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As the article states, you only pay self-employment tax on the net income from self-employment. Most of the deductions the article mentions are expenses that will reduce your net income from self-employment. However, some of the deductions the author mentions are general deductions — they will reduce your regular income tax, but will not affect your self-employment tax. For a significant number of music people, the 15.3% self-employment tax is more than their regular income tax. Deductions for 1/2 of self-employment tax and health insurance costs are general deductions.
In any case the IRS allows the taxpayer to calculate the best method year by year and take the one that yields the highest deduction . Meals are now 100% deductible as part of the overnight travel. They are also allowed as a separate (non-travel) deduction when they meet the criteria of “ordinary, necessary and business related.” This means that the meal must include direct business discussions.
In terms of taxes, here’s one way an artist can become a business. Those musicians’ incomes flow through the loan-out, allowing them to deduct commissions to agents, managers, attorneys and business managers. For many musicians and composers, there are very few parts of our lives that are separate from our music, and that includes where we live. This includes the equipment in it, as well as the rent and utilities. In order to be deductible, the space in question has to be dedicated to the business of music. While you might get your best done on your laptop while sitting in bed, your bed doesn’t qualify as a home office/studio.
What Kind Of Stuff Can You Claim On Your Taxes?
Any W-2 income with taxes withheld should be deposited in your regular bank account, but any income where taxes are not withheld should be deposited in your business account. All business expenses should be paid either from the business account or the business credit card.
The use of the room can be as a rehearsal space, storage area for equipment, teaching space, home recording studio, record keeping for the business, marketing, etc. The home office is a straightforward deduction to be calculated on form 8829. It simply utilizes a formula based on the square footage of the business portion of your home vs. the total square footage of the house or apartment and applies that percentage to all associated costs.
If your travel expenses are more than the reimbursement, you have a further tax deduction. You need to report on your tax return all reimbursements you received for travel expenses you are deducting. Tax time is around the corner, and if you go on tour or work out of town, there are things you need to know. As someone who has been preparing taxes for musicians for over 20 years, I would like to cover some basics about touring and taxes.
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If you are no longer working as a musician and are still receiving royalties for prior work, those are taxed at the lower, ordinary income tax rate. At Math LLC, we charge somewhere in the neighborhood of $200–350 to prepare a tax return for someone who is self-employed. Prices may range depending on what city you live in, and if you go with a CPA, which tends to be more expensive than a licensed tax preparer. If you feel overwhelmed or like there are terms or concepts you do not understand while preparing your own taxes, it is probably better to get help. As a licensed tax consultant, I cannot advise to keep any earnings “under the table.” All income must be reported. If you make less than $400, you would report it on line 21 of your form 1040. If you make $400 or more, you would report that on a schedule C.
You may also be able to deduct the cost of a course if you are entering a new specialty within the music field. In no case are personal meals deductible if the musician does not sleep away from home. Deductions have been allowed to musicians for formal wear and the costs of theatrical clothing and accessories, if these items are not suitable for ordinary use. You may claim a deduction if you use your home office exclusively and regularly for the administration or management activities of your business and you have no other fixed location where you conduct such activities. Note that two items – home office expenses and expenses for uniforms – were omitted from the above list. Had adjusted gross income of $16,000 or less before deducting expenses as a performing artist.
Taxpayers can deduct either state and local income taxes or state and local general sales taxes. The sales tax deduction is based on an IRS table or actual sales taxes. You should get the advice of your tax preparer when filing your return. The elephant in the room here is the gross income of $16,000 or less.
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For every expense you need to provide who, what, where, when and why in a business-like format. Business expenses for self-employed work such as those which you receive Form 1099-Misc are generally deducted on Schedule C . Sometimes there is a separate “state only” W-2 for other state’s income and taxes withheld or the information is reported on your main W-2. There is a state tax credit available on your resident state tax return so you won’t be double-taxed for income earned out of state. For business travel to be deductible, the trip must be away from home and the general area where you work or conduct business. You must be away substantially longer than an ordinary day’s work, and long enough to require sleep or rest to complete your work. The amount of sleep required must be long enough to need lodging; a short nap or minimal rest isn’t enough to satisfy the IRS rest requirement or overnight rule.
So if you were given $25 as a per diem and you spent $35, the additional $10 you spent can be deducted. Please see our full list of disclaimers for more information. If you’re not satisfied, return it within 60 days of shipment with your dated receipt for a full refund (excluding shipping & handling).
However, the personal exemption of $4,050 has been eliminated, so the increase in tax-free income is really only from $10,400 to $12,000. A family of four previously would have had a standard deduction and personal exemptions of $28,900 and they will actually see this fall to $24,000. Offsetting this is an expansion of the Child Tax Credit from $1,000 to $2,000 and an increase of the qualifying income cap from $75,000 to $200,000 and $110,000 to $400,000 . Hey, I’ve even paid for studio time in pizza and beer before (but that’s a story for another time).
- You need to report on your tax return all reimbursements you received for travel expenses you are deducting.
- If you feel overwhelmed or like there are terms or concepts you do not understand while preparing your own taxes, it is probably better to get help.
- You may write off some of the costs associated with determining the cost of goods sold.
- In a legal and taxpaying sense this means that your “business” as a musician and you as an individual taxpayer are one and the same.
- The top four basic tax rates above 15 percent remain the same for tax year 2012.
Or if you’re licensing your music through Pond 5, they make you fill out some info. Now before we go any further, I need to state that I AM NOT AN ACCOUNTANT and I’m not in anyway qualified to give tax advice. You’d be an idiot to trust me (a musician!) with your tax tips and you should independently confirm things. Second, this article may include affiliate links which generate a commission for clicking through them.
Vehicle Expenses
This request for a letter from an employer has come up more frequently in the last couple years. Many employers are reluctant to provide a complete letter and may have to be prodded to do so. Also get IRS Publication 17, “Your Federal Income Tax,” which is a general guide to taxes for individuals. If you do this on your own, be sure to get the IRS publications as well as the tax forms with instructions I’ve referred to. Lodging must be for business purposes, and you must fit into the IRS rest requirement or overnight rule as discussed above. If you don’t fit these parameters or are unsure, speak with your tax advisor or preparer to find out what you might be able to deduct. The travel must be primarily for business and your trip must be entirely business or job related.
I have also seen people use spreadsheets or logbooks to track income and expenses. Quickbooks is useful too, but there can be a steep learning curve with learning that software. A. When you pay an individual or a company $600 or more for services rendered to you for business purposes, you must send them a Form 1099-MISC and file a copy with the IRS. The only exception is if the company you paid is a corporation or is taxed as a corporation, however, law firms must get a 1099 even if they are incorporated.
In so doing you will pay less in taxes and you will be less likely to fall prey to erroneous tax information and disreputable advisors. Put home utility bills in one place so you’ll be ready to calculate your home office deductions at tax time. But honestly, bookkeeping for musicians isn’t too much more complicated than your regular day-to-day budgeting. Just be consistent about categorizing expenses, and let Mint’s free automation track and record everything. Those deductions go from huge set pieces to small bottles of hair-care products –if those hair products are related to styling solely done for performances.
Transportation between home and business destination by airplane, train, bus or car. If you travel by ship there are additional rules and limits; see IRS Publication 463 or speak to your tax advisor.
Wages paid to exotic dancers who shimmy onstage as part of a Kid Rock tour? The IRS regulations require you to file 1099s to anyone you pay $600 or more within the tax year and who is not a corporation. Be aware that since an LLC can be a sole proprietorship, partnership, or corporation, you will need to clarify if any of the LLCs you hire are incorporated or not. This depends on whether you will be treated as an employee or an independent contractor. Your employer will ask you to fill out a W-4 where you will list your exemptions.
If a new car is placed in service in 2012 and used over 50 percent for business, bonus depreciation allows an $11,600 first-year depreciation limit. For a light truck or van, the limit is $11,360 if bonus depreciation applies and $3,360 without the bonus. The temporary 2 percent reduction in the tax rate on the employee portion of Social Security expired on Dec. 31, 2012. The top four basic tax rates above 15 percent remain the same for tax year 2012.
