While I was on Twitter, I saw some misinformation being posted through an RT on the CD Baby account. A merch company argued that musicians should order merchandise before Dec. 31st so they could write off the expenses in 2012 while selling the goods in 2013. Unfortunately, it doesn’t matter because you’ll be taxed on your earnings for 2013 so it doesn’t help you out. However, it inspired me to write a post about taxes and bands.
A disclaimer: I’m not an accountant and you’re best off talking to someone who specializes in taxes. However, I have been doing this for a while and I can at least offer some more objective advice than a company that is trying to sell you something.
Business Structure
Have you set up a business? While it isn’t necessary, there are certainly many benefits to setting up your music career as a business. I have my band set up as an LLC – Limited Liability Company. It’s a flexible structure that’s pretty easy to set up and I can still do my taxes. Do yourself a favor and get familiar with the different business structures to see what’s right for you. Some bands set up an LLC for the band/organization itself while they have each band member set up as an S-Corp or LLC themselves to maximize tax deductions and protections. If you’re going to do something like that, it is advised that you talk to a tax professional.
Tax Deductions
The purpose of tax deductions is to reduce your taxable income (how much you owe to the government). As a musician yes, you can usually write things off like music gear, travel costs (including fuel, food, and lodging), clothing, or other expenses associated with the “business” of the band. If you are dedicating part of your residence to rehearsal or office space, that’s a decent deduction as well.
Most people don’t claim deductions that they are eligible for – in fact, it took me years to convince some of my bandmates that they were missing out on quite a bit of tax deductions! MusicianWages.com offers a pretty decent guide on tax tips for musicians.
Just remember, as Daniel Dafoe says, that only two things in life are guaranteed – death and taxes. However, if you don’t take the time to learn about how taxes work for your music career, you’ll end up paying a lot more!