Tax write-offs for the musician

It’s tax season and you should be thinking “Yes! how many ways can I find to reduce my taxable income?”

As a musician, there are PILES of ways to reduce your taxable income. First, let’s look at two types of working scenarios.

The Freelancer

If you gig/perform a lot, chances are you are paid on a 1099 or several (because you filled out plenty of W9’s)-or you are just paid by check or cash. In both instances, taxes to the federal and state governments were not taken out. If this money hits any of your bank accounts, it is considered a part of your taxable income (and traceable). By filling out a w9 you are agreeing to be the responsible party for forfeiting your own taxes.

If the majority of your income is made this way, you should consider filing quarterly taxes.

Yes, I really do have 5 jobs

Many successful musicians collect paychecks from a variety of organizations. If you filled out a W4, you will get a W2 that outlines how much money (for federal and state taxes) was already taken from your paycheck. If you have many jobs that make up your total income, you have several W2s sent to you, for filing your taxes.

The problem here is that each job only sees how much you make for them, and only takes out the proper amount of taxes for that yearly amount, based on current tax brackets. At the end of the year, once your cumulative income is totaled, you are most likely in a different tax bracket, and the taxes taken out for each job will not equal the taxes you have to pay. It is very easy to end up owing thousands.

If you have multiple jobs, I always recommend claiming “0” on the W4s you fill out. You can change the number of exemptions on your W4 at any time. Unfortunately, this practice may not prevent you from owing money at the end of the year.

Now we can talk write-offs

“The Freelancer” will most likely file a Schedule C, which is what you file when you own your own business. Don’t worry, you don’t have to be that organized, you can simply “do business as yourself.” There are also options to set up an LLC, corporation, or nonprofit, but that’s another blog, another day.

Doing business as yourself allows you to deduct business expenses. Just about ANYTHING that is used for making your income can be deducted. However, whatever you deduct either must ONLY be used for business, or you must have a reasonable way to explain the percentage used for business, assuming part of the deduction is a personal expense.

The “Yes, I really do have 5 jobs” person will also be able to look at deducting business expenses. These deductions are everything that you need to purchase or use to do business, but do not own your own business. The funny thing is, it is all the same stuff found on the previous IRS link. Personally, I separate them out so I have deductions specific to my Schedule C, and deductions specific to my regular work.

Here are some of my favorite things to deduct, when applicable:

1. Equipment:

computers for composing, software, hardware, instruments, instrument maintenance, accessories & cases, instrument repairs, sound systems, CDRs, staff paper, office supplies, music books & other resources, apps for teaching, CDs/music for research/listening/teaching.

2. Entertainment (50% is deductible on your taxes):

When there is a business meeting involved you can deduct 50% of the price of meals, coffee, concert tickets… and that’s all I usually encounter.

As a freelancer, hotels & meals that you need while on the road gigging, are fair game for deductions.

3. Mobile Phone bill:

My iPhone is essential for both freelancing and my day-job, so I deduct a high percentage of the monthly bill from my taxable income. To support this deduction, I make sure my cell number is listed on my business cards, contact forms when necessary, and invoices.

4. Home Office:

They say deducting a home office creates the greatest risk of being audited. So make sure you are honest and specific about how you use your home office. My studio space is for composing and occasionally academic coursework-that’s it.

Here is the formula:

  1. divide the square footage of your office by the total square footage of your home.
  2. this percentage is the percentage you can deduct from the following items:
    1. Heat/Gas
    2. Electricity
    3. Water
    4. Property Taxes
    5. mortgage interest
    6. insurance
    7. repairs (usually specific to the office space)
    8. internet

It helps if your home office has a separate entrance, you have proof of meeting clients there, etc.

5. Mileage

Especially as a freelancer, mileage you drive to a performance/gig/meeting can be deducted.

6. Other business deductions to consider

If you have multiple jobs and drive between them, you can deduct the mileage to the second job and all other jobs after that. So you cannot deduct your commute, but you can deduct the driving in between.

And always check up on the IRS Credits & Deductions page.

Last, if the business you work for offers reimbursement for anything you would otherwise deduct, it is always better to be reimbursed. Reimbursements are a 1 to 1 match for cash in your pocket. Deductions only reduce the taxable income, so the money saved is only a percentage of the deduction based on your particular tax bracket.

Summary

This is a very introductory article about tax-deductions. There is so much to learn and so little time, especially in the realm of personal credits and deductions. But for your business, and your personal taxes, stay informed!

 

 

 

 

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One thought on “Tax write-offs for the musician

  1. Pingback: Taxes and forms, year 2015, irs.gov – collaborations, business and music.

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