tax write-offs

Tax write-offs for the working musician

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It’s tax season, and if you’re a working musician, don’t forget to write off all of your music-related expenses so you can lower your taxes and keep more of the money you earned.

The minute you set out to make money with music, you’ve crossed the line from a music hobby to a music business. This means you need to adopt business thinking, strategies, and techniques. It also means the government sees you as a business as well, which is why we want to remind you of one benefit of being a legitimate business: keeping more income by taking tax write-offs.

Full disclosure: we’re going to go into a list of potential write-offs in this post to give you ideas, but you should talk to a professional accountant about your own business situation and identify legitimate write-offs. Tax laws change over time, and the best accountants will make sure everything you are doing is legitimate. In other words, we’re not tax accountants, but this advice should help get you to better understand the landscape.

That said, the one mathematical formula we share when giving talks around the country is:

The money you make – the money you spend = the money you keep

You are required to spend money on taxes, so each time you add a tax write-off, you get to keep more of your money! Of course, you should keep working on making more money by tapping new revenue streams. But the second part of the equation is equally important: you should avoid spending money you don’t have to!

Governments tax income a business makes (the profits) and let you deduct the costs you spend to legitimately carry out your business. Of course, there are tons of rules about what you can and can’t deduct, but as you will see below, the number of potential write-offs that you are already spending money on may surprise you.

Write-offs are only valid if you truly are a business. You can’t write off anything if you’re simply a hobbyist and, unfortunately, music always looks suspiciously like a hobby to the government. There are two ways to signal that you have a legitimate music business:

  1. Create a company that you write off all of your music-related expenses through, such as an LLC, corporation, or partnership. You’ll need to keep track of everything through a separate bank account and tax filing which legitimizes the expenses.
  2. Show a profit. If it’s just you playing music in your basement with a bunch of instruments that you’ve written off, you will likely not be seen as a business.

Track your business expenses

Making Money With MusicTo benefit from all of the write-offs you can be making, you should be tracking your business expenses throughout the year. You can do this with bookkeeping software like QuickBooks or free cloud-based accounting solutions such as Wave or SlickPie.

While we are not accountants, we track all of our business expenses for our music and will share our research of potential write-offs you may qualify for. We recommend you go through your expenses from last year and see if you’ve spent money in these categories.

Gear and equipment

The gear and equipment you buy and use can lose value over time due to wear and tear, otherwise known as depreciation. The law recognizes this and allows you the option to capitalize these costs over time (for a set number of years), which can lower your overall tax bill. If that last sentence seems a bit too deep into accounting, then we recommend talking to an accountant to help you track this. They can help you determine what makes the most sense for you and whether you should track your gear and equipment purchases on a cash basis or a capital basis and how much it can save you each year. This category could include:

  • Musical instruments
  • Home studio gear (including the studio computer)
  • Live music gear (PAs, mics, lighting, live mixing boards)
  • Office equipment (printers, scanners, computers, etc.)

Software, social, and website expenses

Software costs may come in the form of purchases or through subscription fees. Sometimes, these are monthly, but others could be once a year, so make sure to track these carefully. We’ve mentioned a few common ones below, but your business might have others. Take a look through your year of expenses and find any that your business uses.

  • Music recording, mastering, and mixing software
  • Business/office software
  • Live music software
  • Art programs (also icon, photo and graphic art subscriptions, and font sets)
  • Website hosting, backup, and related expenses
  • Domain hosting
  • Social media tools

Conferences and travel expenses

If you tour or travel for your music business, all of your travel expenses can be written off. This includes any conferences you might attend. Any time you’re not at home, you might be paying for things that are normally available to you, and you should write those off as well.

  • Conference registration fees
  • Travel expenses
  • Lodging
  • Parking
  • Business meals (note: these are usually only 50% deductible.)
  • Vehicle expenses (mileage or expenses related to your car)

Professional expenses

Your attorney, accountant, and all other professionals you use all charge fees that you may be able to write off.

  • Professional services
  • Photographer fees
  • Graphic artist fees
  • Attorney fees
  • Accountant fees
  • Publicist fees

Business and office expenses

Don’t forget to write off everything related to keeping your business office.

  • Office computer
  • Shipping fees
  • Business cards
  • Office supplies
  • A percentage of your phone and Internet service (there are rules to how much since it’s recognized some of this is likely personal use unless you have a separate business phone)
  • Business licenses
  • Insurance

Merch-related expenses

Everything related to your merchandise can be a write-off, and this is a particularly important one to make sure to file. Otherwise, the IRS will assume you are receiving the full price from each piece of merch you sell, when, in reality, you’ve spent money to buy, store, ship, and sell it.

  • Merchandise purchases (when you buy your inventory)
  • Merch table/store tables and equipment
  • Fulfillment services
  • Shipping expenses
  • Warehousing expenses

Financial expenses

All of those fees you pay for your credit cards, bank expenses, and payment processing fees are all fair game to write off. They are also the fees which you should work hardest to eliminate, since most of these things can be waived at their discretion if you talk with your financial institutions.

  • Bank charges
  • Credit card fees
  • Financial fees
  • Payment processing fees

Music recording production expenses

There are expenses associated with recording and music production — from end-to-end. Don’t forget the software, the fees from every person who charges you to help make the recording, and even the equipment you have to rent. It’s a good idea to keep track of what it costs to create each album or EP just so you can know how much it cost you, but you can write all of these expenses off of your taxes.

  • Recording studio time (or rent if you have your own)
  • Mixing engineer
  • Recording software
  • Mastering engineer
  • Studio musicians
  • Rental equipment

Live music production expenses

Live music has many expenses associated with it, including space rentals, engineers, and all of the people associated with the live show that you need to pay for.

  • Practice space
  • Live sound engineer
  • Lighting engineer
  • Roadies
  • Security
  • Rental equipment
  • Costumes/stage props
  • Live musicians
  • Advertising

Association/organization expenses

Most musicians belong to a host of associations and organizations, and you should write these expenses off. This isn’t just limited to music organizations and associations. Any organization that you belong to which helps your business can be a legitimate write-off.

  • PRO Fees
  • Music organization membership fees
  • Business organization membership fees

Music distribution and promotion expenses

All of the expenses associated with distributing and promoting your music are legitimate write-offs and should defray your expenses.

  • Music streaming services
  • Music distribution fees
  • Advertising fees
  • Music promotion fees

Training and research expenses

All of the training and research you do can and should be written off.

  • Research: books, magazines, etc.
  • Music lessons/coaching
  • Dance lessons
  • Online training sites (like Lynda, Masterclass, and Skillshare).

— — —

It pays to develop the following two habits for every expense related to your music business.

1. Track every expense as you complete the purchase. This is easier to do when you have a separate bank account and business credit card for your expenses because they will track it for you. Otherwise, you need to carefully separate your business expenses from your personal expenses.

2. Take a picture or scan every receipt you have and save it in a secure location. We recommend storing receipts in software that can read the text so you can search through it with tools like Evernote or OneNote. This will allow you to find the exact receipt in a simple search without needing to resort to a filing method. Naturally, you will need these receipts in case the IRS wants you to justify these expenses.

The first time you do this, it may take some getting used to. But all of this is worth your time because every write-off is more money in your pocket at the end of the year.

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2 thoughts on “Tax write-offs for the working musician

  1. The IRS can be picky. A few things are worth mentioning for clarity-
    – Deductions are a matter of legislative grace, and the taxpayer generally bears the burden of proving entitlement to any deduction claimed. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).

    -A taxpayer must substantiate deductions claimed by keeping and producing adequate records that enable the Commissioner to determine the taxpayer’s correct tax liability. Sec. 6001; Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir. 1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965).

    -A taxpayer claiming a deduction on a Federal income tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that the expense to which the deduction relates has been paid or incurred. Sec. 6001; Hradesky v. Commissioner, 65 T.C. at 89-90.

    – Under section 162(a) a deduction is allowed for ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Whether an expenditure satisfies the requirements for deductibility under section 162 generally is a question of fact. See Commissioner v. Heininger, 320 U.S. 467, 475 (1943).

    -An ordinary expense is one that commonly or frequently occurs in the taxpayer’s business, Deputy v. du Pont, 308 U.S. 488, 495 (1940), and a necessary expense is one that is appropriate and helpful in carrying on the taxpayer’s business, Commissioner v. Heininger, 320 U.S. at 471; sec. 1.162-1(a), Income Tax Regs.

    Most important- The Commissioner’s determination of a taxpayer’s liability in a notice of deficiency normally is presumed correct, and the taxpayer bears the burden of proving that the determination is incorrect. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

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