Band Finances, Taxes and The Rest

[Thunderbroom]

In addition to my other non-bass playing duties with the band, I'm also the treasurer. I've been handling all incoming and outgoing transactions for the band. Most of our paydays have been either cash transactions or transactions paid by check for $500 or less. The latter I've been depositing in my business checking account.

 

My concern is the issue of taxes. I've heard over and over that payments of less than $600 per source per year do not need to be claimed on your income taxes at the end of the year. Since I've been depositing these checks in my business account (no, the band does not have its own account), I feel that if I don't claim the monies received on my personal/business return at the end of the year that I will open either my business or myself up for an audit.

 

We got paid $1000 last weekend for our gig. I've been holding on to the check (made out to me), but will deposit it this morning in my business account. I know that I'm going to have to claim it on my taxes this year and eat the taxes.

 

What do you seasoned folks recommend I do about all of this? Should we open a checking account for the band? This seems to be the smartest thing to do.

 

Also, is the $600 number that I keep hearing actually correct? Moreover, if it is/isn't, can someone point me to the actual tax code to support the claim?

 

Thanks!

[One Bad Monkey]

Absolutely. Open a checking account for the band, get a DBA set up and then have everything channeled through there. You're gigging with YFC a lot more than most of the folk here are, so you need to treat it as a business now. That way, you are not going to take the hit alone, as it's set up now. Plus, using a DBA and showing records of monies made makes manufacturers happy and usually opens you up to endorsements of things as well.

 

As far as I know, the $600 mark is correct. I've had places pay me $550 with a check and then the rest with cash so I wouldn't have to declare it (you'd be surprised how many schools do that).

[Thunderbroom]

What's a DBA?

 

And speaking of gigs...we've got two today!!

[BigPigPeaches]

Just a quick question here, Jeff.

 

 

Does anybody else in the band do anything other than play/sing?

 

 

Cause it sure as hell don't look like it.

[BlackBelt]

DBA = Doing Business As.

Yeah, the tax thing can start to add up quick. Honest clubs like to pay by check so they can have a papertrail for the taxman. No problem until YOU get audited. Most bands that I've played in we've all filled out tax statements and at the end of the year get those. You don't want the one guy that agreed to sign for the checks to get stuck footing the tax bill for a $30K year for your band.

Of course, if you just do 2 weekends a year for cash at the local coffee shop, you probably wouldn't have to mess with all that.

If I was making over a few hundred a year by gigging though, I would definitely get right with the tax man.

Also, a guitarist that I used to play with set himself up as a business...Something like Bills Hired Guitarist Company. That way, he was able to depreciate a portion of his equipment each year on his taxes, which was pretty cool. He went down and got a business license ($20), and had his accountant set up the rest. Its just something to think about if you are making some decent money.

[One Bad Monkey]

Originally posted by Thunderbroom What's a DBA? And speaking of gigs...we've got two today!!

 

Doing Business As. It says that you're allowed to (literally speaking) do business as Yard Fulla Cars. Then, the people writing the checks will write it to YFC instead of you. I know there's probably a couple of steps I have forgotten here (like registering the name first), but that's the gist.

[Thunderbroom]

Originally posted by BigPigPeaches Just a quick question here, Jeff. Does anybody else in the band do anything other than play/sing? Cause it sure as hell don't look like it.

 

Let's just say that we don't get a lot of volunteers when something needs to get done. I'm not complaining though because I don't have to volunteer either. I guess I just know things won't get done if someone doesn't do it. It's the small business owner in my I suppose.

[Rumble Bass]

Make sure you keep record of all your band expenses incurred as well.

[Fonzie]

Just register as a LLP, or limited liability partnership. Write up a simple partnership agrement for the other dudes in the band, and open a checking account. Save every single reciept for anything even remotely band related. Wardrobe, strings, gas, tolls, meals and such. If you keep the expenses close to the profits, taxes shouldn't be a problem.

[Thunderbroom]

 

Originally posted by Fonzie Just register as a LLP, or limited liability partnership. Write up a simple partnership agrement for the other dudes in the band, and open a checking account. Save every single reciept for anything even remotely band related. Wardrobe, strings, gas, tolls, meals and such. If you keep the expenses close to the profits, taxes shouldn't be a problem.

 

 

Corey!!!!!

 

What's up?????!!!!!?????

[Fonzie]

 

Originally posted by Thunderbroom Cory!!!!! What's up?????!!!!!?????

 

 

Not much, figured I'd stop by the forums and say hello.

[RSBro]

The $600 mark is what you can be paid and not be issued a 1099-MISC for. But that encompasses the entire tax or fiscal year, whichever you may be on.

 

As I do this for a living, there's different ways you can go about this-

 

1. Do it the "safe" but most advantageous way. Unless you need state protection, you don't need to pay for an LLC. Easiest thing to do for bands and smaller businesses and to avoid the S-E tax of 15% is do form an Association and tell the IRS you want to be treated as an S-Corporation. You can have as many members/shareholders as you want, and when and if you happen to get 1099's or checks given to you from a bar/club/etc.., you just report it all, and then take your deductions against it. Now, what's cool about doing this for a band is you can deduct EVERYthing. Down to the last pick or drumstick or whathaveyou. Depreciate ALL of the equipment you want, and then you just send K-1s to all the members after the 1120S (S-corp tax return) is done. Report your K-1 income on your Sch. E Pg. 2, boom. You'll probably have a loss, and that's always good. Hell, even pay yourselves Salary and Wages or Officers Compensation from the S-Corp. Report it on your line 7, and guess what? Ups your IRA/SIMPLE/SEP contribution limit (if you have such). Still get out of the 15% S-E tax. If at all costs, DO NOT FILE a Schedule C!!! This is THE most commonly audited form, when a Sch. C is weird.

 

(on a side note, just for everyone's FYI, audits are chosen at random by separate IRS computers... the scare tactics they tell you of "if you don't report every dime, you get audited!" is complete BS- call and ask to speak with a revenue agent. they'll be happy to tell you.)

 

2. If you care to study anything about tax law, you'd quickly realize being in a band and trading the right to work for monetary compensation is not a federally priveleged exercise upon which a direct tax can be assessed... You prolly don't want to go down that route, but I mean to people who already receive W-2/1099 forms and file 1040s (which, we found out in July is an invalid information return because it has an expired OMB number!! that was a great case...), running it through an Association, treated as an S-Corp, and filing an 1120S is the best, easiest, and cheapest way to do what most CPAs/attorneys/IRS agents would tell you is the "right" way. It's not, but, oh well. Doesn't mean you won't get audited. We have people who do simple returns w/ maybe a Sch. F or something having a small loss and they get audited. And some w/ NOL's of 6 digits never get a phonecall.

 

It's all random, so, whether you report what you think you should or not, they'll still come ask to poke around.

[ezstep]

Every member of the band should get a 1099 from you, after each has passed the $600 amount.

 

Standard stuff.

 

By declaring your music as a second job, you definitely get to claim legitimate deductions - travel to and from, motel overnight on occasion, a few meals, strings, repair, equipment, etc. However, they must be legitimate and business-(music-)related and you MUST keep receipts for proof. You aren't allowed to guess. And, the IRS will not let you continue claiming an overall loss on that business year after year after year. The business will have to show a profit at some point. IIRC, a business (YFC) is required to report to the IRS all income to individuals over $600. That's where the 1099 comes in.

 

I would suggest that you ask a tax expert.

 

 

 

EDIT: Doh! Rockstar posted his answer while I was still typing.

[RSBro]

Originally posted by ezstep And, the IRS will not let you continue claiming an overall loss on that business year after year after year. The business will have to show a profit at some point.

 

Not true. That's what NOL's start out as being, and you can always add to them.

This is a commonly reoccurring myth that simply doesn't pass muster.

IF you ever happen to get audited, will they ask about it? Sure. But it's not a hard justification.

You report all income, show all expenses, you paid out more than what you paid in. Ok, all good there. So, how did you finance the operation (as you don't know your total P&L until 12/31/XX Y/E)? Well, from previous shows and from own personal funds.

 

Farms have been used for decades and every year have losses. The simple fact that you have a negative number on an IRS information return doesn't mean anything. Should it be reasonable though? Yes. Having $50K on Line 7 and $30K of loss on Line 12 or 17 isn't.

[RSBro]

Originally posted by ezstep EDIT: Doh! Rockstar posted his answer while I was still typing.

 

 

No prob. But yeah, you can have continual losses. However an easy way to get around that is not deduct as much as you can, and keep your K-1 losses to a minimum. One year don't take depreciation or something. Show a small gain (as you won't pay S-E tax on it) and take other deductions on your 1040. And you can always play w/ deductions on what schedule on what form... That's the fun of tax work!

[Fireball_73]

Why not just ask for two $500 checks?

 

Aside from that, a seperate account will keep things nice and tidy and give you less hassle in the long run.

 

I maybe young, but I'm not that daft. I am going to be staying the {censored} away from credit cards!

[One Bad Monkey]

 

Originally posted by Fireball_73 Why not just ask for two $500 checks?

 

 

You're still making $1000 from ONE source. That's the issue, not the check size.

[RSBro]

Originally posted by One Bad Monkey You're still making $1000 from ONE source. That's the issue, not the check size.

 

Correct. $600 per Payee...

 

And, there's nothing wrong with credit cards. As long as you can afford to pay it off, it's a great way to build credit, which lowers your interest rates on future purchases, better loan/mortgage rates, nothing wrong with it at all.

I just bought in July a 55" Hitachi HDTV from Circuit City and a pretty badass new sectional couch from Macy's. Both on credit cards. I pay about double the monthly balance on each, and have a year, no-interest on both to get 'em taken care of.

No sweat.