Simple Tax Advice For Working Musicians
Illustration by Lee Alexander
Recently the Panama Papers have reminded us all of the lengths some people will go to avoid paying taxes. Musicians have been dealing with that since at least 1966, when the Beatles' Revolver album opened with George Harrison's scathing “Taxman,” the inspiration for the lovely portrait seen above — actually fashioned out of IRS forms by Houston musician Lee Alexander. It’s been a lot longer than that, of course; villainous tax collectors appear as stock characters in the legend of Robin Hood and the Judeo-Christian Bible long before that.
Taxes, or more specifically ignoring them, can be serious. Just ask Willie Nelson; the IRS is watching. This article is meant to be a simple guide to the kind of deductions and tax breaks that are readily available to everyday musicians, not a guide to how to get one over on Uncle Sam. (I’m not that smart, for one thing.) Therefore, please consult an actual, reputable accountant or lawyer before signing anything. You don’t need to look any further than Steve Miller’s recent comments after the Rock and Roll Hall of Fame induction ceremony last week to know the sort of people the music business notoriously attracts; historically, far too many of them have gladly lined their pockets with money that should have rightfully gone to somebody else.
Before we go any further, it’s a good idea to make sure you make enough money from playing music to even worry about taxes. You probably do. Most musicians working at a local bars-and-clubs level will be considered self-employed, independent contractors by the IRS, and therefore must list all of the expenses they would like to deduct on something called a Schedule C. If you are a member of a band, you will probably have to file individually and as a member of a partnership; i.e. your band. (Anyone who files as self-employed is also subject to something called a self-employment tax.) According to this table at efile.com, a musician need only make $400 of gig money before being required to file a tax return, no matter his or her age or marital status. That's $400 per employer, too, be it a bar, country club, wedding party, or whatever. Even musicians who play music as a side gig, apart from the full-time job where their employer withholds the appropriate amount of income, have to do this.
The best source I came across for this story was an article by a CPA in West Hartford, Conn., named Alan Friedman, who has written about the subject for music-industry trade organizations such as NAMM, RPMDA and NASMD. Here, he was writing in Drumhead magazine. One of the biggest mistakes musicians make, he says, is assuming anything they spend money on can count against their taxes. This is simply not true, Friedman explains.
“Many people are under the assumption that the more money you lose at your musical business, the better off you are, because those losses can offset other income on your tax return,” he says. “This is not true. If you lose money at your business for too many years in a row, the IRS doesn’t consider it a business anymore; it is now merely a hobby. After all, who in their right mind would continue to operate a losing business?”
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Luckily, if a musician is good enough to make enough people want to pay him or her to do it, the IRS allows him or her to write off a wide variety of business-related expenses. (Just be sure to save your receipts.) Those include:
** Mileage (very important — could be to go on tour or to and from Rockin’ Robin)
** Vehicle upkeep/maintenance
** Musical instruments — can be deducted as a one-time expense or an annual “straight line depreciation” over several years
** Accessories (amps, pedals, tuners, cables, drumsticks, etc.)
** Computer/iPad; even an iPhone is deductible in some cases
** Web site maintenance
** Office supplies
** Telephone/Internet bills
** Rent for rehearsal/storage space
** Professional fees (attorney, manager, accountant, etc.)
** Student loan payments
** Promotional costs
** Food and beverages — call a band dinner a “business meeting”
An even longer list at freelancetaxation.com spells out still more allowable deductions, including theatrical clothing, postage, repair costs, and even tips. Another site, artstaxinfo.com, has some good advice on how not to cross certain lines. (Example: “Remember not to get greedy on items like concert tickets, shows and CDs. The IRS loves to attack deductions such as these. But they are allowed since performers must keep up with trends in their profession.")
Essentially, the goal should be to avoid what happened to one poor jazz bassist and music professor. According to Alexis Kimbrough, an accountant for the Growth Group, this poor guy failed to pay taxes for several years (strike one), got audited by the IRS (strike two), and wound up in federal court (you’re out). The judge ultimately ruled that the professor had to pay nearly $4,000 in back taxes, basically because he didn’t keep his receipts. Four grand can buy an awful lot of “research.”