Taxes and Your Music Business

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Taxes and Your Music Business

To you, music is more than a hobby...But what does the IRS think? If you are serious about your music, you may benefit from tax breaks.
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I remember hearing a statement that there are two things guaranteed in life - Death And Taxes!  I don't know if the statement was meant as a joke, but neither death nor taxes is a joke. In the US, mid-April is known as "tax time" and for most people, this time of the year is no laughing matter.  As a musician (whether songwriter, performer, composer, etc.), taxes affect your bottom line. Make no mistake, you should definitely make paying your taxes a priority.

I'm not a tax expert. I compiled the information in this article from general tax guidelines. You should take time to consult with an accountant or tax expert before filing your taxes. If you know the general rules and what to save, you can make "tax time" a lot easier and maybe even gain some benefits because of your craft.

First of all, if it is "tax time" and you still have not filed your taxes, then do it! If you've filed for an extension, then make sure you meet the deadline. If you've already filed and you're wondering what's deductible and what's not, you're not alone. The good news is that you can get your expenditures and earnings lined up for the coming year so next April will be easier.

First Question: Do I have to file tax documents regarding my music income?
I think all musicians ask this question at some point in time. It should be the first question, if you are serious about your music and making money from it. The tax rules are pretty simple.  You have to file...

  • If you made more than $600 from one source (using a "Schedule C" form)
  • If you have "1099s" totaling more than $600
Don't forget about royalties! If you are receiving royalties for any song, then those royalties are part of your earnings/income.

Most musicians file must also file a Schedule SE for self-employment taxes (if your net earnings are over $400). If you are employed elsewhere and are currently paying Social Security taxes, your tax amount may not be as much for the self-employment taxes. In order for this to kick in, your income (not your income and your spouse's combined) must exceed $80,400. If your income does not pass this mark, then you will have to pay self-employment income on your income from music. (From Topic 554 - IRS)

What do I deduct?
Musicians have a number of deductions that are unique to their business. You need to become educated about what the IRS finds an acceptable as well as finding a way to save those receipts. Here are some deductions that a musician might be able to use:

  • Instruments Equipment/Gear (this category might extend to PCs if you have a home studio or are writing music using the PC)
  • Supplies (drum sticks, guitar strings, etc.)
  • Travel expenses (buses, van rentals, mileage, auto repair, hotels, etc.)
  • Outfits for performance and dry cleaning fees
  • Office supplies (paper, envelopes, mailers, stamps)
  • Website and e-mail related fees (if you have a music website)
  • Practice space, gear storage, and P.O. box rental fees
  • Music organizations, associations and unions fees
  • Music business books, directories, trade magazine subscriptions
  • Advertising costs such as demo duplication, press releases, press kits, band photos, flyers, announcements
  • Legal fees for professionals such as attorneys, managers, agents, accountants and copyright registration fees
  • Music lessons, sheet music, CDs (particularly if you are playing covers)
This list compiled from the IRS publication Market Segment Specialization Program Entertainment - Music Industry and Entertainment 1040 Issues.

Not Just Receipts
If music is your business, you may need to keep information proving that you are in business. I can't stress this enough. If the IRS views your business as a hobby, you might lose some of your deductions. Some advice is to do the following:

  • Run your business like a business: Keep accurate records of income, sales, gigs, deductions, equipment purchases and sales, salaries for services (promotions, news release writers, webmaster, accountant, manager, etc.)
  • Present yourself as a professional: Use business cards, file for a business license or taxpayer identification number. You might also consider incorporating and/or getting a separate address for your business such as a P.O. box.
  • Set up a separate bank account for band business
Save copies of other items such as:
  • Sample Press Kits
  • All Mailing Lists specified by type (Newsletter Recipients, Press Kit Recipients, Reviewers, News Release Recipients, etc.)
  • Rejection Letters (Yes, keep them to show that you are attempting to get signed!)
  • News Releases
  • Reviews and band mentions in the Press (including E-zines)
  • Copies of Advertisements and Flyers produced
  • Gig lists and any notices regarding performances
  • Copyrights
  • Royalty Agreements (songs listed with ASCAP, BMI, etc.)
  • Contracts or distribution agreements with labels, music distributors, etc.

For More Information
Here are some sites that might help:

  • Riley Associates has a lot of great information and even spreadsheets specifically designed for the musician.
  • IRS has an Adobe Acrobat (.pdf) publication regarding taxes for the Entertainment Industry (Music Business) that you might want to download and check out. You can use this link for the .pdf or visit their Market Segment Specialization Program pages. While there, you can pick up your Schedule C or Schedule SE.
  • Entertainment Important 1040 Issues from the IRS.

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