Not that I want to start a theme here, but today we’re going to talk money again, but this time about giving it away to the government. That’s right, it’s just about TAX TIME! Before we start, I want to clarify that this advice will only be relevant for when you file this year (as in your 2017 taxes). 2018 will see a massive tax overhaul for the self-employed and I’m not about to get into that mess yet.
DISCLAIMER: This is not meant to replace the advice of a tax professional. I am not an accountant, but I have been either doing our taxes or working directly with our accountant for over 10 years, so I've picked up some helpful tips for the uninitiated. Do with it what you will!
Here are 6 tips for filing taxes as a musician (or freelancer).
1 - KEEP GOOD RECORDS.
As mentioned in a previous post [check out: Let’s Get Financial], hands-down, the EASIEST way to keep track of business expenses is to have a business bank account and business credit card. This way, when it’s time to file taxes, you can essentially just pull your statements and are soooooo close to done. A lot of cards will even categorize your expenses for you. Fair warning, they aren’t 100% correct though, so you will probably have to do some shifting around. You also need to keep track of cash expenses... which would be helpful with item #2!
2 - GET SET UP WITH ACCOUNTING SOFTWARE.
While this is not a requirement, it definitely makes things easier. If your revenue is pretty straight forward, I suggest keeping track of expenses through Expensify. This program links to your bank account and credit card (those business ones) and brings in all of the expenses. Once you start telling it what category items fall into, it gets smart and starts doing it on its own. If you have a cash expense you just input it into the app. Super, duper easy.
If revenue is a bit more complex, you might try your hand at Quickbooks. Then profit/loss reports are a damn breeze.
3 - KEEP RECEIPTS.
The IRS says you need to keep receipts for 3 years in case of an audit. Get one of these bad boys and just file them away monthly. If you use a business credit card and bank account, you already have the digital proof, but unfortunately you should keep the paper receipt as well. If you use Expensify, the app also allows you to take a pic of the receipt and file it with your records. Then, GOODBYE PAPER. A handy trick that we do is set up email addresses for our business receipts - that way when we pay an invoice, get a receipt, or need to file a note for an expense we just forward it to that address and they are out of site, out of mind.
4 - KNOW WHAT YOU CAN WRITE OFF.
This is a big one. Some write-offs are straight forward, but others really aren’t. Here are ones that stick out to me that a lot of people don’t know about (and remember, this only pertains to 2017 taxes):
Professional Equipment: All equipment that you purchase to do your job is deductible. Meaning, if you spend $800 on an amp, that’s $800 less that counts as your income.
Home Office: You can write off a portion of your rent/mortgage if you use it exclusively for business purposes. Do note that if you get audited and your “office” is actually your bedroom then you won’t be able to count that as an office. Need to know what portion? You’re really supposed to determine it by square footage and break down your rent that way. Pretty much everyone just guesses though (just being honest). More on the home office write off here.
Meals/Entertainment: You can only write off 50% of M&E. Those are the rules, don’t ask me why. However, anytime you have a business lunch, have to pay for a meal out of pocket on tour, FILE IT. You need every write off you can get.
Student loans: If you have these, you can possibly write off the interest you paid.
Owned assets: This one is a bit trickier, but if you own something for business - like a tour van - you can deduct a portion of the depreciation.
Costumes: If you wear something exclusively on stage, you can write it off.
Here’s a full list of approved expense categories (per our accountant):
Dues & Subscriptions
Gifts to Charity
Local Transportation (ubers to/from meetings or shows)
Meals & Entertainment
Medical (this is not your insurance costs - these are out of pocket expenses and whether or not you can write them off will be determined at tax time by your adjusted gross income)
Music supplies (picks, cables, containers for your picks and cables)
Office expenses (paper, pens, printer, that accounting software)
Promotional Fees (PR, Radio, Distribution fees, etc)
Repairs & Maintenance
Travel (lodging, airfare, gas, parking, car rentals)
5 - 1099s
If you paid any one person more than $600 over the course of the year, you owe them a 1099 so they can file their taxes properly. These are typically due by the end of January, but the IRS sets a date every year (the official deadline has passed for this year, but you can still send them). You will also need to file the 1099s with the IRS. The easiest way to do this is through Intuit. A sweet perk of Quickbooks is that it is integrated with this system, so you can do it quickly.
You will need a W9 from each person that you need to send a 1099 to. This just gives you the right info to fill in. We try to collect them as soon as we hire people so I’m not scrambling in January to track them down.
You will also receive 1099s (likely starting in January). Keep track of them and cross check your revenue.
6 - START EARLY.
I’m not going to sugar coat it - taxes suck and they take a long time. You may want to start pulling stuff together in December if you can. Waiting until April will drive you insane and send you scrambling for 1099s, searching for receipts, and trying desperately to categorize a year’s worth of business expenses. Trust me - we’ve done it - it blows.
Finally, if you can afford it, bring on professional help. These taxes can get incredibly tricky and you want to make sure you’re filing the right way. However, if you keep good records, TurboTax can be your best friend.
Time to pour yourself a giant glass of wine (or um, coffee), turn on some motivational tunes, and get this shit knocked out. Sending all of our good thoughts to you so that you owe little to nothing! Best of luck!