Tax write offs for musicians…?
Question by Dave: Tax write offs for musicians…?
I hate dealing with tax stuff, but I gotta do it. And this year I had a big question come up…
Half of my income comes from music. When I play music with other people and get paid by them, 90% of my income is reported to the government (unless I get paid in small petty cash). I was told that my description is “independent contractor” (meaning in musician’s terms that I’m an independently contracted musician through the various artists I play with and am treated by the govt and those artists like so).
Getting to my question…
Since I have this income coming in from my music, can I write off for taxes things like gas, food, music supplies, performance wear clothing, and other music related expenses (as being the independently contracted musician that I am) or do I need to start an official LLC to be able to write things off for taxes?
Thanks- dave
90% of my income is reported because some artists pay in petty cash under the table without having me fill out a w2 form (or whatever form it is). I don’t bother reporting cash unless it’s over 500 dollars…
Best answer:
Answer by DJ
got to www.irs.gov and look at their help for small business.
Some musicians are kind of mathmatically minded and probably can breeze through their taxes. Others are more the unstructured, creative kind and if you are one of those, you may benefit from finding a decent accountant. I would look for a local enrolled agent that specializes in small business. You might also look for someone who is an Accredited Business Accountant – they specialize in small business accounting rather than Big Corporation GAAP requirements that a CPA is trained to handle. Best place to look is to ask small business owners that you know who their accountant is. Shop for one whom you are comfortable with.
Why is only 90% of your income reported? If they report only 90% of what they pay you, then they can only deduct 90% of what they paid you as a legitimate business expense.
The IRS requires that you report all your income – not just what is reported on 1099’s. They would consider that $ 40 from petty cash as income just as they would the $ 4,000 in total payments for providing harp music at the library every week. The IRS is starting to crack down on the so called “under the table” payments because it is the most significant loss of revenue for the IRS. They probably are not going to find that extra $ 40, but if you have $ 40,000 of under the table income, they may be able to look at your bank account and know that you are not reporting all your income.
There are several IRS publications that talk about legitimate business expenses and record keeping requirements. Jeans and a polo shirt that you wear for a jam session would not be deductible as it can be worn “on the street.” A super fancy dress worn by an opera singer probably would be deductible since it is not something you would generally wear every day. If you do alot of driving, the mileage deduction can be a very helpful deduction.
LLC’s are generally used to limit personal liability. If you run a horse riding stable, you want to make sure that if someone falls off a horse and breaks their neck, you won’t lose your house, so you set up this legal entity that separates your personal activities from your business activities.
As a musician, you probably won’t have that kind of potential liability, so you can probably just be a sole proprietor. Talk to a lawyer to determine if your potential liability warrents an LLC.
The LLC is a legal entity set up by your state.
The IRS does not recoqnize an LLC. So – as a single member LLC, you would file a Schedule C with your 1040 form. As a sole prop, you would also file a Schedule C with your 1040 form. As a single member LLC you could also elect to be taxed as a corporation, but that probably would be of no benefit to you.
You can fill out an SS-4 form on line at www.irs.gov and get a federal ID number. This can be given to those who issue you a 1099, so you don’t have your social security number floating out there in the big bad world…
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