The federal government expects you to report ALL of your income from ANY source when you file your taxes. If you are playing shows and/or selling your music, chances are you are required to report your music income on your tax return. Once you earned AT LEAST $400 in total from services/ products AFTER taking out all of the allowable expenses, the IRS will consider you to be operating a business which makes you responsible for two types of federal taxes.
Income tax – according to the IRS, if you earn $400 or more, you are required to report it as “self-employment” income on a form called a schedule C. This is attached to your federal tax return. You will report your income and your related expenses on the schedule C. The income tax you will owe depends upon your tax bracket and overall deductions. If you make less than $400, you would report it on line 7a – “Other Income” of form 1040 as hobby income.
Self-Employment tax – is composed of Social Security and Medicare tax. It corresponds to the FICA (Federal Insurance Contributions Act) deducted from employees’ payroll checks. The self-employment tax rate is 15.3% of your net earnings. The breakdown is 12.4% for Social Security and 2.9% for Medicare. You’re obliged to pay that much because an employer typically pays 7.65% of your earnings to the IRS for Social Security and Medicare leaving you responsible for the remaining 7.65%. As a self employed individual, you pay both the employer’s and the employee’s share of Social Security and Medicare.
NOTE: If you are currently a working musician, then royalties and placements are all taxed at the self-employment tax rate. If you are no longer working as a musician and are still receiving royalties for prior work, those are taxed at the lower, ordinary income tax rate and will be reported on your Schedule E, NOT subject to self employment tax.
TAX TIP: The standard deduction does not reduce your self-employment tax! This is often an overlooked tax that musicians do not take into consideration.
As a self employed individual, you do not have the privilege of having taxes withheld for federal and state payments each time you are paid. This means that you must pay quarterly estimated tax payments throughout the year. Otherwise, you could be subject to penalties for the underpayment of taxes, even if you pay the whole sum in April.
The rules for underpayment apply to all taxpayers. On the contrary, if you are a W-2 employee, you can adjust your payroll withholding to reflect the necessary changes from your Schedule C. As a result, quarterly payments should no longer be needed.
If your tax liability is more than $1,000 for the year, the IRS will consider you to have underpaid if the taxes withheld/ paid during the year are less than the smaller of:
90% of your total taxes dues (including self-employment taxes, capital gains, etc.), OR
100% of the previous year’s taxes owed.
However, for musicians with an adjusted gross income over $150,000 (or $75,000 if married filing separately), you must pay 110% of the previous year’s taxes.
Many self-employed musicians will find it easier to make four equal payments throughout the year. The payment due dates are generally April 15, June 15, September 15, and January 15th of the following year. However, if your income varies substantially from quarter to quarter, or if your actual income ends up being lower than the previous year, you may want to adjust your quarterly estimated payments to reflect those changes.
You can estimate your quarterly tax payments using IRS https://www.irs.gov/help/ita/am-i-required-to-make-estimated-tax-payments or by contacting our office at 404-449-1528.
Click here to read about Deductions In the Music Business.
Commonly Used Tax Forms
Form 1040 – Individual Tax Return
Form 8829, Expenses for Business Use of Your Home
Schedule C, Profit or Loss from Business (Sole Proprietorship)
Schedule SE, Self-Employment Tax
Schedule E, Supplemental Income and Loss
Form 4562, Depreciation and Amortization
1040-ES, Estimated Tax for Individuals (if the tax liability is to exceed $1,000).
Form 1099 – Misc, Miscellaneous Income
Form W9, Request for Taxpayer Identification Number (TIN) and Certification
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