NEWS: Tips from an Accountant: The Best Way for Musicians to Do Their Taxes

BUSINESS NEWS: Tips from an Accountant: The Best Way for Musicians to Do Their Taxes

By Lisa Schonberg, Tom Tom Mag | Emily Kingan is known in the music world as the drummer for Lovers and singer/guitarist for homocore band The Haggard. Her bands have toured the world, spreading empowering feminist messages to fans for years. Around Portland, Oregon she is also known as a lifesaver for artists and musicians when it comes time to file taxes. Kingan is an enrolled agent with the IRS and a licensed tax consultant in the state of Oregon. She also has her bachelor’s degree in mathematics from Reed College. Her company, Math LLC, provides tax preparation, accounting services, and financial consulting for individuals and small businesses. Kingan specializes in serving working artists and musicians and has first-hand knowledge of how to best serve their financial needs. Tom Tom got down to business in the following interview to explore the sometimes overwhelming details of finances with Kingan.

Tom Tom: What percent of their income does an individual have to earn through music to file taxes as a musician?

Kingan: If you are playing shows and/or selling your music, chances are you are required to report your music income on your tax return. According to the IRS, if you earn $400 or more, you are required to report it as “self-employment” income on a form called a schedule C, which you attach to your federal tax return. You will report your income and your related expenses on the schedule C. The good news is that musicians tend to have a lot of expenses associated with writing, recording, touring, and performing their music, and you only pay taxes on your profit (i.e. your income minus your expenses).

TT: Is it legit to keep some show and merchandise earnings “under the table?” At what point should you start tracking that as taxable income? What is the best way to keep track of this?

EK: 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. If you were audited by the IRS or state government, they will take a look at all your trackable income on bank statements, Square, Paypal, etc. You should also be prepared to explain how you track cash. If there is a discrepancy between your income calculated by the IRS, and what you reported on your tax return, you may face penalties and fees.

As far as tracking your income and expenses, I recommend opening a dedicated bank account for your music business and running all income and expenses through that account. At the end of the year, it simplifies the process to figure your total income and parse out your expenses when they are localized to one account. 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.

TT: What are the pros and cons of establishing an LLC for your band? At what point should a musician start thinking about that?

EK: When it comes to taxes, there are no direct benefits to being an established LLC. However, establishing an LLC now can save you money and lots of energy down the line if your business grows and you decide to incorporate. You may consider incorporating if you anticipate making a profit of $30,000 or more within the current tax year and future years to come. Remember that your profit is your income after subtracting expenses. The cost of establishing and maintaining an LLC is about $100–$200 per year, depending on the state.
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[Thanks to Kevin Clock of Colorado Sound Studios for passing this very important info along!]

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