Tax questions for part-time musicians

[ratthedd]

I've been considering claiming my part-time musician status on my taxes for the past few years but haven't gone through with it yet.

 

The benefit I see is the ability to claim my really bad GAS (Gear Acquisition Syndrome) habit as a business expense, the downside is I have no clue how to go about doing all this.

 

If I'm not mistaken, self-employed people have to pay a quarterly tax based on their expected incomes, right? Where do I find those forms--www.irs.gov?

 

How many years can I realistically claim a loss (income doesn't exceed $500 for the year, but I plan on spending more than that on gear / trailer / equipment / tools)? One person told me you can have 3 years in a row with a loss, but then must show a profit, then you can have 3 more years with a loss then have to show a profit. Will this raise a red flag with the IRS? I don't cheat on my taxes, but I'd really hate to have to deal with an audit.

 

Anyone with advise or real life stories who can help?

 

Thanks.

[forceman]

Check with your accountant.

 

However,for an individual (not incorporated), basically it works like this:

 

Every dollar earned is income--gas to rehearsal, gas to gig, small items are expenses.

 

Larger items (like a new Korg OASIS..) might be depreciated over a 3 or 5 year time period.

 

So, if you earn $1000 gigging, etc, and have $1100 in expenses and depreciation, you can deduct $1000 from your gross income.

 

Again, check with your accountant.

[Meatball Fulton]

If you NEVER show a profit eventually the IRS will come after you and disallow your losses. Yes, you should be in the red the first few years but eventually you must turn a (small) profit or else it's considered a hobby not a business.

 

When it's a HOBBY you can only claim losses up to the amount of income, which of course is the same as not reporting in the first place. It means you can't write gear off against your other income every single year though you can in SOME years. So while you can let fellow taxpayers subsidize your GAS to some extent it's not a free ride.

 

Keep in mind by law you have always been required to report, technically any part-timers who do not claim gig income are inviolation of federal law.

 

An accountant can explain this better with regard to current law.

 

The interesting part is when you actually add up your actual expenses: gas, tools, parking, meals, motels, repairs, supplies (strings, blank CDs, etc.), lessons and books, postage (for mailing out promo), stage clothes (including laundry bills), etc. you'll discover it's almost impossible to make any money playing music unless you stop buying gear

[GZsound]

If you claim your music income and keep track of your expenses, as has been suggested here, you can write off those expenses against your income.

 

I have been writing off expenses against my music income since the early 70's and have never shown a profit of more than a couple of dollars.

 

For me, the problem occurs when we get paid a couple thousand dollars for a gig and they want MY social security number, which means I have to pay each band member by check, 1099 them at the end of the year and hope they declare their band income too..although it's not my problem if they don't.

 

Then there is the "independent contractor" status of each band member, which avoids workers comp, withholding, etc., and basically means you have to send out a 1099 on each member that recieved over $600 per year or YOU are responsible for taxes on the entire amount.

 

You can also have multiple checks made out to several different band members if the band earns over $600 at a gig. But all this is just an attempt to avoid paying taxes.. I prefer to claim it, use actual expenses against it, and sleep well...

[forceman]

Great info, GZsound.

[srsfallriver]

At one point, my music career could be considered a hobby and I seldom claimed. Now I make nearly half my annual income from my band and I get paid in checks, so I claim everything. If a large part of your income is from your band and you get paid with checks, you ought to claim. I've heard of people losing thier houses because they thought they'd be overlooked!

 

I hate the IRS but you have to play by thier rules until the system is changed. They seriously can have you charged guilty until proven innocent!