YES. Being a musician has monthly expenses, and the ability to claim those expenses and reduce your tax liability could save your dreams of making it one day.
Some of the most common costs of producing music are:
- promotional materials (e.g., CDs, stickers, flyers),
- consumable supplies (picks, strings, drumsticks, etc),
- copyrights and trademarks,
- travel and meal expenses (hotel, airfare, on-site travel, fuel costs),
- rental costs (equipment, car, sound),
Starting your music venture usually requires paying general business expenses and most of those are deductions for your tax return. But you’re a home-based musician, with a small spare bedroom for practice and a computer to mix tracks. I understand but you could still deduct:
- The costs for registering the business.
- Insurance fess
- Your website, domain, monthly hosting and email hosting
- Membership to professional organizations.
- Professional services for the business including lawyer’s fees and Tax prep fees.
Instruments and Sound Gear
The cost to start a band is huge, Instruments and sound gear can run thousands of dollars. These start-up costs are capital investments.
Examples of capital investments are:
- Recording equipment
- Amps, mixers and other sound equipment
You will have to buy these things up front, but you get to depreciate them for the years to come, allowing you to deduct them as they are used.
Repairs to equipment and consumable goods are also deductible but not a capital expense. String need to be replaced, reeds wear out, cables get damaged, and speakers explode (if your good enough). All of these are deductible goods for the year of use.
Music Events and Festivals
Some of the most overlooked deductions for musicians are the costs of attending events. Not the ones you perform at, the ones you attend to learn about music trends, meet with industry professional and vendors. Tickets, parking, transportation, food and other expenses are all deductions that should be recorded in your taxes.
Taxes are serious for your business and could be the difference between paying thousands or breaking even. Planning your tax expenses and keeping all receipts makes doing your taxes much easier and provide the proof that you are running a business in the music industry – not enjoying a hobby. Here are some sample records to pay attention to:
Keep home utility bills in one location so you can calculate the percentage of expenses based on the square footage you use for your business.
Keep 1099’s from gig’s – venues are required to issue them for jobs at pay over $600
Review your income and expenses monthly, make sure you have copies of all bills and receipts as needed. Make sure you are setting money aside to pay your quarterly estimated tax payments if you are required to pay anything.
While all the tax savings are awesome, the most important reason a musician or band needs to set-up a business entity is protection. When performing at concerts almost anything can happen. Someone rushes the stage and gets hit by the lead guitar player’s guitar neck as he turns to avoid the rush of security… that kids later sues for assault resulting in bodily harm to recoup medical expenses. Your insurance does not cover all the costs, so it falls on the band’s business entity that doesn’t have any cash reserves and few assets of enough value to even pay the plaintiffs lawyer bill, knowing his chances of getting paid are small most lawyers wouldn’t take the case. That changes if the band members don’t have a business entity and maybe the drummer owns his house… That’s right it’s not even the guitar player’s house. But the band conspired, and all members are liable.
Being a professional is as simple as making money in trade for goods or services, but it’s not always easy to spot a professional. In music, having LLC or Inc. (business entity identifier) at the end of your email shows you are serious about making music for a living. While its not a slam dunk that you will land a spot-on tour or a place on a play list, it does have weight. Fly by night artists do not take the time or spend the money to become a business because they are not sure if “this music thing is going to work out”.
Record labels love music business entities, because the rights to the music is mostly held by the business, making it easy to clear rights as the voting members are spelled out in the formation documents. No more disagreements on who controls what or what the splits are.
Bands always fight over who is responsible for what, who gets paid what and what happens when someone leaves. All of this is spelled out in the business agreement, making the need to talk about it a requirement. Everyone understands their role from the start of the business agreement, and meeting minutes will document each members role in the business.
Do not fall for the Delaware entity scam or any other one. Wherever you are conducting business is the state you need to register your business. The tax benefits will not help if the state you have your home office that you write off decides you don’t have business protection for not filing the correct paperwork, get a real local tax lawyer to set things up once you (or the band) are serious enough to start making money doing music. The fall out of not setting things up correctly can be the difference in being successful.
Are You Ready For A Music Business?
It’s hard to say when to start your music entity as a band because of the different dynamics of the group and who will remain when the real work starts. As a solo artist though, you need to get it together quickly. The protections are enough to make it clear that you should get an entity. The tax benefits and additional influence are just added bonuses.