Taxes and writing off music equipment

[seamless]

Hi there,

 

It never occured to me that I could write off my gear purchases on my taxes as a business expense, but an acquaintance of mine mentioned this in passing last week .... does anyone have any more info on this?

 

Thanks.

[BryanMichael]

Hello,

You CAN write off music gear as long as you are making money with it.

Are you reporting that money as income on your taxes?

If you are-your gear is a legit. business expense. So is Taco bell ont he way home from the gig and money spent on gas going to rehearsals, cool sunglasses for stage wear, Guitar magazines, and lots of other stuff! BUT be warned...if you are spending more than you are making, the government will see this as a "hobby" not a business and they won't allow you to write things off....

To avoid being audited and going through alot of hassle, get someone to do your taxes that understands these laws.

You can of course write off their fee next year as a business expense as well...

 

-B

[Scheming Demon]

You can write off your business purchases if you are losing money as well.

 

You must file with the county clerk office as a sole-proprietor or partnership. For an LLC or corporation it's a little more involved and only worth doing when there's serious money involved.

 

Once you are a legal business with a Tax ID number, you can keep track of income and expenses to the business. The business itself pays no taxes, however the net loss or income must be reported on your personal income tax.

 

There are a few other tax documents that must be filed. I am familiar with the partnership, because that is what I have done for my band.

[BlueStrat]

Yes, you can show a loss, because there are other factors they look at: is your buisiness growing, meaning you're rolling the profits over back into the business? If you report 3000 dollars a year for 5 years but show you're spending 7000, chances are they'll view it as a hobby, provided you ever do get audited. Last year I actually showed a profit, and reported that i made more than I really did, just so I can show a loss again this year. You have to be careful about that, though, because you file it as a schedule C self-employment form, and it's lumped together with your regular 1099 as gross income minus deductions, which means that you can actually show less income than you actually made, making it more difficult to get credit for big-ticket items like cars and mortgages.

[zeberifo]

All good points with a few exceptions.

 

1. Sunglasses are not deductible

2. You need to depreciate music equipment - it is not an expense the same as guitar strings. This depreciation is tricky and best left to someone who knows what they are doing - unless you got like 5-10 hours to waste.

3. You can show a loss although, as a schedule C taxpayer, if the losses are in three of the 5 years, the IRS gets REAL suspicious.

They figure if you are in a legitimate business, you are in it to make money - not lose money.

 

Bottom line - doing your taxes as a musician can get pretty hairy (and most musicians don't want to deal with this).

I set up my band in college as a partnership (more than 1 person). It was a great learning experience but what a hassle!

I got notices from IRS, blah blah blah - and each of the 4 members after all expenses made $12/each!

 

P.S. I am a CPA. Let me know if any of you guitar brothers ever have a question.

[BryanMichael]

 

Originally posted by zeberifo All good points with a few exceptions. 1. Sunglasses are not deductible 2. You need to depreciate music equipment - it is not an expense the same as guitar strings. This depreciation is tricky and best left to someone who knows what they are doing - unless you got like 5-10 hours to waste. 3. You can show a loss although, as a schedule C taxpayer, if the losses are in three of the 5 years, the IRS gets REAL suspicious. They figure if you are in a legitimate business, you are in it to make money - not lose money. Bottom line - doing your taxes as a musician can get pretty hairy (and most musicians don't want to deal with this). I set up my band in college as a partnership (more than 1 person). It was a great learning experience but what a hassle! I got notices from IRS, blah blah blah - and each of the 4 members after all expenses made $12/each! P.S. I am a CPA. Let me know if any of you guitar brothers ever have a question.

 

 

 

Thanks for the Pro Angle, but for the past 6 years I've been having my taxes done and showing a small profit. I'm not trying to "tell you your business" but my accountants have done things this way:

 

1. Sunglasses ARE deductable as "costuming"

2. Depreciating Music gear is an option. I have depreciated things such as a digital hard disk recorder, but written off things such as an amp. It's your call.

3. YES, dead on solid correct!

My whole thing is that I am set up as a performer REGARDLESS as to what band I'm in, or what side projects I do. I am also a freelance professional in the Video and Film field and I do talent work, jingles, scores, etc....

It's still a "side" business- but each year it grows...

 

Overall you are definitely right!

 

Peace,

B

[thescham]

Just make sure you save your receipts for everything and keep a travel log for your car so you can write off mileage at the end of the year. The IRS also lets you reconstruct a log you haven't been keeping one all along.

[zeberifo]

 

Originally posted by BryanMichael Thanks for the Pro Angle, but for the past 6 years I've been having my taxes done and showing a small profit. I'm not trying to "tell you your business" but my accountants have done things this way: 1. Sunglasses ARE deductable as "costuming" 2. Depreciating Music gear is an option. I have depreciated things such as a digital hard disk recorder, but written off things such as an amp. It's your call. 3. YES, dead on solid correct! My whole thing is that I am set up as a performer REGARDLESS as to what band I'm in, or what side projects I do. I am also a freelance professional in the Video and Film field and I do talent work, jingles, scores, etc.... It's still a "side" business- but each year it grows... Overall you are definitely right! Peace, B

 

 

Bryan -

 

1. You are (ahem...your accountant) absolutely wrong on the sunglasses. If something can be worn on the street as regular clothing it is NOT deductible. Don't you think all musicians would be deducting their jeans and silky shirts too?

2. Depreciation is not an option.

3. Agreed

4. Get a new accountant - yours is mis-informing you and possibly heading you for trouble.

5. Best of luck!

[BryanMichael]

 

Originally posted by zeberifo Bryan - 1. You are (ahem...your accountant) absolutely wrong on the sunglasses. If something can be worn on the street as regular clothing it is NOT deductible. Don't you think all musicians would be deducting their jeans and silky shirts too? 2. Depreciation is not an option. 3. Agreed 4. Get a new accountant - yours is mis-informing you and possibly heading you for trouble. 5. Best of luck!

 

 

AGain, thanks-

but I've gone with two different accountants and neither have had much trouble-

Maybe I'm misunderstanding something.

Peace,

Bryan

[Loves_LPs]

OK,

 

There is an old joke that goes, "Sure, you can deduct anything - as long as you don't get caught!"

 

(1) As far as "Writing off" big ticket purchases - there are rules and limits about this - it is permitted under IRC Section 125 - which is technically considered depreciation.

 

(2) You might make a case for your sunglasses - IF they are ONLY used onstage as a costume - but if you use them offstage (personal use) you need to declare it as income!

 

(3) Generally, Taco Bell is not gonna be deductable - unless you are out of town, etc. Mileage deduction rules can be tricky too. Oh, and the IRS does NOT smile on creating your mileage logs after the fact!

 

The IRS is also going to look at things like:

- Are you demonstrating a "business-like" manner?

- Is the primary motive a profit motive?

- Is there a significant component of entertainment?

- Would a reasonable person expect a profit?

- Have you shown a profit in at least 3 out of last 5 years?

 

If they determine there is significant entertainment value, the main motive isn't profit, etc., they can even make you declare the income but deny expenses!

 

If your accountant is allowing you carte blanche deductions, I would be very careful.... You might get away with it for years.... and then get caught - and owe substantial taxes, penalties and interest.

 

Just my 2 cents, but I have seen some pretty bad disasters created just this way. Most tax advice you get is worth about what you pay for it.........

 

An Educated CPA

[zeberifo]

 

Originally posted by Loves_LPs OK, (1) As far as "Writing off" big ticket purchases - there are rules and limits about this - it is permitted under IRC Section 125 - which is technically considered depreciation. An Educated CPA

 

 

Hey loves_LPs!

 

Glad to see another CPA here in the rock world!

 

You may however, wish to re-read IRC section 125.

 

Hate to sound like a tax nerd.....

[seamless]

. You need to depreciate music equipment - it is not an expense the same as guitar strings. This depreciation is tricky and best left to someone who knows what they are doing - unless you got like 5-10 hours to waste.

 

Wow ... sounds like that would be a very taxing experience!!

 

Sorry, couldn't resist

 

Seriously now, thanks so much everyone for your replies ... I have a much better idea of what I can/can't do now!

[daveonbass]

trying to do my own taxes, How does one report this income?

 

I got a 1099-misc and when I enter it into turbo tax it wants to know if its for Buissness, Farm or Wages?

 

I'm thinking Buisness,

 

but dealing with all of the questions and deductions seems way to complicated...is there a simple way to list the expenses to offset the income on my own..or do I need to pay a CPA to do it.

 

I have the following expenses,

 

Gear - to include basses, amps, strings, picks, etc.

Rent - for pratice space

Mileage - to and from Pratce and Gigs

 

 

The big bummer I see, is that my 1099 shows a little over $1500 as income, but I have about $5000 in expenses..

 

more question to follow im sure

[Outkaster]

You can show a loss for some time but lucky I get my taxes down from a guy in town that is a musician and a lot of guy's go this CPA because he knows the ins and outs and has all the software for it.

[daveonbass]

thanks for the reply, I guess Im looking for some help from somebody who does there own...Adding a few expenses and a few peices of equip shouldn't be that hard..(i think)..I'm not to concerned with showing every expenses or showing a loss..just enough to offset the income and not to red flag my return.

 

thanks

[BlueStrat]

 

Originally posted by daveonbass thanks for the reply, I guess Im looking for some help from somebody who does there own...Adding a few expenses and a few peices of equip shouldn't be that hard..(i think)..I'm not to concerned with showing every expenses or showing a loss..just enough to offset the income and not to red flag my return. thanks

 

 

Take my advice. Pay an accountant.

[zeberifo]

Originally posted by BlueStrat Take my advice. Pay an accountant.

 

Amen to that.

End of thread.......

[BryanMichael]

Having met with my accountant (specifically a tax preparer NOT just a CPA)

I can tell you that YES- sunglasses are deductable IF they are a legit. costuming expense.

 

YOU DO NOT HAVE TO DEPRECIATE GEAR- YOU CAN TAKE IT AS A DEDUCTION (as I stated before) but you must then hold onto the gear for it's depreciated time value-WHy deprecitae a 60.00 Chorus Pedal?? A 1500.00 Hard Disk recorder- maybe.

 

Basically go hire a specialized tax preparer and don't listen to advice especially from zeberifo-

I've had TWO accountant / tax preparers in the past 6 years and both concur about the things I've posted. Being a CPA doesn't automatically qualify you as an expert on tax preparation. My guy works for the State and is quite well informed, I'm not too concerned about the IRS coming after me.

B

[zeberifo]

Originally posted by BryanMichael Basically go hire a specialized tax preparer and don't listen to advice especially from zeberifo- I've had TWO accountant / tax preparers in the past 6 years and both concur about the things I've posted. Being a CPA doesn't automatically qualify you as an expert on tax preparation. My guy works for the State and is quite well informed, I'm not too concerned about the IRS coming after me. B

 

[zeberifo]

 

Originally posted by BryanMichael Basically go hire a specialized tax preparer and don't listen to advice especially from zeberifo- I've had TWO accountant / tax preparers in the past 6 years and both concur about the things I've posted. Being a CPA doesn't automatically qualify you as an expert on tax preparation. My guy works for the State and is quite well informed, I'm not too concerned about the IRS coming after me. B

 

 

Hey man - I didn't tell people to listen only to me.

People here are asking advice and I freely offer it as a qualified tax professional.

I am stating the strict rules of the tax law. Their interpretation and the amount that you "stretch" them is ultimately up to you.

Hopefully, though a qualified tax professional can guide you in making these choices. If they flat out tell you something and don't inform you of the possible consequences, you have gotten what you pay for.

 

Remember, you are responsible for your taxes no matter who prepares them. Choose your business team carefully.

 

Yes there are CPA's who aren't specialists in tax (I am).

Although depreciating a $60 pedal is pretty petty (and therefore most accountants will simple expense it), the law states that anything having a useful life over 1 year must be depreciated. The IRS can get you if they want. Nonetheless, your tax preparer should let you make the educated decision after informing you of the consequences of that decision.

 

Shoule you legally drive 57 mph in a 55 mph zone?, no. Can you?, yes. Will a cop stop you?, maybe.

[BryanMichael]

You make it sound like I am trying to get away with something that isn't standard and i resent it. I just went over this with my guy last night. He is the SECOND tax preparer I've dealt with that has not ONCE questioned the legitimacy of my business expenses- The first person I dealt with specialized in creative professionals that had odd expenses. The new guy (second year doing my taxes) works for the state- I have all my receipts in order and have had no problems. I'm not trying to "bend" any rules or stretch any definitions and I don't think he is either.

Loves LP's is more along the lines of what my guys have said. So I count that three CPA's / tax preparers opinions (my two plus Loves LP's) to your one.

B

[zeberifo]

Bryan, well, I resent the fact that you blatantly tell people on this thread to especially not listen to me, but that is beside the point.

 

I feel people should know the rules and take it from there.

If you want me to reference Internal revenue code sections and court cases which support my statements, I can.

 

I could give two craps for each of your two accountants that don't question you - shouldn't that in itself make you cautious? That doesn't make me wrong.

 

I wish you the best (sincerely).

[zeberifo]

P.S. Why are you on your second accountant?

Hmmmmm.......

[rduke]

An Enron pays no taxes for about five years. I mean nothing.

 

The IRS says revenues I derive related to production of music are taxable. I have another full-time job from which I pay plenty of taxes from. Whether or not I can expense those capital equipment purchases in order to produce music, and ultimately taxable revenue, is subject to interpretation as to whether or not this is a legitimate business or just a hobby. If construed as a hobby, I still pay taxes on the revenues, but don't get to expense what I need to produce a product.

 

What's wrong this picture...?

[BryanMichael]

Originally posted by zeberifo P.S. Why are you on your second accountant? Hmmmmm.......

 

Zeberifo-

1. I didn't really mean for it to come off as so harsh telling them not to listen to you, but thereisn't really a nice way to say "I think he's wrong" If you could cite exactly where I cannot take things like a guitar or amp as a deduction and must depreciate it (not like Loves LP's said...because that's exactly what I'm talking about. take the deduction now, keep the gear until it would have depreciated...whatever) - I'd love to hear it.

2. I'm on my second accountant because of my girlfriend. I moved to Washington DC late in 2001 and my (new at the time) girlfriend

(she works in politics) had a friend that was a tax preparer that works for the state-so we both sent our stuff to him. He came over last night to go over my taxes for this year as well- it was a matter of convenience and personal relationship.

3.I'm not a tax expert, but you make it sound like these guys are blindly accepting anything I give them and are running some kind of shady business...which is complete bullshit, everything has been scutinized, spreadsheeted (?), categorized, filed, and taxes PAID. They aren't questioning the LEGITIMACY of my expenses, not that they aren't questioning ME about them. I resent the characterization that you have to try and "get away with" writing off things that are legit.

So yes, please quote me EXACTLY where I can tell my accountant to look so he can see that you cannot write off anything that has usefulness beyond a year. I'm sure he'd love to know about it.

 

This doesn't surprise me though, trying to make a living as a creative professional is very difficult-people always try to make it harder for you.

B