Musicians who play to the beat of Uncle Sam's drums can keep money in their pockets with these 10 tax tips for musicians. Any musician intent on making money is classified as either a sole proprietor or if a member of a band, then a general partner. By defining yourself as a business musician, you qualify for hefty tax savings. Here are a few tips for musicians for claiming business expenses on your schedule C's to reduce your tax liability. Who knows, you may become ol' Sammies biggest fan.
- Write a journal. In order to deduct business expenses on your schedule C, you need proof of your travel, expenses and income. Note what it costs to do business everyday from driving to a gig, making copies for flyers, or buying an amplifier. Pencil and paper is fine or you can step it up and use an accounting program like Quicken. Keep receipts, especially for anything over $75.00.
- Start a mileage log. As a musician, anywhere you drive for a business purpose is deductible. The easiest way is to check and note the odometer reading with the purpose of your trip every time you get in the car. If you forget check, use the distance on MapQuest to update your log.
- Adhere to state laws. If you perform in more than one state, you must pay state taxes in every state where you earned money. You will need to keep your journal up to date to make sure you don't miss a return.
- Keep all food receipts. Fifty percent of business meals are deducible if you keep the receipt or credit card bill. Of course, on tour, all meals are business meals.
- Book from home. Musicians who make calls and do other administrative tasks from home can deduct a percentage of your home as dedicated office space. The deduction also applies to rehearsal space outside of the home.
- Depreciate musician gear. Any equipment you buy that is used over more than one year must be deducted over the years of its use. For example, if you buy a guitar for $1400, you can depreciate a $200 deduction each year, saving a little at a time. So, if you already have enough deduction with a house or do not make enough to support a larger deduction, the tax break is saved until you have a more lucrative career.
- Report payment to your fellow musicians. Send a Form 1099 to any musicians you hire or to other members if you lead a band. When you send the 1099 to independent contractors, these are deductible as "commission and fees." So, if you tip a sound guy $20.00, report it!
- Don't forget self-employment tax. This is the self-employed persons version of social security tax reported on Schedule SE. Paying the 15.3% tax sucks, but half of the amount is deductible from your gross income. The upside is after you are an old washed up musician, you earn credits in your Social Security, increasing your benefits upon retirement.
- Keep track of all inventory. Use the "cash method" account for your income and expenses as they happen. So if you order CD's from your manufacturer, write it down when you pay for them and not when they are ordered. If you sell a lot of CD's one year, consider buying a bunch of CD's in December to offset your taxable profit.
- Save, Save Save for tomorrow. Self-employed musicians have retirement savings options. One choice is a Roth IRA that will give you tax free withdrawals in your golden oldie years.
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