The artistic community, particularly musicians, still have the same tax liabilities as any self-employed individual. However, they also have some unique deductions that are special to their specific industry. This makes for some very unique opportunities to reduce your tax liability. To determine the best deductions that fit your particular situation, consult with a tax professional or accountant, such as Larry Gurewitz in LOS ANGELES, CA.
The first thing that you as the taxpayer have to determine is if you have made music a hobby or a career. Essentially, do you make music for the enjoyment or do you produce music to make a living? If you have in fact built a business, then you have several deductions available to you, including the cost of your equipment and other expenses. However, if you determine that it is only a hobby, you can only deduct expenses up to the amount of income you make from the hobby.
For example, if you make $300 from your musical hobby but it cost you $1,000, then you will only be able to deduct $300 of those expenses. Therefore, it is important to be sure to clearly define your musical aspirations. However, if you in fact are pursuing your music as a true business, then you need to make sure that you are acting the part. This also means understanding what you can claim and what you cannot. In addition, you need to be a good record keeper, documenting all of your earnings and every expense in connection with your musical business.
Here are some steps to take so that your musical business really appears as such.
So how do you file to be able to deduct all of these business expenses? First you will need to complete a Schedule C and file it along with your 1040 tax return. Because this is a business, you might also have to file a Schedule SE. Talk with your tax provider to determine which schedules will apply best to your situation as an individual musician or as a member of a band. Tax professional can determine how your income should be reported and make sure that you have been accurately categorized all your expenses.
Now you need to determine what you can deduct. Just remember that you need to keep a division between business and personal or pleasure. The IRS defines a deductible expense as “a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.” Here are a few of the categories that you should consider when preparing to file your return. Some of these count as actual deductions, while others qualify for rules of depreciation.
However, you cannot deduct for a home office, unless your principal business is to record or sell your music from home or if you are giving lessons from your home. Throughout the year, it is important to keep accurate records. The reason is that this type of business can at times make it harder to confirm true expenses. By working with a tax professional, you will be able to prepare for any potential audit by having clear answers to various questions, such as your role in the business and the type of organization.
Call or click on the link below to contact one of the tax professionals or accountants at the offices of Larry Gurewitz in LOS ANGELES, CA, who can assist you in determining how best to report your musical expenses.
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