Don't Freak Out; Take Those Music Expenses as Deductions
Take Advantage of the Tax Laws to Benefit Your Career
by Elianne Halbersberg
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Every year around this time I get a lot of questions from scared musicians. They get an income statement in the mail from a band they sat in with, or a club where they performed, or a studio where they did some work. These are usually in the form of 1099s and don't have any taxes withheld. Which means you have to show it on your income tax return, and usually pay not only the regular income tax, but also a self-employment tax of 15.3 percent.
A lot of musicians just put the amount on the line for "Other Income" and leave it at that. They are afraid to put it on what's called Schedule C, which would show it as income from a legitimate business. "It might open a can of worms," they say. "They'll go back and want to see if I made any money in prior years."
However, there's a reason for Schedule C. It's where the IRS will let you deduct all the expenses you incurred in making that income. The tax laws are designed to let you write off things that are part of running a business, and if you're serious about your music career and can show it is your primary career goal, then it's perfectly legitimate to take those deductions. Even if your music endeavors constitute just a hobby, you are allowed to take the deductions to the extent of your income, which will enable you to avoid any taxes on that money.
For most aspiring musicians, chances are good you've spent a lot more than you've earned, so you may end up showing a loss on your tax return. If that's the case, you can actually lower your total income, and you'll be getting a bigger refund than you would have without including your music income on the tax return.
How do you offset your income? Start with your music supplies. Guitar strings, cords, picks, straps, drumsticks, heads, reeds for horns, etc. All the normal expenses you incur in order to do gigs or record. And then there are music magazines, music books, lessons and music-related software. Basically, anything related to learning more about music or the music business.
Your equipment is a great write-off. What if it was purchased in previous years? You can start writing it off in the year you place it in service; in other words, when you start using it for your business, which is when you are starting to declare the income. You can write off the cost of the instrument all at once or over a period of years, which is called depreciation.
The biggest expense for most musicians is usually for travel costs. Do you rehearse once or twice a week? Maybe you go to a music store, or go to a club to see a band, or drive to meet up with your bandmates to discuss business. That mileage adds up. Say you do about 100 miles a week for these trips. That's 5,200 miles a year. For 2006, the IRS allows you to deduct 44.5 cents a mile. That would come to a deduction of $2,314 just for your auto expense. And you can add on tolls and parking on top of that.
There's also the cost of rehearsals and studio time. Manufacturing CDs, the cost of a website and flyers for gigs. A percentage of your phone bill is music related, and even a percentage of your rent or mortgage if you have a "music room" in your home.
One question that people worry about is whether the IRS will see it as a legitimate business, as opposed to a hobby. To show a loss, you will need to show that your music career is a serious commitment for you, and that your goal is to make it your life's work. Things that help show it is a "real" business include recordings released, shows played, advertising, business cards, websites, travel, professional photos and promotional materials, and just about anything that you have that can show you're serious about your music career.
So don't be afraid to show what you're doing. Don't fall into the trap of thinking it's better for your money to come "under the table." Be honest about your income, and you will probably come out ahead of the game!
If you have any questions concerning this column, or any other music business topic, send them to me at: How To Succeed In The Music Business, P.O. Box 1422, Hightstown, NJ 08520. Or e-mail them to me at CaptainHal@aol.com
