Tax season is almost here (again?!) and it is important to get them done on time. If you are only working with W2s and have a minimal amount of other expenses (like tuition), investments, etc. it is fairly straightforward. However, for many people in the music industry, one job is often not enough. This means in order to supplement your passion for music you must take up freelancing, part-time, or full-time work.
Here are some things you need to consider as April 15 approaches.
Have Your Papers in Order
There is nothing worse than talking to the IRS. If you are missing a tax document from the previous year, you will need to get it from them and that is not a great process. Be sure to keep all business-expensed receipts, W2s, 1099s, and other important documents for at least 3 years. If you have access to an accountant, that’s awesome! However, most accountants charge an hourly rate – so the better organized your information is, the less time it will take them to prepare your work, and the less they will charge you. Also, the more organized you are, and the better systems you have in place, the more likely you are to keep on top of things and not have to talk to the IRS.
Write-Off Expenses, But Not All Of Them
It can be tempting to write-off anything you like claiming that it is towards your job. A good rule of thumb is to write-off job-related expenses for job-related income. So if you are an engineer and you took a few Ubers because you were late to a studio session, you could reasonably write those off on your taxes. This is why keeping your receipts are so important.
Be sure not to get too carried away. If you are consistently writing off expenses and you are not profiting a certain amount based on your reported income, this can alert the IRS. It is unlikely to happen right away but a few years of unreasonably justified tax write-offs could increase your risk for getting audited.
Here is a really long list of potential expenses you could write off:
- Assets – Generally, those under $1,000 are deductible in the year of purchase.
- Stage clothes / Costumes – Note that this relates to costumes only. Just because you wore those black jeans at a gig doesn’t mean they are deductible. It needs to be show/stage specific.
- Education – Music courses, singing lessons, small business courses etc.
- General business expenses
- Bank charges
- Accounting fees
- Legal fees
- Bookkeeping fees
- Trademarks, registration fees, etc
- Management Commission
- Meetings – catering a business meeting is deductible if the meeting is held at your office / house / manager’s place of business and is consumed at that place. Getting lunch or having a coffee out at a café or bar isn’t deductible. Also note that alcohol is never deductible unless it is a gift. Buying a bottle of wine for your manager’s birthday can be expensed but a bar tab for her birthday cannot.
- Motor vehicle – it is generally a good idea to keep all receipts in relation to your motor vehicle in addition to a valid log book. This gives you an option to claim either cents/mile or the log book method.
- Promotion – advertising, CDs, website costs, facebook etc
- Recording costs – studio hire, producers, engineers etc
- Studio hire.
- Rehearsal room hire.
- Storage – for your equipment
- Tour costs
- Flights, accommodation, visas, meals & incidentals whilst away from home, etc
- Musicians, lighting, sound techs, guitar techs, FOH, tour manager, door/merch person.
- Agent commission
In case this isn’t obvious, we are not tax professionals. We are a community organization that aims to educate and empower individuals to grow careers in the music industry. Please don’t take anything on this page as legit tax advice. Always do your research!