For tax purposes, self-employment refers to earning income from working for yourself as a freelancer, independent contractor, or business owner rather than as an employee. As a self-employed individual, you are responsible for paying your own taxes, including self-employment tax, which is a combination of Social Security and Medicare taxes.
To be considered self-employed for tax purposes, you must generally meet the following criteria:
If you are self-employed, you will need to report your self-employment income and pay self-employment tax on your tax return. You may also be eligible for certain tax deductions and credits, such as deductions for business expenses and credits for education expenses. It's important to practice accurate record-keeping throughout the year and seek professional advice if you have any questions about your tax obligations as a self-employed individual.
Consider tracking income from gigs and other sources in order to accurately report earnings on tax returns and to have a clear understanding of your financial situation. Important information to record includes:
Use free tools like Google Sheets or Green Room or paid accounting software like QuickBooks to help with this process. Accurately recording income throughout the year will make it easier to complete your tax return and ensure that you are reporting all of your income accurately. It's also a good idea to seek the advice of a tax professional if you have any questions about how to report your income.
Make a list of all the expenses you incur as a musician, including gig-related expenses such as mileage records and lodging, as well as business expenses such as musical instruments and equipment. As with income, it's important to be thorough. You will want to make note of:
Just like with your income tracking, there are software tools that can help. One extra wrinkle for expenses is that some are tax deductible. Not sure what counts as a deductible expense? Check out this article on common tax deductions for self-employed musicians.
Tracking expenses is an important part of tax preparation for self-employed musicians. Accurately recording expenses throughout the year will make it easier to complete your tax return and ensure that you are reporting all of your expenses accurately. It's also a good idea to seek the advice of a tax professional if you have any questions about how to report your expenses.
You may need to issue a Form 1099-NEC to other individuals or businesses if you have paid those individuals or businesses more than $600 in a tax year for services performed as a nonemployee. For example, if you had the same bassist play seven, $100 gigs throughout the year, you need to issue them a 1099-NEC. Or if you hired a session musician to play on your album and paid them more than $600, you need to issue a Form 1099-NEC to the session musician. If you used a service like Fiverr or Upwork, they take care of these forms, but if you are paying directly, not through a freelancer marketplace, it is your responsibility to handle tax forms.
Keeping receipts and other documentation is important for musicians when filing taxes because it provides evidence of the income and expenses you are reporting on your tax return. Receipts and documentation can help to verify the accuracy of your tax return and can be used to support deductions and credits that you claim. If you are audited, having receipts and documentation can help you to demonstrate that your tax return is accurate. It's a good idea to keep receipts and documentation for at least three years in case you are audited or need to verify information on your tax return.
By tracking your expenses properly, you will be able to determine which expenses are tax deductible. You can claim a number of tax deductions for your business expenses.
These can include capital expenditures such as musical instruments and equipment, as well as ongoing expenses like rent for practice and recording space and travel costs for gigs. You can also claim deductions for meals and entertainment expenses that are directly related to your business, as long as they meet certain criteria.
We go over dozens of examples of deductible expenses and how to understand business expense criteria in this blog post on useful tax deductions for musicians and bands.
As a self-employed musician, you will need to file your taxes using a different set of forms than those used by employees. Here are the tax forms and documents that you may need to file your taxes as a self-employed musician:
It's a good idea to consult with a tax professional or use tax software to ensure that you are using the correct forms and reporting all of your income and expenses accurately. Filing your taxes is a situation where spending a few hundred dollars to ensure you are filing correctly can help you save by maximizing your tax deductions and minimizing your chances of getting audited down the line!
Our number one tip is to do it as you go. By keeping track of your income and expenses as they occur, you can avoid the last-minute rush to gather documentation and fill out forms. If you are reading this in January for the current tax filing year, this ship may have sailed. But in addition to working on your tax return, now is the time to be thinking about making the process easier for next time. Here are some additional tips.
By following these tips, you can simplify the tax preparation process and ensure that your tax return is accurate and complete.
There are several options available for filing taxes as a musician, including hiring a professional or using tax software. Here is a brief overview of each option:
Ultimately, the best option for filing taxes as a musician will depend on your specific circumstances and needs. Consider factors such as your tax situation, budget, and comfort level with preparing your own tax return when deciding which option is best for you.
Filing taxes is not the fun part of being in the music business, but it is necessary. Taking the time to educate yourself about the process and how deductible business expenses can lower your taxable income is an important part of the process of ensuring your tax payment is accurate and not higher than necessary. If you are still feeling overwhelmed, it is worth finding a professional to answer your accounting questions. We hope you find this tax prep guide for musicians useful and would love to hear any feedback you have!
Disclaimer: We have done our best to ensure the accuracy of the information in this and all other blog posts on our website. Our posts are meant to help educate and do not constitute legal, financial, or tax advice.
A hobby is something you enjoy doing for fun. As a hobbyist, you make money from hobbies. If you're making money from your hobby, you'll owe taxes. The critical difference between filing your taxes as a hobbyist and as a business is that a hobbyist is all but expected to lose money. A business operates with the intent of profit, even if it takes a few years to become profitable. Because of this, the IRS allows businesses to claim a loss on taxes while the lowest a hobbyist can go to is zero.
For example, if you are a gigging musician making $15,000 a year and a teacher making $50,000 a year and you spent $20,000 on music expenses filing as a hobbyist would be filing with an income of $50,000. Filing as a business, and properly deducting expenses would put your taxable income at $45,000.
Whether you are operating at a profit or a loss it is more advantageous to be filing as a business than a hobbyist in order to claim all legitimate expenses. If you are unsure how to transition from a hobbyist to a business, check out this post on business entities for musicians.
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As a working musician, you can deduct many of the same expenses as other self-employed business owners. This article covers those deductions and the importance of keeping records!