Entertainment Health - Fiscal

Entertainment Health – Fiscal

We’ve broached some unusual perspectives in music business writing during this Entertainment Health Series.  First, we examined ways to enhance your entertainment career through good and effective personal health practices.  In the second installment, we examined the often troubled connection between entertainment and relationship health.  In this third and final installment in Entertainment Health, we will take a look at entertainment and fiscal or financial health.

It breaks my heart to look back through music history and see how many of my brothers and sisters in arms died alone and penniless.  It seems like this phenomena is directly proportional to actual success.  If a fool and his wealth are soon parted, what are some ways that we can diminish the “foolish” quotient in entertainers to perhaps lessen the chance of becoming another sad statistic for music history?  Let’s see if we can shed light on this.  First, as always, I must offer a disclaimer in my personal experience.  I often joke that instead of offering a good example, I offer my life and experiences as a horrible warning to the casual observer.  But learning what not to do can be a warning klaxon to help someone avoid the same pitfalls.  You’ll have to be the judge…

HOBBY VERSUS BUSINESS

What a smack down from the top!  This is a hard determination for a musician to ultimately make since it involves something that you have a passion for.  Obviously, many of us do this for the love and not the filthy lucre.  Our own dastardly Internal Revenue Service (I loathe to even type the name) has a written rule of thumb that might give us a place to start in this determination.  If you have not turned a profit for three of five years in your personal “business”, the IRS will reclassify it as a hobby.  This means you might not be able to claim some of your business expenses as deductions – your parachute pants and leather dog collar neck bands would just be personal expenses.  If you are a weekend warrior and have a day job, this rule of thumb would still apply.  Keep this in mind when you are tempted to write off every whopper feast as a business lunch. 

Past this treasury guideline, I think a dose of realistic honesty is a more practical approach.  A very small minority of us will be able to hit the long ball, get a record deal, get a big publishing contract or land an opening slot on the Coldplay tour for 2015.  If you are at a point in your career when you are skipping house payments, filing personal bankruptcy and living out of your Ford Focus, it might be time to consider an alternative career path.  Maybe the timing is not right, the stars have not aligned properly or it’s just not meant to be your full time gig.  The litmus test is whether you can support yourself and at a minimum meet your obligations adequately.  As I expand this discussion, you’ll see that most financial experts wouldn’t even give you the go ahead by just meeting your minimum budgetary obligations each month.  There’s no joy in sacrificing security for art’s sake and there’s no shame in retreating strategically.

BUDGETING

This is not a new innovative idea.  My teenage daughter learned budgeting and balancing her checkbook as a middle schooler.  Unfortunately, her balancing skills have deteriorated as a college student to the point that balancing means calling Dad when the debit card stops working.  I don’t think she’s alone in this phenomena – she might have learned that from me.  But, in the specific idea of career budgeting and balancing your business income with personal expenses, fiscal health requires strategy and planning.  Here are some specific things to focus on for more successful budgeting:

1.     Set a specific period of time period for your budget - Most people will prepare a budget on a monthly basis considering recurring monthly expenses offset by routine income.  While entertainers often have feast months and famine months, sometimes it makes more sense to develop a quarterly plan that considers a good month offset by a bad month.  That way in your feast month, you are not tempted to take that Cancun trip instead of planning for the slow famine month.  Ramen noodles get old very quickly for three meals a day.

2.     Make your budget list as comprehensive as possible - For entertainers, not only must you look at routine household budgetary items, you must also consider business expenses that could be occurring at the same time (ie:  airfare, gear maintenance, lodging expenses).  Consider your business income and liabilities first, then take into account a credible figure for estimated personal income.  Also, figure things like fuel, food expense, medical needs or even clothing and grooming.  Nothing like a surprise ER visit to bust your budget.

3.     Include an emergency fund in your budgeting – Many financial experts recommend that you have anywhere from 3 to 9 months of your monthly salary or income in an emergency fund or savings account.  They suggest that this be used only in emergencies, not as a way to save up for your new amp purchase.  It’s typically a good habit to designate 10 percent of your monthly income to go into savings.  During the last recession, it was not uncommon for the average length of unemployment to range in the 18 to 24 month range.  Obviously, these 3 to 6 months of income would not offset this significant of a job loss.  But, if nothing else, saving a portion of your entertainment income will offset slower times of gigging.

4.     Be flexible and adjust your budget as circumstances change – One mistake that the typical inexperienced budgeter will be guilty of is not accounting for new expenses or unplanned income.  Successful budgeting requires consistent attention, good record keeping and persistence.  If you end up with a little extra, apply it to high APR consumer credit accounts.  Paying exorbitant interest to Credit Card companies keeps them in business but in the long run, depletes your ability to do business as well.

5.     Avoid excessive credit card debt – All seasoned financial advisors strongly recommend avoiding excessive use of consumer credit.  Sure, having that brand new bass would make a huge impact on your stage show.  This is where strategic planning can help you keep the gear you need without playing 3 times the interest.  Just like you set aside a percentage of your income for emergency funding or savings, designate a specific monthly amount for gear purchase.  In other words, make a payment to yourself each month even when you don’t need or want that new piece of gear.  When the urge hits, you’ll have your contingency fund in place and you can pay cash for your purchase at 0% interest!

6.     Show yourself some grace – If you blow it one month and bust your budget, don’t give up!  There are going to be battles lost along the way but the war is yours to win.  Set realistic goals based on guaranteed income (not the off chance that you will land the Coldplay slot).  Don’t set yourself up to fail with unattainable goals.

 TAX LIABILITY PLANNING

If you are a self-employed musician, you are already acquainted with the proverbial IRS form 1099.  I make this topic it’s own section because tax liabilities are more often than not the ultimate downfall for the fiscal health of entertainers.  The list of musicians that have gotten into trouble with the IRS for not paying taxes is endless and disheartening.  When you’re paid with cash in the early hours of the morning, the will to keep adequate records is robustly diminished.  But remember, somewhere someone is keeping an eye on these things.  Successful club owners are shrewd at avoiding their own tax burdens and they are diligent at reporting any wage paid out of their nightly door to the IRS.  Let me illustrate this with a personal story.

As a teenager, I put together a little sock hop band.  In one year we might have played 50 or 60 shows making $50 bucks each for our little 4 piece ensemble.  Since I had always worked on a farm or a part time job, I had never made enough to actually file a tax return.  However, as the band leader, clients were showing the total band payment for the night coming to me and reporting this in my legal name (ironically the same as my father).  So, instead of showing my annual income that year at 3 or 4 K, they reported that John C. Marion made a total of 12 to 16 K.  Imagine my father’s dissatisfaction with my irresponsible entrepreneurialism when he received a threatening letter from the IRS for failure to pay on reported income?  Here are some specific pointers to avoiding that kind of trouble with the IRS in your entrepreneurialism:

1.     Keep accurate records – It’s better to be painfully honest than to be painfully audited.  Keep a record of all of your income, even if it’s $20 in CD sales.  Save all your receipts in a consistent container and mark them up according to what the expense was for.  So many expenses are deductible and will also demonstrate to the IRS that you are operating a business rather than merely enjoying a hobby.

2.     Get good tax advice – The US tax code is one of the most convoluted and complicated creations of all time.  It’s even hard for a trained tax professional to digest and apply to return preparation.  And, the tax code is updated and changed each year.  Hire a professional to help you and advise you.  I will guarantee that whatever cost is incurred in using a pro will be offset by the deductions and savings this pro will discover.  Then, if you insist on doing your own tax preparation in the future, at least you will have a good reference for subsequent years.

3.     DO NOT PROCRASTINATE – I capitalize this because I am preaching to myself.  It never fails that every year, I find myself hustling to get all the materials turned over to an accountant or to prepare my returns personally in time for deadlines.  It might seem cool to be one of those guys jockeying to drop off your return at the post office just in the nick of time on April 15 at 11:55 PM for the post mark but rest assured, your procrastination can cause errors that cost you money or worse, set you up for an unnecessary audit because of discrepancies.

4.     Make monthly tax fund deposits or pay quarterly – Does it seem like you’re putting aside more money than you are actually making?  It’s no fun to render to Caesar but doing it incrementally on a monthly or quarterly basis is a little less painful than writing a big fat check at the end of the year.  I once had an IRS agent tell me the federal government is not in the business of loaning me money.  I responded that I would rather take my chances with a loan shark on the streets on Nashville.  He countered that I’d probably get a better interest rate.  I can laugh at this now.  Seriously, use your previous year’s tax bill as a benchmark.  Divide this figure by twelve and either put the monthly payment into a tax account or make monthly installments to the IRS.  If you overpay, they will give you a refund.

5.     Keep copies of all documents filed with your return and save your returns – H&R Block recommends that you save your returns and paperwork for up to 3 years after the date of filing.  Not only does this keep you covered in the case of an audit, it also gives you a reference for subsequent year preparation.  All forms are available at IRS.gov in .pdf format.  These enhanced pdf’s allow you to tab through each field within the document and save the alterations to disk.  Take pictures of calculation and log forms to also include these in digital records.

As you can see from the preceding points, fiscal health for the entertainer is not accidental.  Health, whether personal, relational or fiscal is a product of deliberate action on the part of the individual.  Just knowing better is not enough to make a difference.  Good health requires that we apply this knowledge in our daily lifestyle and choices.  The good news is that like life, good health is a process and a journey.  Take these suggestions with a grain of salt, two aspirin and call me in the morning.  As always, entertain with robust health, my friends.

Chris Marion is an American musician best known as a member of Little River Band and for his contribution to the gospel and country music industries. Although graduating college with a B.A. in Psychology, he is a classically trained pianist and has worked in the music industry professionally for over 35 years. As a resident of Nashville, he is involved in the recording industry working in the genres of Gospel, Country and Rock.  Since 2004, he has toured globally with the classic rock act Little River Band as a keyboardist and vocalist.  For more useless trivia and minutiae concerning Chris or to contact him directly, feel free to visit his personal website www.chrismarionmusic.com.