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Disclaimer: This article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney or tax professional to obtain advice with respect to any particular issue or problem. The opinions expressed in this article are the opinions of the individual author, and may not reflect the opinions of the Sonicbids.
If April 15 isn’t already circled on your calendar, then the constant barrage of TurboTax and H&R Block advertisements will soon have you sweating about filing your taxes. Until software programmers come out with a package especially for us musicians, there are some basic things you’ll want to know – even if you hire a professional to help – to save yourself time and stress with tax prep.
As a self-employed musician, you need to know more about taxes than the average worker bee. You may be earning money from several different sources (solo gigs, session work, teaching, recording, songwriting, merchandise, etc.), so it’s important to know how to keep track of everything and which tax forms you’re required to file.
So gather your receipts and check stubs, and let’s talk about need-to-know tax info for you and your band.
Make Accounting Easy!
Doing taxes can be confusing and stressful, but these four tips will help you knock the accounting aspect out of the park:
1. Set up a separate bank account
For the self-employed, the IRS recommends setting up a business bank account – separate from your personal finances. This will help you perform basic accounting.
2. Use a separate credit or debit card for business purposes
Want to make accounting even easier? One way is to get a credit or debit card and use it solely for business purposes. Every time you buy sheet music, musical instruments, amps, guitar picks, or anything else you need for your music career, you will automatically have a record of it on your monthly statement. Just be careful to never make personal purchases on your business card – rehearsal clothes and groceries don’t count!
3. Save your receipts
Keep your receipts organized by attaching an envelope to your monthly statement and stuffing all of your receipts into it. The IRS generally requires you to keep your records (bank statements, receipts, tax filings) for at least three years from the due date for filing, which means that in 2014 you should still have your records and receipts from your 2010 taxes.
4. Use cash accounting
The money you include on your business profit/loss form (explained below) is determined by the accounting method you choose. You’ll see a box on the form asking if you use the accrual method (you report income on the date you earn it) or the cash method (you report income on the date you actually get paid). Cash accounting is the simplest method in terms of recordkeeping: you can just look at the dates on your checks, bank statements, and store receipts to determine if they are part of your 2013 taxes. For most people, the tax year runs from January 1st to December 31st, so if the dates of your transactions are in 2013, then those earnings/expenses belong with your 2013 taxes.
Know Which Forms You Need
If you’re self-employed, wave goodbye to filing a simple 1040-EZ. Depending on whether you’re a sole proprietor (you are your business) or part of a partnership (you’re in a band), you're going to need different tax forms to declare your earnings and expenses.
You’re the boss: tax forms for soloists and studio musicians
If you’re a musician who teaches students privately, plays gigs, or does studio work, you’re probably a sole proprietor. That means that you’ll have to file Form 1040 plus Schedule C or Schedule C-EZ to declare profit or loss from your business.
In addition, you’ll need to file Schedule SE to pay taxes for social security and Medicare (since you don’t have an employer withholding these taxes from your paychecks). Although it may be tempting to avoid paying these taxes now, remember that your distributions later in life will be based on how much you paid into the system during your working life. Skimp now and you may suffer later.
Checklist: tax forms for sole proprietors
Together we’re the boss: tax forms for bands
If you’re part of a band that plays gigs together and splits expenses and earnings, then you’re most likely in a partnership. This is where things can get tricky, because you’ll need to file tax forms as a group and individually.
First of all, you’ll need an identifying number known as an EIN to fill out your partnership tax forms. The EIN functions just like a social security number, but for your band as a whole. Fortunately, requesting an EIN is quick and easy.
After you have an EIN, you’ll need to file Form 1065 as a group. If you have employees besides the partner band members (i.e. if you hired a full-time bookkeeper to keep this all straight!), you would also need to file employer taxes.
In addition to the group tax filing, each band member needs to file his or her own Form 1040 accompanied by Schedule E (to list individual profit/loss from the partnership) and Schedule SE.
Checklist: tax forms for partnerships
- Form 1065 (filed as a group)
- Schedule K-1 (one for each partner)
- Form 1040 (filed by each partner)
Spreading out the tax burden: Form 1040-ES
If you expect to owe at least $1,000 in taxes for 2014 (after any deductions or tax credits), then you will most likely have to file Form 1040-ES to pay estimated taxes. It’s the same idea as having state and federal taxes withheld from an employee paycheck, but since you’re self-employed, you withhold the taxes from yourself. Rather than making you pay for everything in April, the IRS wants you to send them a check every three months to spread out your tax burden, making it easier for you to find the money to pay Uncle Sam.
Making over $600 per year at a regular gig: Form 1099
If you’re an independent contractor (meaning you’re self-employed and provide a service to another business), you need to file Form 1099 from every business that pays you over $600 during the year – and yes, that includes your weekly gig at the neighborhood bar. Make sure you fill out a W-9 and give it to any business that hires you to ensure that you get your 1099.
Consider Professional Help
Although programs like TurboTax can make simple tax returns a breeze, it’s probably worth considering professional help when you start receiving piles of 1099 forms and are struggling to determine profits and losses. Professionals have a thorough understanding of the tax system and might even be able to get you bigger refunds.
However, keep in mind that even the best tax preparer needs you to keep your records straight to figure it all out. Regardless of whether you choose to prepare your own taxes or hire a professional, make sure you get 1099 forms from everyone who pays you over $600, keep a notebook with the date and amounts earned from your gigs/lessons, and keep your receipts and bank statements in a safe place. Good recordkeeping will save you time, stress, and money!
Don’t Miss the Deadline
2014 taxes are due on April 15, 2015. Know you won’t be able to file your taxes by then? You've got until April 15 to ask the IRS for an extension.
In addition to federal income taxes, don't forget that you also owe state income taxes for the states you live and do business in. This article has only focused on federal tax form requirements, so make sure to check with your particular state for information on state tax form requirements.
Jamie Davis-Ponce is a professional musician and graduate of Northeastern University's Master of Music Industry Leadership program with a concentration in entrepreneurship. She has been a music lecturer at Ithaca College, and is deeply involved in Boston-area arts and music organizations, having worked with ArtsBoston and held internships at Handel & Haydn Society and Boston Symphony Orchestra. Jamie is currently an administrator in the Professional Performance Division at Berklee College of Music. You can view more of her writing on her blog on Music, Business, and Creativity.