I have discussed
the issue of tax deductions with many musicians who have no clear idea
that they can legitimately deduct certain (or any) business expenses
in their pursuit of platinum. "You know," I say, "you
have started a business so you might as well let the tax code work for
you. Don't be afraid to take deductions; just be conservative, honest
and document everything." So they ask what expenses are deductible
and then I tell them to see an accountant-no, I give them laundry list
of some (not all) business deductions and tell them to keep those receipts
in a big envelope marked with the tax year:
1. Demos and master
recording costs. Use the "safe harbor" rule and deduct 50%
in the year of production and 25% in the following two years. Keep good
records for each production separately.
2. Travel, meals,
and entertainment. A big and somewhat complicated category. Again, keep
your receipts and write the purpose, date, attendees on the back. Basically
50% of entertainment is deductible. Meals for overnight travel for business
purposes are 50% deductible. Automobile expenses are deductible by keeping
a daily mileage log or calculating a percentage of business use. The
hardest part is remembering, documenting and receipting.
3. Continuing education.
Courses and classes to further your development in music and the related
arts are deductible; but don't get so aggressive that you raise a red
flag with the IRS by taking too much such as door fees to hear bands.
But you could probably justify taking the deduction if you are auditioning
a potential band member by seeing his/her current band at a nightclub
and had to pay a cover charge (then again you might just ask to be put
on the guest list).
4. Business use
of home. Somewhat dangerous so be careful. Being too aggressive here
may prompt an audit. You must exclusively use a particular room for
business purposes to legitimately deduct it. What is deductible is that
room's percentage as compared to the whole house. The mortgage (or rent),
property taxes and utility percentages are also deductible. Keep the
percentage low and consider consulting with an accountant about this
one.
5. Dues and subscriptions.
Union dues as well as subscriptions to publications that further your
music career are deductible. If you buy and read Billboard to keep abreast
of the biz then deduct it. Playboy? Probably not--even if you only read
the articles.
6. Computers. If
you have a business and a separate home computer the former is deductible.
If you use one computer for both personal and business use, you need
to find a way to keep a record of how much time is spent using it for
business versus personal use.
7. Gifts. The limit
is $25 maximum for gifts to your "business associates."
8. Legal and accounting
fees. Your legal and accounting fees for business representation is
deductible. Tax preparation fees must be allocated between business
and personal fees.
9. Musical equipment.
Transportation costs for your musical equipment is deductible as well
as repair and maintenance costs. Deduct that cost to have your piano
tuned and get a receipt from the tuner.
10. Musical supplies.
Strings, picks, drum supplies are all deductible. (Items are considered
"supplies" by the IRS if they are less than $100 and "equipment"
if over $100.)
11. Rentals. Rental
space, storage space, office space, equipment rental, PA rental-all
deductible.
12. Stage clothes,
etc. Be careful again. The clothes have to be unique and not suitable
for everyday wearing. They have to basically be "costumes"
(i.e. Maris the Great's duds). If that applies, the laundry and dry
cleaning costs are also deductible. Leather pants, blue jeans, business
suits, t-shirts-all out. Most clothing will be non-deductible. If you
wear stage makeup (and I mean grease paint) then that is also deductible.
It cannot be ordinary make up for everyday use. You better look like
Peter Gabriel in his early days.
13. Cable/satellite.
I once got asked about this deduction. If you can document how much
you watch MTV and VH1 to keep up with the music business versus how
much other time you watch otherwise, then the IRS probably would allow
this. Personally, I think it is stretching it and not worth the documentation
hassle.
14. Telephone. You
cannot deduct your home line. However, you can deduct a second line
for business purposes and any business features like call waiting or
distinctive ring for a fax machine as well as your beeper and cell phone
if used for exclusive business purposes. If you use your cell phone
for both business and personal use you need to log or highlight the
calls you receive on the bill. Long distance phone calls which are business
related are deductible so save those bills too.
This list is not
complete. Check with an accountant and/or attorney if you have questions.
Take those legitimate deductions and keep them conservative. Fly under
the IRS radar. A wealth of information is available at www.irs.gov
hosted by you know who--and paid for by You, Uncle Sam's beloved and
honest taxpayer.
