Image Credit: Kelly Sikkema
Are you paying music taxes in the US? Did you know there are musician tax write offs that could mean you pay less this tax season?
It’s the most wonderful time of the year! Oh wait, no that was a few weeks ago now. Well it’s the period in which we look forward to Winter turning to Spring, flowers starting to bloom, the weather getting warmer and… American citizens are required to pay their taxes. That means taxes for musicians, too.
April 15th is the day to remember – or dread. Cheer up though. If you’re a musician then you might be eligible to write off some of your expenses from your tax payments and save some money this year.
Whilst we’ve done our best to ensure all information here is accurate, when arranging your taxes it is often best to work with an accountant to ensure you are finalising everything correctly and paying the right amount of tax.
When will you get taxed for music?
If you make money from your music and particularly if your career is as a musician, then you’ll be expected to pay tax on income.
If you’re hoping to make deductions on your expenses for the year then you will need to be making money from your music as a business.
To show that your music is a “business” you will either have to register a company that you will claim your music expenses through, or alternatively you will need to prove that you make a profit from streaming income, merch sales, gigging revenues, and so on.
Register everything through Performance Rights Organisations
Every time you play a show the venue has to report the earnings to Performance Rights Organizations, PROs, who collect royalties on your behalf. Be sure to enter every single song you played at each show.
If you’re a new artist you might not even realise you’re registered. King told Spotify about “a certain artist who had some play” on the radio “but had no idea about it.”
King said: “They went five years not knowing they might be registered for something when the registration is free. We go in and sign them up and all of a sudden there’s $30,000 sitting there that they would have never gotten if they didn’t take the time and get advice about it.”
How to write-off expenses for music
Track ALL the purchases and expenses from your year. Any that are related to your music business should be compiled and kept in a safe and organised place to make things easier when it comes time to file them.
If purchases and expenditures are related to how you make money, then you may well be able to write off some of the taxes.
- Music gear and equipment (instruments, production gear, gigging equipment, etc.)
- Software (DAWs, production programs, recording software, etc.)
- Merchandise (Purchases, storage, shipping, etc.)
- Recording expenses (Studio fees, engineer & producer costs, guest musician’s fees, etc.)
- Live music expenses (Practice space, live engineers, roadies, security, performers, etc.)
- Music distribution and promotion (Fees for distribution to digital services, marketing fees, etc.)
- Advancement costs (Educational books/content, lessons and coaching, training, etc.)
- Other digital expenses (Website hosting, programs used for business, social media expenses, etc.)
- Travel expenses (Fuel and public transport, accommodation, parking, etc.)
- Talent costs (Fees paid to photographers, artists, accountants, etc.)
- Office costs (Computer, business cards, supplies, business licenses, etc.)
Can you write off donations on taxes?
If you itemise deductions, a gift to a charity at the end of the tax year might entitle you to a charitable contribution deduction against your income tax.
King said: “I’ve had a lot of clients over the years where all of a sudden it’s the end of the year and they have tour merch that didn’t necessarily sell or they changed up the logo or designs. As long as you are documenting that you paid for it and giving it away to charity, that’s something you can write off on your taxes.”
If you’re able, anything you can donate to charity and have a tax write-off on is a great idea. So always get a receipt!
Considering retirement planning taxes for musicians
Thinking about saving for retirement isn’t always at the forefront of your mind, but its something to think about in terms of tax as April 15th approaches. Planning retirement around taxes is different whether you get 1099s or a W2 tax form. King recommends talking to a financial advisor, and if you get a W2 form consider setting up an IRA or traditional IRA.
King said: “If you’re a smaller artist who doesn’t necessarily feel comfortable with putting money into a retirement plan, get some sort of investment account so at least you’re saving money. The way I set it up with clients is through that normal investment account. We’d get it started for them, and every time they’d have money to save I’d put it into that. You can always then just move it from your general investment account over to that, so you don’t have to save extra money.”
Whew, that’s a lot huh? It’s a fair summary but still isn’t the whole picture. However, we should reiterate that to ensure you are eligible to deduct any of these expenses then you should speak to a professional – particularly if it adds up to a lot of money.
There are also special rules that apply to many of these various purchases made under the context of your music business. If you feel that any of these expenses apply to you then do proper research from official sources to ensure you’re deducting expenses only where appropriate.
Remember you will also need to provide proof (receipts and bank statements) of any expenses that you wish to claim back on.