Happy Saxophone Day! Whether you produce melodic sounds on a saxophone with your lips, strum beautiful chords on your acoustic guitar, or imitate Billy Joel’s “Piano Man” on your harmonica, here are 4 important tax tips for musicians that you should know about to keep more of your money and stay compliant with the IRS at the same time:
— Determine if your music playing is a hobby or a job.
One of the most integral tax tips for musicians is to determine whether playing the trumpet, piano, violin, or any other instrument is simply a hobby or an actual job. Do you play your guitar for fun around friends, or do you line up gigs at various venues in order to make a living by strumming away on those 6 strings? If your music playing is more of a hobby that you don’t make money doing, you likely cannot claim any tax deductions or benefits to being a musician. However, if you turn a profit that you use to make a living for yourself, you should be eligible to claim certain tax deductions and other tax benefits of this profession.
— Maintain good records.
If you are confident that your musical endeavors are considered a for-profit venture for you in the eyes of the IRS, it’s critical to maintain solid records. This is to reduce your chances of being audited when reporting income on your tax return and claiming deductions. Records include anything from receipts to invoices to tax-related documents in your business. Document all dates and other relevant information on these files, and consider maintaining both hard copies and digital copies of them. Also, if you work as a musician in other states throughout a given year, you’ll face state income tax filings for those specific states. This can complicate your tax situation, but proper recordkeeping is the key to simplifying the process.
— Claim all relevant tax deductions for musicians.
If you’re eligible to write off expenses you incur for your music career, consider deducting the following costs that should be ordinary and necessary for you to conduct your trade as a musician:
- Equipment, gear, and accessories, i.e. microphones, amps, pedals, carrying cases, recording devices, etc.
- Consumable supplies, i.e. drumsticks, guitar strings, guitar picks
- Sheet music, books, manuals, computer software, mobile apps
- Copyright and registration fees for your music
- Costs to provide instruction, lessons, etc.
- Subscriptions to relevant music publications
- Marketing and promotional materials
- Rent for practice space and storing equipment
- Membership fees paid to professional music organizations and unions
— Be leery of claiming the home office deduction.
While some small business owners in the music industry are fully eligible for claiming the ever-so-popular home office deduction, you should be a little leery of doing so. That’s because the IRS generally considers a place of work for a musician to be wherever he or she performs, such as on stage in an auditorium, at a restaurant, or at a private party. There is a big caveat though. If you have a music studio set up in your home where you record music, you should be able to claim expenses directly associated with it as a tax write-off.
— Consider incorporating your music business.
No matter if you’re a musician or work on oil fields, incorporating any small business proves that you are serious about your trade. So consider adding “Inc.” or “LLC” to the end of your company’s name by setting up an entity and registering it with your state. The IRS will view you as a more serious musician by doing this, and you may be eligible for additional tax benefits that you’d have a harder time using as a sole proprietor. Incorporating is a great option for bands, music teachers, and individual performers who make a living playing an instrument.
For more tax tips for musicians and other professions, turn to the accounting experts at 1-800Accountant. Call 1-800-222-6868 or visit www.1-800Accountant.
Image credit: The image of the saxophonist included in this blog post is used with permission via the Creative Commons license through Flickr.