venues n taxes......another venue, wanting to tax

[guitarguy19]

Originally Posted by mstreck

You're right. I never really took that into consideration. I figured I was just saving everyone the hassle by being sole proprietor and paying them myself, but it would in fact be different depending on their individual situations. Thanks!

Being sole proprietor doesn't mean you pay other people's taxes! That just means you're the leader and "business owner" and the others are your contract workers. You're taking responsibility for all of the income that comes in. You should be issuing your bandmates 1099s for the money that goes to them (from you). For example, as the sole proprietor, a check comes in to you for $800. $X then goes out to each person. At the end of the year, each of them should be issued a 1099 for the amount that was paid from you to them over the course of the year. They can then claim all of their own expenses/mileage/whatever. They should be filing those 1099s (that you issue them) when they file their taxes, and at that point they pay their own taxes on their own income.

If you're literally paying all of their taxes...i.e. paying them cash and not keeping records or reporting that you paid them anything...thereby allowing them not to pay taxes on their income...you're screwing yourself hard I'd have to think...and they're setting themselves up for trouble.

[mstreck]

 

Originally Posted by guitarguy19

Being sole proprietor doesn't mean you pay other people's taxes! That just means you're the leader and "business owner" and the others are your contract workers. You're taking responsibility for all of the income that comes in. You should be issuing your bandmates 1099s for the money that goes to them (from you). For example, as the sole proprietor, a check comes in to you for $800. $X then goes out to each person. At the end of the year, each of them should be issued a 1099 for the amount that was paid from you to them over the course of the year. They can then claim all of their own expenses/mileage/whatever. They should be filing those 1099s (that you issue them) when they file their taxes, and at that point they pay their own taxes on their own income.

 

We also have a "band fund" that comes out of the gig pay and goes towards PA maintenance/upgrades/etc. Is the responsibility for the taxes on that also shared equally?

[guitarguy19]

Originally Posted by mstreck

We also have a "band fund" that comes out of the gig pay and goes towards PA maintenance/upgrades/etc. Is the responsibility for the taxes on that also shared equally?

Well, if you keep the money in your name, i.e. you don't report that you paid the income out and then put it into a band fund, then you're getting stuck with the taxes for that money. Personally, I pay the taxes on our band fund money and take the deductions for things purchased out of it.

Being too anal about that and trying to split the taxes on that would get too complicated because then you have to decide who gets to take the deductions.

[mstreck]

Originally Posted by guitarguy19

Well, if you keep the money in your name, i.e. you don't report that you paid the income out and then put it into a band fund, then you're getting stuck with the taxes for that money. Personally, I pay the taxes on our band fund money and take the deductions for things purchased out of it.

Being too anal about that and trying to split the taxes on that would get too complicated because then you have to decide who gets to take the deductions.

Yeah, that's why I just took on all of it - taxes and deductions.

[SpaceNorman]

 

Originally Posted by mstreck

We also have a "band fund" that comes out of the gig pay and goes towards PA maintenance/upgrades/etc. Is the responsibility for the taxes on that also shared equally?

 

Taxes are paid based on income. Said another way - think of how you pay your annual income taxes. What you pay is based on income that you've received - as reported to you on W2's, various types of 1099's for interest, dividends, etc. Nowhere does the amount of money you have stashed away in your savings account come into play. Assuming you've claimed and paid taxes on all your band income properly - and that the money in your "band fund" came out of band revenues - the money in the band fund has already been taxed - and instead of putting it into your "savings account" - you've put it into an account called "band fund".

[guitarguy19]

 

Originally Posted by mstreck

Yeah, that's why I just took on all of it - taxes and deductions.

 

Yeah, but you're not paying all the bands taxes...you're paying taxes on the shared money. That's where the confusion was. The other band members should still be paying their own taxes on their own take home money from your gigs.

[guitarguy19]

Originally Posted by SpaceNorman

Taxes are paid based on income. Said another way - think of how you pay your annual income taxes. What you pay is based on income that you've received - as reported to you on W2's, various types of 1099's for interest, dividends, etc. Nowhere does the amount of money you have stashed away in your savings account come into play. Assuming you've claimed and paid taxes on all your band income properly - and that the money in your "band fund" came out of band revenues - the money in the band fund has already been taxed - and instead of putting it into your "savings account" - you've put it into an account called "band fund".

Well maybe, maybe not. If the bandleader controls the band fund, the band leader must report the money that's put into the band fund as his income. What you do with the income once you receive it doesn't matter...put it in a savings acct or spend it or whatever...you still have to pay taxes on it. Otherwise, he needs to report that the money was paid out to everyone and then deposited into the band fund...i.e. he needs to 1099 them for more dollars than they actually physically received...which won't add up with his records. Or he needs to pay them their money and then re-collect it to put it in the band fund...but if you do that then it gets complicated because the tax burden was shared equally but not everyone can share the deductions.

And the money you have stashed in savings accounts does come into play...damn earned interest 1099s

[Don Burke]

Originally Posted by jimiv

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

Here is a link to the appropriate page:

http://www.irs.gov/uac/Is-Your-Hobby...it-Endeavor%3F

When I was in tax prep school, I was told the way to work with this was that if the business makes a profit for two or more of the last five years, it is a profit making business and losses can be deducted against other earned income.

If the business does not make a profit for two of the last five years, it is a hobby business and losses can only be deducted against income from the hobby business.

If the business is in its first three years, it does not have the five year track record, so it is considered a for profit business and expenses can be deducted from other income.

I have been out of the tax prep business for years and tax codes change, so talk to someone who is current about what the rules are now.

[SpaceNorman]

Originally Posted by guitarguy19

Well maybe, maybe not. If the bandleader controls the band fund, the band leader must report the money that's put into the band fund as his income. What you do with the income once you receive it doesn't matter...put it in a savings acct or spend it or whatever...you still have to pay taxes on it. Otherwise, he needs to report that the money was paid out to everyone and then deposited into the band fund...i.e. he needs to 1099 them for more dollars than they actually physically received...which won't add up with his records. Or he needs to pay them their money and then re-collect it to put it in the band fund...but if you do that then it gets complicated because the tax burden was shared equally but not everyone can share the deductions.

And the money you have stashed in savings accounts does come into play...damn earned interest 1099s

I think we're saying the same thing ... taxes are based on income.

In this instance we're assuming that the band leader is being paid all the revenue the band generates (and is reporting it as "income" under his SSN on the 1099's he receives from the clients he plays for). In this scenario - he reduces his tax liability by "passing on" some of this income by issuing 1099's to his bandmates as well as whatever other legitimate expenses he can offset the remaining income with. Note that in this scenario - the money he puts aside in the "band fund" isn't really a band fund - it's HIS money.

To your example about the savings account - it's NOT the money stashed in your savings account that's being taxed - it's the interest it generates gets taxed. The bank doesn't report how much cash is in your savings account - they only report the amount of interest they paid you on the 1099-INT. You're NOT paying taxes on the money in your savings account - just the interest you receive for letting your money sit in it.

[guitarguy19]

Originally Posted by SpaceNorman

I think we're saying the same thing ... taxes are based on income.

In this instance we're assuming that the band leader is being paid all the revenue the band generates (and is reporting it as "income" under his SSN on the 1099's he receives from the clients he plays for). In this scenario - he reduces his tax liability by "passing on" some of this income by issuing 1099's to his bandmates as well as whatever other legitimate expenses he can offset the remaining income with. Note that in this scenario - the money he puts aside in the "band fund" isn't really a band fund - it's HIS money.

To your example about the savings account - it's NOT the money stashed in your savings account that's being taxed - it's the interest it generates gets taxed. The bank doesn't report how much cash is in your savings account - they only report the amount of interest they paid you on the 1099-INT. You're NOT paying taxes on the money in your savings account - just the interest you receive for letting your money sit in it.

Yup we're saying the same thing.

The money in the account is still their "band fund" though...rightfully it's everyone's money and everyone is obviously on the same page there. It's only his money in the eyes of the IRS.

And yeah...I know you're not paying taxes on the money in the savings account...I was just ing ya because the money stashed in the account does come into play...that's how the calculate the amount of interest you get and thereby how much they can bilk you for.

[n9ne]

I would suggest taking the tax bill off the top at an upcoming gig, so that the entire band pays equally. Or split it across two gigs....whatever.

[SpaceNorman]

I'm sure you've got what you feel is a logical rationale that would justify your suggestion. Unfortunately, that's simply NOT how income tax is assessed from a legal perspective. The amount of income tax that is owed is determined by the individal tax situation of each individual who receives income from the band's performances.

If the band is being paid with a single check - made out to one individual in the band and reported on a 1099 against that individual's SSN. The only option is for that individual to distribute everybody else's share and issue them a 1099 for the amount that each receives. The individual who received the original payment for the total band's share can't eat the tax on the total amount - and then simply pay his bandmates cash "under the table" ... that's NOT legal. It's not against the rules from him to pay the total amount ... however, paying bandmates cash "under the table" is against the IRS rules.

Were that allowable - guys like me would be having all our money being paid to our college aged kids (who in most cases don't generate enough income in a year to meet the threshold where they incurr taxes.) The rules are pretty succinct - income gets reported under the SSN of the individual who earned it and that each individual is responsible for paying their own income taxes based on their individual tax situations.

[Miko Man]

Without trying to throw a monkey wrench into the discussion, I respectfully suggest that you may want to check your own state's laws on what constitutes "contract labor" versus "employment." The various states can treat the same issue very differently. If you are deemed to be the employer of your band-mates, you may have the obligation to pay unemployment insurance taxes, furnish workers' compensation, and make withholdings. I know that even big companies get tripped up on these issues - FedEx has paid big bucks to states to settle disputes over whether workers were "independent contractors" or "employees." Mark C.

[SpaceNorman]

Originally Posted by Miko Man

Without trying to throw a monkey wrench into the discussion, I respectfully suggest that you may want to check your own state's laws on what constitutes "contract labor" versus "employment." The various states can treat the same issue very differently. If you are deemed to be the employer of your band-mates, you may have the obligation to pay unemployment insurance taxes, furnish workers' compensation, and make withholdings. I know that even big companies get tripped up on these issues - FedEx has paid big bucks to states to settle disputes over whether workers were "independent contractors" or "employees." Mark C.

You bring up a good point - the nuances between "contract labor" versus "employees" do vary by state. However, given the IRS definitions - I don't think there's much room for debate in saying that "weekend warriors" like most of us would ever find ourselves embroiled in a "contract labor" versus "employees" controversy. Under the IRS's rules - it's pretty clear that the typical band would qualify as as "contract labor" (here's the link to the IRS page on the issue. http://www.irs.gov/Businesses/Small-...or-Employee%3F The brochure Publication 15-A provides additional information on this topic.

I suspect the area where many of us are likely afoul (wittingly or unwittingly) of the tax laws is the area of "Self Employment Taxes (Social Security and Medicare Taxes). According to the IRS publications - we are required to pay the "Self Employment Tax" and file Schedule SE (Form 1040) if our net earnings from self-employment are $400 or more. The following link provides a good overview of the Self Employment tax requirements. http://www.irs.gov/Businesses/Small-...Medicare-Taxes Even with the lousy pay that most of manage to earn gigging - a threshold of $400 is something that many of us cross each year.

I'm not asking for a show of hands ... but my bet is that even the guys that report all the income they earn gigging probably aren't paying the Self-Employment Tax on the their gig income.

[Miko Man]

Originally Posted by SpaceNorman

You bring up a good point - the nuances between "contract labor" versus "employees" do vary by state. However, given the IRS definitions - I don't think there's much room for debate in saying that "weekend warriors" like most of us would ever find ourselves embroiled in a "contract labor" versus "employees" controversy. Under the IRS's rules - it's pretty clear that the typical band would qualify as as "contract labor" (here's the link to the IRS page on the issue. http://www.irs.gov/Businesses/Small-...or-Employee%3F The brochure Publication 15-A provides additional information on this topic.

I suspect the area where many of us are likely afoul (wittingly or unwittingly) of the tax laws is the area of "Self Employment Taxes (Social Security and Medicare Taxes). According to the IRS publications - we are required to pay the "Self Employment Tax" and file Schedule SE (Form 1040) if our net earnings from self-employment are $400 or more. The following link provides a good overview of the Self Employment tax requirements. http://www.irs.gov/Businesses/Small-...Medicare-Taxes Even with the lousy pay that most of manage to earn gigging - a threshold of $400 is something that many of us cross each year.

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.

[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 {censored} 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.