Many people underestimate the time and level of commitment that goes into the music business. Most people who work in this industry are not regular W2 employers or work a standard 9 to 5 shift. By not having an employer to rely on for record keeping, this adds a lot of extra pressure to the self-employed entertainer.
The music industry generates its revenue based on individual thoughts and creative contributions. This often leaves little to no time to keep updated on tax laws, tips and procedures while also maintaining your lifestyle. Whether you are new to the music industry or a seasoned professional, it is highly advisable to see an accountant and/or tax advisor who knows how the music industry works. In doing this you can be sure you’re maximizing the deductions available to you when it comes to tax time.
Who Does This Info Apply To?
Not only does the music industry consist of the companies and individuals that create the music, but it also includes the organizations and associations that aid and represent music creators.
Taxable Income Sources
Regardless of whether you receive a 1099 at year-end. It is a common misconception that if you do not get a 1099 then it is not reportable income. This is untrue. If you have income in any form, it is required to be reported on your 1040. The form 1099-MISC is a tax form that is supposed to be filed on any payments made to an individual for services amounting to more than $600 in any calendar year.
The goal is first and foremost to lower your taxes! The good news is that musicians tend to have a lot of expenses associated with writing, recording, touring, and performing their music, and you only pay taxes on your profit (i.e. your income minus your expenses). The musician/performer has a number of tax deductions that are unique. For the IRS, all deductible business expenses are those that are:
Incurred in connection with your trade, business, or profession
Must be “ordinary” and “necessary”
Must “NOT be lavish or extravagant under the circumstances”
There is a new 20% deduction for small businesses that are “pass-through” entities. Pass through entities will be taxed on only 80% of their qualified business income (QBI).
Because the burden of proof is on you to back up every item on your tax return with documentation, the best approach is to try to keep as many records and tax receipts as you can for at least 3 years.
Click here to read our article “Know Your Tax Obligations“
If you enjoyed this article, please share so that other people in the industry can enjoy it as well! For tax related questions or concerns, feel free to book an online consultation here or call now at 404-449-1528!