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For many musicians, the idea of making a decent living doing what they love is practically a dream come true. However, making a profit in the music industry can be difficult enough without having to worry about the tax laws and restrictions that can make life even more complicated. Luckily, there are plenty of steps a musician can take to make sure they are fully compliant with the IRS and their state taxing agency.
Classify Yourself
You need to decide exactly what type of musician you are before you can even begin thinking about taxes. What course is your career taking? Are you in a band? Are you interested in being a music teacher? Or, do you offer lessons from your home or at a nearby music shop. Once you have classified yourself, if will be easier to keep track of your finances and tax liability.
$600 Rules
No matter what type of musician you are, if you make more than $600 in a year doing something then you will need to report your income to the IRS. Whether you make that much in tips from performing at clubs, or from teaching the piano to a family friend, it will need to be reported to the IRS.
Teaching Advantages
If you are a music teacher at a school, you may be able to take advantage of several tax deductions available to teachers. One of the most useful tax advantages for teachers is the educator expense deduction that allows qualifying teachers to deduct $250 worth of out of pocket expenses for classroom supplies. For more information on tax tips for teachers, including the educator expense deduction check out this article on CEO Roni Deutch's personal blog.
The Business of Music
If you teach music classes from home or a business, you may be able to classify yourself as a small business owner. Speaking of teaching from home, if you have a separate room at home that is used to run this business then that room may qualify for a home office deduction. If you have not already, you may need to get a small business license from your city or country, and if the business expands you may even need to get a federal ID.
Quarterly Payments
If you are earning income from your music, either teaching or performing then you might want to consider making estimated quarterly payments. If you wait until the end of the year, then you might end up with a massive tax bill, and possibly even penalties and fees. To learn more about making estimated payments check out this post from earlier in the year.
Deserved Deductions
If your music career turns into a legitimate business, not just a hobby, then you can take advantage of all the business friendly tax incentives. First and foremost you can deduct all expenses related to the business from your taxable income. Just remember to keep all of your receipts and records of purchases. Some common music business deductions include instruments, sheet music, trade magazines, lessons and training costs, travel expenses, etc.
At Home, and On the Road
If you are a solo artist or part of a band, that performs at several venues across the country, then your taxes are going to get a little more complicated. Unfortunately, income taxes are due in the state that you earned the money in. Therefore, if you live in California but get paid $1,000 to perform a show in New York, then you are going to need to file state tax returns in both California and New York. Filing returns in multiple states can become very complicated, and you will need to keep a detailed record of all venues you are paid to perform at.
The Tax Lady Roni Deutch and her law firm Roni Deutch, A Professional Tax Corporation have been helping taxpayers across the nation find IRS tax relief for over seventeen years. The firm has experienced tax lawyers who can fight IRS tax liens on your behalf.
