It’s time to prep for everyone’s favorite season: tax season. Most working musicians are considered “self employed,” which can make filing taxes daunting when you’re figuring out what forms to fill out and what deductions you qualify for. However, it doesn’t have to be an intimidating process. Here are several tips to make the process simpler.
Keep your personal and business accounts separate. As a self employed entity, you will need to show a record of your expenditures. The IRS requires records for at least three years from due date for filing. It helps to keep different accounts for your personal and business lives by creating separate bank accounts and credit cards.
Save your receipts. By saving your receipts you will be able to apply for tax deductions for things like poster printing, studio time, equipment purchases, travel costs, and more.
Sole Proprietor vs. Partnership. Pretty much everyone in the nation must fill out a Form 1040, which determines whether additional taxes are owed or the taxpayer gets a refund. Things can be a little more tricky if you’re running your business as a sole proprietor or if you have a partnership set up, but don’t worry, you can probably handle it. If you are a solo artist or musician, you will likely be considered a sole proprietor, which is a business that is completely owned by a single person. This may be you if you are a private music teacher or studio musician. You will need to fill out Form 1040 and Schedule C to declare loss or profit and a Schedule SE for Social Security and Medicare taxes because you don’t have someone withholding these taxes for you. If you are a member of a band, you will have to file taxes together as an entity as well as individually. First, you will need to have applied for an EIN (you can think of this as the social security number for your band). Once you have an EIN number, you’ll be able to file Form 1065 and K1, which are business partnership taxes. You will also need to fill out Form 1040, Schedule E and Schedule SE. These last two forms report income and deductions that are related to royalties received and taxes from net earnings of $400 or more from someone who is considered self-employed.
There are two additional forms you need to consider, Form 1040-ES and Form 1099. Form 1040-ES should be filled out if you expect to owe at least $1,000 in taxes to pay estimated taxes. As stated earlier, because you’re self employed you need to withhold the taxes from yourself. Instead of making you pay for everything in April, you may want to send a check to the IRS every three months to spread out your tax burden. Form 1099 should be filled out if you’re an independent contractor along with a W-9, which needs to be filled out by every business that pays you over $600 during the year.
Deductions can lower your taxes, and easy to file if you have saved your receipts. There are many that you could qualify for. For a more in depth look into what your options could be, here is a helpful guide.