Friday, February 4, 2011

Top 10 Tax Deductible Expenses for Musicians

The IRS defines a business expense as something that is common, accepted, helpful, and appropriate to your trade or business.

Most musicians operate as sole proprietors, thus they are considered a business that can make deductions from their expenses.  Before being able to make deductibles, you must file a Schedule C as part of your annual tax return.  This will reduce the amount of net taxable income therefore reducing the amount of your income tax.

Musicians don't generally view themselves as a business and therefore will not pay taxes, however the benefits outweigh the costs.  Here are the top 10 deductible expenses in pursuing your music career to make a profit:

10. Copyright and Registration Fees- Typical copyright fees for an individual song will range from $35 to $65 depending on how the copyright form was submitted (electronically or paper registration).  These fees are tax deductible so in the long run the cost will be less.

9. Professional Fees- Most musicians who operate as a business will typically have managers, lawyers, and/or accountants.  Paying any professional will include paying them taxes.  Those expenses can be deducted as long as you had filed a Schedule C with your annual tax return.

8. Supplies-Supplies are tax deductible.  Typically this includes writing utensils, paper, staples and other such necessities.  In the business of playing and writing music, supplies that can be written off include drum sticks, drum skins, guitar picks, and guitar strings.

7. Retirement- Two options:

A- Standard IRA allows you to deduct your current taxable income and then be taxed when you withdraw money in retirement.

B- Roth IRA allows your retirement withdrawals to be tax free, however contributions made toward that fund are taxable.
6. Equipment and Gear- Amps, pedals, straps, and carrying cases all fall into this category.   Part of this includes depreciable items.   Depreciating equipment can reduce the tax completely by paying it over time and delaying the amount you need to pay.  This way you can pay at a later time in your career when your earnings significantly outweigh your costs.

5. Trade Magazines- Having subscriptions to trade journals are considered by the IRS as something that is helpful for your business.  Examples include Billboard and The Music Trade Magazine.

4. Mailings and Promotions- Making and copying flyers are considered tax deductible as well as a percentage of postage expenses.

3.  Food- 50% of business meals are deductible.  Keep Your Receipts!

2. Travel Expenses-When traveling to performances you can deduct a portion of those expenses or you can keep track of your mileage log and receive a standard rate of $0.365 to the mile.  Choosing which one will vary on what type of vehicle you use as transportation so figure out both and choose the one with the higher value.

1. Instruments- All instruments are tax deductible including, but not limited to guitars, drum sets, keyboards/pianos, and microphones.  Just like equipment and gear, musical instruments depreciate over time and allow you to make payments over time.  Instruments are typically a musician's greatest expense.

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