Backstage With the Band

[SpaceNorman]

Originally Posted by Miko Man

In my day job (for the state labor department) I see a fair number of folks who inadvertently get badly tripped up by assuming that all they have to worry about is the how IRS treats things for income tax purposes. Most of those folks are not trying to cheat "the system", but are just woefully unaware of the state law implications of making payments to individuals for services in the context of running even a tiny business. YMMV, but it can be a very expensive lesson if something goes badly wrong. Mark C.

The factors that come into play for what defines an "independent contractor" vs an "employee" in my state (Michigan) are outlined in the following link. http://www.michigan.gov/documents/ui...2_383603_7.pdf These pretty much align with the IRS's criteria as outlined on page #7 of IRS Publication 15-A.


As I see it - the key items (which are present in both documents) that make us "independent contractors" as opposed to "employees" are as follows:

• We (the band) come in for a night - perform our service and get out.
• We (the band) provide all the tools required for our performance
• We (the band) offer our product to the market at large (not to a single customer)
• We (the band) retain control over how each bandmate is paid, the hiring and firing of band mates. etc.
• We (the band) retain control over what we play, how we play it, etc. The entities we work for don't tell us what tools to use, how songs will be played, where to purchase our tools, etc.

I understand your point about assuming that state law and IRS rules are one and the same and have no doubt that in some instances there are BIG differences. However, in this specific instance - there's not alot of difference between how my state and the IRS distinguish between "independent contractors" and "employees".

Montana may be very different.

[Miko Man]

Originally Posted by SpaceNorman

The factors that come into play for what defines an "independent contractor" vs an "employee" in my state (Michigan) are outlined in the following link. http://www.michigan.gov/documents/ui...2_383603_7.pdf These pretty much align with the IRS's criteria as outlined on page #7 of IRS Publication 15-A.


As I see it - the key items (which are present in both documents) that make us "independent contractors" as opposed to "employees" are as follows:

• We (the band) come in for a night - perform our service and get out.
• We (the band) provide all the tools required for our performance
• We (the band) offer our product to the market at large (not to a single customer)
• We (the band) retain control over how each bandmate is paid, the hiring and firing of band mates. etc.
• We (the band) retain control over what we play, how we play it, etc. The entities we work for don't tell us what tools to use, how songs will be played, where to purchase our tools, etc.

I understand your point about assuming that state law and IRS rules are one and the same and have no doubt that in some instances there are BIG differences. However, in this specific instance - there's not alot of difference between how my state and the IRS distinguish between "independent contractors" and "employees".

Montana may be very different.

I agree that the band is an "independent contractor" with respect to the hiring agent/venue under the IRS 20 factor test and similar common-law criteria. What I didn't clearly articulate is that the band leader has the potential to be deemed the employer of the other performers in the band. (If the band leader gets the gigs, owns the PA, and generally calls the shots, the band leader might be deemed to exercise such control over band operations as to be the employer, especially if the venue pays the leader and the leader the divides the pay among the performers.) It might not be an issue in any given state, but I point it out as an issue.

Imagining a worst case scenario: suppose a band member suffers a serious injury at a gig. (A closed head injury, caused by from a speaker falling off a tripod during the load-out.) Is the band member entitled to workers' comp, and is the leader/emploer in deep shit due to not providing that coverage? Maybe so, maybe not; it depends. Admittedly this is a far-fetched example, but I've seen less likely ones occur.

And you're right, Montana has some very different rules.

Good food for thought, and good discussion material. (No cargo shorts or music stands were injured in these examples. ) Mark C.

[chadd]

That worst case scenario is certainly interesting. I would think it would mostly fall under the venue's policy as it happened in/on their business.

[SpaceNorman]

Originally Posted by Miko Man

...the band leader has the potential to be deemed the employer of the other performers in the band. (If the band leader gets the gigs, owns the PA, and generally calls the shots, the band leader might be deemed to exercise such control over band operations as to be the employer, especially if the venue pays the leader and the leader the divides the pay among the performers.) It might not be an issue in any given state, but I point it out as an issue.

I hadn't really thought about that angle. One of the things that struck me as I was researching the IRS and state publications on this issue is how virtually everything I read is written to preclude anybody from drawing a certain conclusion on how the rules would be interpretted. Were a case like the one you outlined to be litigated - I certainly wouldn't want to bet on the outcome. I certainly wouldn't want to be the bandleader in that situation either. I have no reason to think that such a scenario wouldn't turn into a "no good deed goes unpunished" for a bandleader unlucky enough to be caught up in such a suit. You've definitely given me (and probably lots of other guys who wear a "band leader" hat) food for thought with that hypothetical scenario.

[TieDyedDevil]

Originally Posted by nchangin

You would be looking at a minimum of 3 years after the filing year before an audit to show up, there are bigger fish in the sea to catch. And they probably wouldn't come knocking unless it was a substantial amount on the books, say 10 K or over, instead you get a registered letter in the mail.

Also, it's your tax obligation. The meter's running on penalties and interest from the time the tax payment is due until you pay up, regardless of when the IRS catches up with you.

[tlbonehead]

Originally Posted by jimiv

I was not aware of that rule. Do have any authority for that?

but it is certainly true.

[tlbonehead]

Originally Posted by race81

On our NYE gig....I was paid at the end of the night by check, and inside they slipped a w-9 form in without me knowing. We only play about 2-3 times a month and hardly make enough to pay taxes on that. We all have daytime jobs, and music is just a hobbie. How do you deal with owners about this. the check is not made out to the band, but me personally. I know the other bandmembers will not pay taxes, its been discussed before, and even dropped a venue because of it earlier this year. I was wondering if we asked for more money to compensate for the taxes, how much would that be 25-30%? If this venue wasnt a decent gig, we would just move on. The venue already has us booked for 4 nights into july this year. Just looking for ideas, and some experience in this.

regardless of whether they give you a 1099, a W9 or nothing at all, this is still taxable income. You are LEGALLY obligated to report it as income regardless.

[wesg]

mstreck, from the sounds of things you are paying income tax on things like the band PA fund... that's just wrong, unless you wind up owning the PA... you may wish to chat with an accountant about this.

I don't know why a band would be different than another business. Start a company or LLC, use your name as the company name. Pay people from income you get, issue them whatever paperwork is appropriate. Pay the people as subcontractors. Write off expenses. Make sure you do not show a profit

Another option might be to have the band members as company directors or shareholders that receive dividends based on gig income. Again, talking to an accountant should help you maximize your take-home pay without running afoul of government legislation.

[MartinC]

Having been audited over the independant vs. employee issue by the state of california, as well as enduring an irs audit focused on my music income, I can offer a few opinions based on my experience:
1. A bandleader could be deemed an employer depending on both the amount of control he exercises over his band members and also the activities of the bandmembers themselves. The issue is control-are they truly independant contractors who are in business for themselves and do work for others or are they exclusive to one band whose leader directs the way and times they are required to work? IOW, if you supply the instrument, tell the person where and when to show up, provide charts which they are required to follow, and they don't work for anyone else, they are likely an employee.

If they do other gigs, supply their own gear, and sometimes turn down your gig, they are independant.

As far as self employment tax, I've paid it many years. If you make a profit, you are likely going to have to pay it. A mileage log is no big deal if you keep records of the where and when of every gig. I use quicken for my personal finances and rarely pay for anything in cash. That way all expenses are easily tracked. I even deduct the miles used to go buy music stuff, as well as cd's , concerts, lessons, etc. My type of music doesn't require much gear, so I'm usually in the black. But even then the IRS tried to classify my income as hobby income. My accountant convinced them otherwise based on the amount of activity-lots of gigs. My accountant told me it is the intention of making a profit that makes the difference, and yet, when I asked him to represent me in the audit(highly recommend) he was pleased that I had declared a profit for the years being audited. Having a plan as to when and how your going to be in the black can't hurt............

Originally Posted by SpaceNorman

I hadn't really thought about that angle. One of the things that struck me as I was researching the IRS and state publications on this issue is how virtually everything I read is written to preclude anybody from drawing a certain conclusion on how the rules would be interpretted. Were a case like the one you outlined to be litigated - I certainly wouldn't want to bet on the outcome. I certainly wouldn't want to be the bandleader in that situation either. I have no reason to think that such a scenario wouldn't turn into a "no good deed goes unpunished" for a bandleader unlucky enough to be caught up in such a suit. You've definitely given me (and probably lots of other guys who wear a "band leader" hat) food for thought with that hypothetical scenario.

[RobRoy]

Originally Posted by dboomer

The club owner wouldn't be able to declare all of the money he pays out to bands for the year if he didn't send you a 1099.

As far as on your end ... you can lose money as a "business" for 3 years. After that the government views it as a hobby and you can't deduct expenses on a hobby.

That's what I did. three years, about $4,000 in losses each year - most of it in miles to rehearsals.

Now I turn a tiny profit. Lunch. One lunch.

I'm not in it for the money, obviously. Makes it a lot more fun.

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[WynnD]

Band income taxes are the biggest pain when I do our taxes every year, but it's worth the 7 extra hours. If I'm ever audited, I will include everything that I don't bother claiming now. (I claim the mileage, and equipment deductions.)