Tax Guide for Musicians

Written by dan keen
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Tax Guide for Musicians
Musicians are typically categorised as self-employed and must file the appropriated income tax forms. (musician image by Dmitri MIkitenko from Fotolia.com)

You are surrounded by music in your car, on the radio, at the movies, in church, on television shows and even commercials. Creating music requires musicians, and like any other job, when musicians are paid for their work they must declare their income on their tax returns. Whether you teach lessons, write and sell songs, or play in a band, you will need to keep accurate records to support your income and business-related expenses.

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Music Business Or Hobby?

The expenses you incur in your music activities should be deducted from your income to reduce the amount of tax you must pay. If your music activities only constitute a hobby, you cannot take more deductions than the income you received. The Internal Revenue Service considers your music work to be a "business" if you are actively engaging in activities aimed at making a profit and earn a living. If your venture does not make a profit three out of every five years, the IRS may consider it to only be a hobby, and limit the deductions you can take.

Deductible Expenses

Expenses you incur that are necessary to operate your business and that are typical for the music industry are generally deductible. Musical instruments, gear such as microphones and amplifiers, sheet music, drum sticks, guitar strings, CDs and similar items all qualify for a tax deduction. If you record music for sale or make demo CDs to promote yourself or your band, recording equipment (including computer workstations and software) are deductible. Other deductions that are unique to musicians include stage clothing, music lessons and even concert tickets if the shows you go to help you keep up with the trends in the music industry. Dues paid to musicians' unions and similar organisations are deductible. When travelling as part of your business, lodging and transportation expenses are deductible, as are meals, for which the IRS has a standard deductible rate for various areas around the country. If you use your own vehicle, purchase a mileage log book at any office supply store to record dates, destinations and odometer readings. Auto expense deductions can be calculated by multiplying the miles travelled by a standard mileage rate set each year by the IRS, or by taking a percentage of all auto expenses, such as gas and repairs, that represents the business portion of vehicle use.

Business Use Of Your Home

For musicians who use part of their home for recording or to give music lessons, compare the square footage of this area to the total living area. This percentage, say 10 per cent, that is used for your music business can be used to deduct that percentage of your mortgage or rent payments as well as a percentage of utilities such as heat and electricity. This area can also include a garage that is used to store musical equipment or that is a dedicated place for the band to practice.

Forms To File

As an independent business person, a musician typically files a Schedule C with his federal 1040 return. This form has lines where you can enter amounts for itemised deductions, such as supplies, transportation, equipment purchases and the like. Being self employed requires you to also file a Schedule SE to pay a self-employment tax. Quarterly estimated payments must be sent to the IRS based on a projected income for the year. In the case where part of your home or apartment is used exclusively for conducting your music business, such as a recording studio or studio where you give music lessons, use Form 8829, "Expenses For Business Use Of Your Home." Deductions calculated on this form are transferred over to Schedule C. Keep accurate, detailed records of income and expenses to make filling out these forms easier. Keep receipts, mileage logs, posters announcing your performances and newspaper ads marketing your services. These help to prove that your music activities constitute a "real" business, not just a hobby. The tax laws can be complicated; use the services of a tax consultant to ensure you take all the deductions you're entitled to and to help you correctly file these IRS forms.

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