Any good tax guides for musicians out there?

[KeyboardEric]

I'm a freelancer and I also have my own solo project. I've always treated everything as a hobby in regards to the IRS. That was probably a dumb idea.

 

Happy tax season!

[John H Carter]

Obviously depends where you are in the world, but in the UK https://musiciansunion.org.uk/legal-money/finance-and-tax/tax-advice-and-guidance-for-musicians

[KeyboardEric]

United States.

[KeyboardEric]

Also, forgot to mention that I teach...

[cassdad]

US taxes / laws apply to all citizens, regardless of your occupation / hobby.  I don’t think a tax specialist is needed in this case.  Any competent tax preparer should know what counts as what regarding the tax code.  My 2 cents.

[eric]

It really only matters if anyone is sending you a 1099.

 

I've been all over the map since my touring days in the '80s and '90s, where my gig income was a pretty decent % of my overall income vs. day job and there was an LLC plus lots of reportable income.

 

Nowadays, music is a very small slice relative to day job, yet still there is a 1099 burden to bear for earnings above a certain threshold. I believe now if you sell gear on Reverb or eBay, they will 1099 anything from $600+ and similar rules apply for income from gigs, completely dependent on the bookkeeping prowess of the venues where you're playing. You didn't hear this from me, but if you're being paid in cash and your 1099 burden is low, then you make your own decision on how you're claiming your income. If you have a lot of 1099 burdens, it is helpful to be very intentional about your write-offs to help defer some of that burden.

[KeyboardEric]

Yes, I receive at least one 1099 but also multiple venmo/paypal/cash payments. I'm not trying to shell out $$$ to a CPA who ultimately does not care about my personal financial situation and knows nothing about the nuances of the industry.  I'll keep looking for resources online that are catered to folks in our profession. Thanks for your comment!

[Reezekeys]

You might find this helpful: https://www.keepertax.com/tax-write-offs/musician

[Shamanzarek]

I stopped having to itemize everything when the Standard Deduction was doubled several years ago. As long as you're not in a high tax bracket for other income it shouldn't really be an issue.

[KeyboardEric]

2 hours ago, Reezekeys said:

You might find this helpful: https://www.keepertax.com/tax-write-offs/musician

yes, this!

[KeyboardEric]

2 hours ago, Shamanzarek said:

I stopped having to itemize everything when the Standard Deduction was doubled several years ago. As long as you're not in a high tax bracket for other income it shouldn't really be an issue.

unfortunately it is. I don't even bring in THAT much income from gigs... 🤷‍♂️ most of my teaching income is W2'd. No I'm not in a high tax bracket either -  It's pretty annoying.

[KeyboardEric]

The plan going forward is to be much more vigilant about my book/record keeping and take any and every advantage I can regarding schedule C while trying not to trigger their audit system. 😆

[ElmerJFudd]

You should be depreciating your gear purchases, tracking your mileage at 65.5 cents a mile, keeping receipts for your music subscriptions and media purchases, etc.   The standard deduction doesn’t have anything to do with money you didn’t make due to business expenses.  Track your mileage and keep receipts.  

 

If you’re the sole proprietor and you haven’t any employees you don’t need to be an LLC or S-Corp or anything like that. Just do your taxes as usual.  Bight the bullet and pay an accountant to help you with this the first year.  See what he did and do the same next time around. 

[Reezekeys]

Don't quote me exactly but I remember measuring the dimensions of my home studio and coming up with a figure that was a percentage of that area compared to the total square footage of our house. My accountant deducts that percentage of our utility bills - oil, propane, water, etc. This is the home-office deduction that I've heard some say can raise a flag with the IRS. The key is the work you do in the studio must be related to your income-generating music work. If you play in a cover band and use your home studio only to create vanity projects of your originals that you show off to family, that deduction may not fly. At least this is how I understand it (yes that's a disclaimer!).

[mcgoo]

15 hours ago, KeyboardEric said:

 I'm not trying to shell out $$$ to a CPA who ultimately does not care about my personal financial situation and knows nothing about the nuances of the industry. 

 

Don't underestimate the value of a good CPA. I can't write the check fast enough to my guy because he saves me way more than I could if I did my own taxes.

[bfields]

I only ever get paid a small amount of cash--hard to imagine the IRS in practice caring much about the few dollars of taxes involved--but I'm a stickler and the schedule C is easy, so I always do it. ¯\_(ツ)_/¯

[KeyboardEric]

7 hours ago, mcgoo said:

 

Don't underestimate the value of a good CPA. I can't write the check fast enough to my guy because he saves me way more than I could if I did my own taxes.

Does your person work with full time music professionals? I'd consider using them if their rate is in my budget.

[KeyboardEric]

14 hours ago, ElmerJFudd said:

You should be depreciating your gear purchases, tracking your mileage at 65.5 cents a mile, keeping receipts for your music subscriptions and media purchases, etc.   The standard deduction doesn’t have anything to do with money you didn’t make due to business expenses.  Track your mileage and keep receipts.  

 

If you’re the sole proprietor and you haven’t any employees you don’t need to be an LLC or S-Corp or anything like that. Just do your taxes as usual.  Bight the bullet and pay an accountant to help you with this the first year.  See what he did and do the same next time around. 

I'm definitely going to look into depreciation for next year. That's one area I have never used. Thanks for the tip!

[KeyboardEric]

13 hours ago, Reezekeys said:

Don't quote me exactly but I remember measuring the dimensions of my home studio and coming up with a figure that was a percentage of that area compared to the total square footage of our house. My accountant deducts that percentage of our utility bills - oil, propane, water, etc. This is the home-office deduction that I've heard some say can raise a flag with the IRS. The key is the work you do in the studio must be related to your income-generating music work. If you play in a cover band and use your home studio only to create vanity projects of your originals that you show off to family, that deduction may not fly. At least this is how I understand it (yes that's a disclaimer!).

The home office deduction would be questionable for me since I live in a studio apartment. I've read that it needs to be a separate dedicated room in your home for it to fly with the IRS. I'm sure people still deduct a portion of it anyways. Something to think about. 🤔

[ElmerJFudd]

5 minutes ago, KeyboardEric said:

The home office deduction would be questionable for me since I live in a studio apartment. I've read that it needs to be a separate dedicated room in your home for it to fly with the IRS. I'm sure people still deduct a portion of it anyways. Something to think about. 🤔

Yes, the home office deduction would really require you to have a room that has no other use other than the business.    

[CHarrell]

9 minutes ago, KeyboardEric said:

The home office deduction would be questionable for me since I live in a studio apartment. I've read that it needs to be a separate dedicated room in your home for it to fly with the IRS. I'm sure people still deduct a portion of it anyways. Something to think about. 🤔

 

I live in a studio as well and was able to get a home office deduction. I can't remember what I measured out specifically, probably my desk and keyboard area, which happens to form a convenient box (I have a Keylab under my desk, and a larger keyboard such as CP88 perpendicular to my desk). I've gotten this deduction for the last 3 or 4 years.

[ElmerJFudd]

3 minutes ago, CHarrell said:

 

I live in a studio as well and was able to get a home office deduction. I can't remember what I measured out specifically, probably my desk and keyboard area, which happens to form a convenient box (I have a Keylab under my desk, and a larger keyboard such as CP88 perpendicular to my desk). I've gotten this deduction for the last 3 or 4 years.

Any concerns about it holding up to scrutiny?  

[Nowarezman]

Random responses on the internet....make notes but use them to ask a pro.

 

It's all far more complicated than you imagine.  U.S. Tax law is the epicenter of the universe named, "Unknown Unknowns" for anyone but experts.  Get a good tax person to help.  A really good one might be able to teach you how to do your own taxes - but just remember, next year will have some different rules, and the year after that, too, and the year after that......it's a struggle for even the pros to keep up.  

 

I'm an expert, but retired.  Lots of well-meaning responses above are from some great people who absolutely don't know what they are talking about, God bless 'em.

 

nat

 

 

 

[CHarrell]

1 hour ago, ElmerJFudd said:

Any concerns about it holding up to scrutiny?  

 

Not particularly, and I haven't seen cause to worry over the past few years, but as Nowarezman said, always best to consult with a pro. I was deemed low risk by Turbotax, but functionally, the area I claim--through careful measurements of my work area's dimensions--really just is used for work, so if an auditor wanted to investigate further, I feel like the truth will bear me out. As long as they don't find the bodies, I think I'll be okay.

[Nowarezman]

IRS auditors are well known to buffalo taxpayers with bullshit, get 'em confused and scared, tell the taxpayer they  actually are taking it easy on them, so just sign off on the changes, write the check and god bless america.

 

I'm not joking - I've been there numerous times representing taxpayers.

 

Addendum:  not all auditors are as described above, to be fair.  In my experience, the trickiest auditors to manage are either the most experienced old hands, and the green new ones.  IRS is hiring now...most of the old crowd are gone, right?  So there's likely to be a new army of greenhorns (undertrained and over-incentivized to bring home money), eager to go huntin' and come back with pelts.  The IRS system does have many features in place to actually help taxpayers deal with difficult or overly-aggressive auditors - you can always ask to talk to a supervisor, and then there's a big, rather complicated system for appeals and so on.  But do not do not do not ever think you can just represent yourself 'cause the truth will prevail.  You're out of your league, a newbie going one on one with Draymond Green - you'll be on your ass with no shorts on before you know what happened.  

 

nat

 

[CHarrell]

2 hours ago, Nowarezman said:

IRS auditors are well known to buffalo taxpayers with bullshit, get 'em confused and scared, tell the taxpayer they  actually are taking it easy on them, so just sign off on the changes, write the check and god bless america.

 

I'm not joking - I've been there numerous times representing taxpayers.

 

Addendum:  not all auditors are as described above, to be fair.  In my experience, the trickiest auditors to manage are either the most experienced old hands, and the green new ones.  IRS is hiring now...most of the old crowd are gone, right?  So there's likely to be a new army of greenhorns (undertrained and over-incentivized to bring home money), eager to go huntin' and come back with pelts.  The IRS system does have many features in place to actually help taxpayers deal with difficult or overly-aggressive auditors - you can always ask to talk to a supervisor, and then there's a big, rather complicated system for appeals and so on.  But do not do not do not ever think you can just represent yourself 'cause the truth will prevail.  You're out of your league, a newbie going one on one with Draymond Green - you'll be on your ass with no shorts on before you know what happened.  

 

nat

 

 

Thank you for sharing this insight and guidance. I would definitely seek representation if it ever came down to it--for anything--but I haven't gussied anything up, I haven't exaggerated anything, I've only presented the truth, which feels like the best backbone for a case that I could have.

[Nowarezman]

The truth is not exactly the same thing as compliance, legally defined.  

 

You can put the truth down on the wrong line, wrong form and they gotcha. You can leave off a form you think didn't matter 'cause all the info is on another form and they gotcha.  You can not know a thousand things that they know and you won't know how to answer them when they ask about one of those thousand things.  

 

Example: home-office deduction.  The space for the home office is supposed to be used 100% for business.  Real story:  agent says, "is this space used 100% for business?".  Taxpayer, "yessir.  Nothing in there but office stuff."  So the agent makes a note, moves on and later, everything seems done, agent asks kindly about taxpayer's family, how was Christmas just past and so on.  Taxpayer feeling like its all going great.  Spouse pokes a head in and adds  "Oh, we had a houseful - we ended up putting someone up to sleep in every room of the house, it was crazy but wonderful!".  Agent and taxpayer and spouse are all smiling.  Got 'em - one sleeping bag one night on the office space floor.  Not 100%.  No deduction, and the tax due is tripled by interest and penalties.

 

nat

 

[Polkahero]

I've been doing my own taxes for 15 years now.  Multiple Schedule Cs for both music gigs and my motorcycle business.  Key to avoiding an audit is to make sure you don't report too many losses especially in consecutive years.  I don't think I've ever reported a loss but I definitely know my depreciation schedules and other writeoffs.  Most tax software calculates this for you.  I use a free program that basically just crunches the numbers to make sure there aren't any mathematical errors which can also trigger an audit.

[CHarrell]

16 minutes ago, Polkahero said:

I've been doing my own taxes for 15 years now.  Multiple Schedule Cs for both music gigs and my motorcycle business.  Key to avoiding an audit is to make sure you don't report too many losses especially in consecutive years.  I don't think I've ever reported a loss but I definitely know my depreciation schedules and other writeoffs.  Most tax software calculates this for you.  I use a free program that basically just crunches the numbers to make sure there aren't any mathematical errors which can also trigger an audit.

 

Yeah that's the number one flag that immediately pops up when I use TurboTax every year.

[mcgoo]

9 hours ago, KeyboardEric said:

Does your person work with full time music professionals? I'd consider using them if their rate is in my budget.

 

Well, 100% of my income comes from Music or music related services. I'm not aware of the makeup of his clientele otherwise. To me though, that's not important. It's up to him to know tax law and how to use it legally to make sure that I don't pay anymore than the law dictates. As for what we musicians do and him understanding us, we buy tools to make money, spend money to learn our craft, and use part of the house to do our work or prepare ourselves for the work we do. Doesn't seem that difficult to understand. I don't pay him to remind me to keep track of mileage to gigs. I pay him to advise me when it's time to convert the sole proprietorship to an S-Corp.