What is your business?
As a musician, the chances are an individual will be self-employed or classed as a freelancer by those they work for over the course of a year. Taxes must be filed on all earnings over $400 so it is important to make a decision about whether a determined effort is being made to earn a living or to simply have fun with friends. If a musician is looking to carve out a career it is important to classify the position of the musician in terms of being a sole proprietor as a session musician or part of a partnership if in a band. Music Biz Academy reports the main reasons for setting out the tax position of a musician early in their career is the need to complete different tax forms for different tax positions.
Getting the maximum deductions
It is easy to misunderstand the many different deductions on offer to an individual when they are living as a working musician but the chance to reclaim some of the money owed to taxes is always important. The obvious deductions of equipment such as instruments, strings and supplies, and manuals are always going to lower the tax burden but a number of other deductions can also be found in the guidelines from the Internal Revenue Service; music lessons and the production of promotional materials can all be written off as deductions as long as receipts can be produced to support any claim made.
Keep good business records
Keeping excellent records is just one aspect of the life and career of any musician who may have set out on their musical journey dreaming of stardom and international success. Records are not only played but also kept to make sure filing taxes is made as simple as possible for those working on their own or with a financial services company; one simple answer often taken by musicians is to keep hold of their monthly receipts in an envelope before stapling it to the corresponding month’s bank statement.
Understand the taxation regulations
One of the main problems musicians fall foul of is a lack of understanding of the specific requirements of the taxation law when it comes to making deductions and filing a correct claim. Musicians and performers should not attempt to make any deductions for a home office as the IRS tend to look at the location of any performance as being the primary place of employment for a performer.
Set up separate accounts
A lack of preparation and understanding of the business world often sees a musician find themselves being scrutinized by the IRS because of the tangled accounts often created when a business owner fails to keep their private and commercial funds separate. An easy step to take is to open a business account dedicated solely to accepting payments and paying bills related to the work of a musician. Taking this step will often make it easy for any individual to avoid the dangers of being questioned by the IRS when April 15 has passed by and all taxes are filed.
Over the course of any career as a freelancer or self-employed person, the chances are an audit will take place over the taxes of any individual. It is important to remember to keep excellent records at all times and only input an accurate representation of the state of the individual’s finances when completing IRS taxation forms. A little preparation can make a difference when dealing with the IRS as a solid response to an initial inquiry can make it easy to avoid an audit and its associated problems.
Firstly, an individual should make sure they have defined their position within the music industry as performer, songwriter, producer, or any other of the myriad of employment opportunities. Each business an individual musician takes part in should be declared separately and form the basis of the correct individual form a musician should complete each year.