Should every musician or band file a tax return?
Sometimes you get 1099s from clubs. It depends on how much you make. If it’s less than $600 in the whole year, they’re not obligated to do your 1099. But Bottom of the Hill is a place that definitely issues 1099s. It’s usually issued to one band member and one social security number. If someone gets a 1099 it’s on a computer, and if you ignore it it will come back to haunt you. You have to report it as income on Schedule C on your tax return.
Should you file as a band or as individuals?
You can do it in a partnership or limited liability corporation. Or do you want it so that everybody is on their own? That’s what I would recommend for most people.
Say you make a bunch of money selling your CDs at shows …
Just split it, isn’t that what people do, just split the money?
But what happens if there’s a prima donna who wants more credit, more money … ?
That’s an internal question. Even as a partnership you can set it up so that somebody gets more of the money. I’ve seen people form partnerships for various reasons before they really need to. Keep it really simple unless you really want to combine the whole band’s expenses. Even if it’s someone’s guitar, they somehow all get joined together.
Legally, what’s that entail?
A partnership agreement. First do a fictitious name statement. It might help to have a lawyer, but every agreement you write down is legally binding. The advantage of going to a lawyer is that there are issues you may not have thought of. Also there are self-help law books — Nolo Press (
www.nolopress.com/
), etc.
Is starting a partnership like starting a small business?
Anytime you have income and expenses it’s a small business. Most people, if they’re in a band and they want to declare some income and expenses, they don’t have to do a fictitious name statement. They’re just whoever they are.
What does it mean when you take a loss?
Probably most people are operating at a loss, with the rents that they pay, musical equipment and stuff like that. So if you have $2,000 of income and have $4,000 in expenses you can show a $2,000 loss. And you might have had a job making $20,000 but instead of paying taxes on $20,000, you only have to pay on $18,000 because you took a $2,000 loss.
What about deductions? Even for DJs? Can they deduct records, turntables … ?
Everything can be deducted … [When on tour] you can only take 50 percent of your meals. At LEAST what you can do is get an envelope and keep track of receipts. Track telephone expenses, Internet services if you promote your band online. If you get audited they’re going to want to see receipts.
Say you’re a successful musician, you made $30,000 last year. You bought a guitar and deduct that. Take all the car expenses at the standard mileage rate of about $0.32, because you’re driving to gigs all the time. And you fly to some place and stay in a hotel.
You take that expense, and you take off your studio rent, and all the supplies like guitar strings and sheet music, and you might also take off things like stereo equipment and concert tickets. You got to go to concerts, it helps your music. So $30,000 in income. All your deductions total $10,000. You made $20,000 profit and you have to pay taxes on it, which is pretty significant because not only do you have to pay income taxes, you also have to pay self-employment tax, which is money that goes to social security …
If you are making money as a musician, or if you’re making money in any way and are self-employed, you should realize you’re going to be looking at a pretty big tax bill. At least hold on to some of your money, because it’s sort of sad, someone makes $20,000, that’s not very much money in SF, you can barely live on $20,000, you can barely survive. And then when you come up with a tax bill of $4-$5,000 on top of that, it’s hard.
Andy Pollack, a tax attorney with more than 20 years advising and participating in the Bay Area music community, can be contacted at (415) 826-5616.
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