self employed tax advice", "contractor tax advice", "home office deduction tax advice", "making work pay credit tax advice" (I think this one is dead now), etc. etc.

So to me personally, the argument for or against a tax pro is that of opportunity cost: your time to do it yourself vs. your money to have someone else do it. If you assume the results would be the same either way, the argument is which you value more, time vs. money.