Getting Ready for Tax Time

 

 

Someone in business for themselves needs to have a really good accounting system.  You have to keep track of what comes in and what goes out.  That’s pretty basic and most people do that.  But, for artists, you have your own business and you need to go a step beyond tracking what goes in and what goes out.  When it comes to tax time, there are deductions you can take.  For instance, did you know that you can deduct travel mileage to and from gigs?  How about the supplies that you purchase – strings, paper, printer, computer, etc. – some of those things are tax deductible either in whole or in part.

A good accountant can keep you on track with your taxes and business deductions.  If you are an independent artist and managing your music and your marketing, why not let someone else handle your tax issues?  And, we’re not talking about your uncle or your cousin or someone like that, we’re talking strictly professional here.  Just like you wouldn’t want someone who can play the bass a little bit play with that band, you don’t want someone who knows numbers a little bit to manage your accounting and tax processes.  There have been a number of celebrities who have gotten into serious trouble with the IRS because they trusted a relative to manage their finances.

If you’re considering hiring an accountant or tax professional to handle your taxes, try to find someone that specializes in services for music and entertainment clients.  Though any accountant understands business and tax dealings, someone familiar with entertainment will understand certain things and won’t need them explained to them.  They would fully understand the business of being a musician or an artist.

Wondering what you can deduct and what documentation you’ll need? Here’s a brief list of deductions that can possibly lower your taxes:

Travel:  Mileage to and from gigs, hotel stays and airfare are deductible.  You must keep accurate records of mileage and receipts for all expenses.  If you are recording mileage, it is best to do it as it occurs.  So keep a ledger with you and take a moment to document the mileage for each trip.  Some people keep a record of all their gigs and use mapquest to get an accurate mileage count.

Meals: If you have a business-related lunches or dinners with band members, staff, or your manager, those meals are deductible at 50% of the expense.

Equipment: Any equipment you purchase for shows or rehearsals can be deducted.  Amps, stomp pedals, guitars, strings, picks, speakers, cables, etc, can all be deducted. For items over $500, there is a depreciation deduction that you can take.

Rehearsal Space:  You can deduct the space in your home or apartment, or studio/office rental space if it is used exclusively for your business.

Other: There are other deductions that can be filed under research (industry magazine subscriptions, CDs, and concert tickets) marketing (website costs, mailing list cost, etc), and wardrobe (if you buy clothing exclusively to wear at performances).piano

You can check out the FAQs at IRS.gov.

Make sure that you keep all receipts and documentation in order.  There’s nothing worse than getting ready for tax time and everything is out of order.  Put all receipts in a separate folder (meals, travel, equipment, etc.) and keep a running tally of everything.  This will make tax preparation simpler for you or for the professional that you hire.