[NewMusic] musical taxes

[Sarah - 21 Grand]

Ava wrote:
My income from actually playing gigs at this
point is definitely less than $1000 a year, so not super significant.
I would like to be able to claim "self-employed musician" as another
source of income if i can, mainly so i can try to write off expenses
like amps, guitars, gas money for touring, etc.  Do i need to fill out
a 1040 form to do this? or something else?

SL:
basic rules: If you made over $400 in a self-employed capacity you are
supposed to report it - that is $400 gross, not with expenses subtracted.
You would fill out a Schedule C or C-EZ (depending on amount of income,
types of expenses, etc.). The main tax form you would use would be a 1040
(as opposed to 1040-A or 1040-ez).

AM: also if i do not have receipts or anything to prove that i have
actually gotten paid at gigs, will the IRS come harass me? i'm not
sure how much proof you have to have to make your "business" viable
and not be audited.

SL:
It is important to document income and expenses - in writing. One thing I'd
suggest - as a lot of the time you are being paid in cash and the money is
paid to another person and then distributed amongst musicians - is keeping a
list of gigs. It is also useful for archival purposes, bio writing, ego
stroking, blah blah blah. Write down at least the date and the location,
next to that you can note how much you got paid. This also makes you appear
to be conducting your "career" in a business-like fashion. The location is
also useful if/when you need to figure out mileage and travel expenses.

Cliff wrote:
 That opens
up all kinds of tax write offs - every cd, concert, or other entertainment
'research' can be deducted.

SL: well, that depends. These things should be considered on a case-by-case
basis. An auditor would generally do so.

Cliff:
This is only worth it if you can itemize more
than the standard deduction.

SL: no, no, no, no, no. Itemized vs. standard deduction has pretty much
nothing to do with expenses for self-employment income. The expenses are
deducted on the same form as the income (the schedule C). Itemized
deductions would only come into the picture if you were trying to deduct
expenses in relation to income you earned as an employee.

Cliff: But if you're buying lots of gear you can end
up getting more tax back from your regular job.

SL: Actually, gear should be depreciated rather than expensed. It of course
depends on the item and your use of it, its cost in relation to your income,
and a number of other things. This is one of the things that computer
software doesn't do. A lot of tax stuff is pretty cut and dried, and the
cheap mass-produced tax programs handle this stuff well, but for some people
there are a number of gray areas and judgment calls - and a $30 computer
program is not designed to deal with those.

Cliff: Schedule C's are looked at
closely I'm told, but they are looking for bigger fish than you more than
likely - but be careful anyway.

SL: It is easier to catch smaller fish than bigger fish ... however, from
what I've noted, the most likely thing to trigger an examination or audit is
making an obvious mistake.

Cliff: You can write off your business as a loss,
but at some point (within 5 years i think) you have to make some money after
expenses.

SL: again, that depends. The IRS is quite fond of the phrase "facts and
circumstances." They do however publish a list of the factors they consider
when evaluating whether one's business is a business or just a hobby.
Keeping receipts, logging income, working regularly, critical recognition,
etc. are signs that one is taking the business seriously. Nothing says
business more than an excel spreadsheet!

Cliff: In the real world you
get 1099's for work as an independent contractor.

SL: You can be a "real" musician and earn a substantial living and not
receive a single 1099. One should receive a 1099 if you were paid $600 or
more in one year by a person/venue/etc. A good number of venues know that a
good number of performers do not want their income reported to the
government, like in many cash-based businesses. It is common, especially in
a "band" situation, for members to take turns receiving the money, such that
if the band as a whole has made, say, $1000 from gigs at say, the Hemlock,
if the money was paid to different people such that no one person received
more than $600, nothing gets reported.

If anyone has any further comments or complaints about the length/relevance
of this, please address them to me off-list.

sl