YEAY!!!!!

Okay, I’m kidding.

uncle samAs a business owner and “independent Artist” of sorts, tax time isn’t nearly as exciting for me as it is for my friends who push pencils between 9 and 5. There are essentially two camps of income earners in the U.S. – those that have their taxes deducted before they get their paycheck each week/two weeks/month, and those who simply get paid. Now those that get paid still owe Uncle Sam, you know the saying, “death and taxes” right? “So how much do I owe as an independent Artist?” is a really common question. “How the heck do I file and what?” is an even more common one. The answers are fairly simple, but it seems many independent earners (Artists or otherwise) get overwhelmed, confused and scared of the process. DON’T TURTLE, get to work and be responsible – this will save you both time and money down the line.

Don’t think taxes are a big deal? Ask Ja Rule, Prince, Keith Richards, Mary J. Blige, Lauryn Hill, Nas, Willie Nelson, Ron Isley, Kelly Rowland, Trick Daddy, Toni Braxton, Xzibit, Lil’ Wayne, Lil’ Kim, Doug E. Fresh, Wyclef, James Brown, Beanie Segal, Young Buck, Method Man, Chuck Berry and many, many, many other Artists large and small, hell even Luciano Pavarotti got dinged in 1999 and 2001 for stiffing the Italian government. My point is that it happens…a LOT.

tax refundMany folks get real jazzed up around tax season as they start to expect a refund after filing their taxes on the amount they paid throughout the year. You’ve undoubtedly seen advertisements telling those with an expected refund how to spend it; at department stores, online, even real estate! You may be at a point in your career where you haven’t transitioned full-time to music so you may still be getting a refund and have the majority of your income taxed by your employer – that’s fine. Don’t forget though, you still owe tax on your business income as an Artist.

Only seven states lack income tax altogether (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming) and two others (Tennessee and New Hampshire) tax only dividend and interest income – this is too complex to dive into on this post, but for 80% of us, we file with both our state and the federal government. The short story is this; you pay taxes on your income not your gross. This isn’t going to be a complicated financial blog, but it’s critical (not just for taxes) to know the difference. If you get paid $500 for a gig 100 miles from your home, you certainly haven’t earned $500 in income (or profit), rather you’ve grossed $500 before you subtract your expenses. What are your expenses? Gas (or mileage), gear, payments for advertising, supplies, even travel and entertainment, etc. Now it wouldn’t be fair for Uncle Sam to take a cut of your gross so the taxes you are expected to pay are based on your profit/income. The very overly simplified explanation here is that you take what you earned, less what you spent and that’s your income. Thankfully, the 1040, Schedule C and any other related forms you may need for your taxes are pretty straight forward and even come with handy-dandy instructions thanks to the folks at the IRS. While I’m not endorsing either, tax products like TurboTax and TaxCut are also a way to streamline your filing process.

The simplest keys when it comes to successful tax compliance are described well by Strategic Tax Lawyers, LLP:

Always File a Tax Return

The biggest reason musicians fall into trouble with the IRS revenue officers is the simple fact that they do not file a tax return. Not filing a tax return can result in penalties, fines and interest, but did you know IRS revenue officers can also send you to jail? Anyone, regardless of what they do for a living, should file a tax return each year on time.

Pay the Bill if it comes

Another reason IRS revenue officers go after musicians is the fact that they do not pay their IRS tax liability. When IRS revenue officers send out a balance notification that is their way of indicating a tax payer needs to pay a balance before other collection methods are used. Therefore, musicians and tax payers alike are encouraged to pay their bill immediately when it comes in the mail.

Save Money

A lot of musicians spend their money as fast as they earn it. According to IRS revenue officers this is often the reason they cannot pay their tax liability at the end of the year. Therefore, IRS revenue officers recommend that all musicians save their money and plan for taxes ahead of time to avoid collections in the future.

Keep Accurate Records

Musicians have a lot of write offs and credits; therefore, IRS revenue officers recommend that all musicians hold onto their records and keep accounting ledgers. This will help clear up any confusion IRS revenue officers have about deductions and credits later down the road if the musician is audited.

Hire a Professional

Most musicians think they can do everything themselves. In reality, IRS revenue officers have the time to analyze a tax payer’s returns and income, while a musician is too busy traveling on the road. Therefore, IRS revenue officers recommend hiring a tax professional to handle all tax-related issues, including legal ones.

Keep your cool, get diligent and talk to a pro about how to shore up your tax obligations. Services like Mint and Outright are both great for managing personal/business income and expenses and just try to remember as you’re earning pay as an Artists, some of that belongs to the ol’ U-S-of-A.

Disclaimer: Information from Fame Wizard® is presented in good faith and believed to be correct, it is General in nature and is not intended as tax advice. Furthermore, the information may not be applicable to or suitable for every individuals’ specific circumstances or needs and may require consideration of other matters. Always seek out the advice and guidance of a professional Tax Adviser who is familiar with all the relevant facts.

One Response to It’s tax time!

  1. Scott Alexander says:

    Very Important. I have had an experience with the IRS and do not wish a repeat performance, once was too many, period.

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