Taxes for Musicians (Top Musician Tax Deductions in the U.S.A.)
Despite everything you may hear about the death of the music industry, there's still a huge need to pay taxes for musicians. Most people with day jobs receive a W2 tax form from their employers, and their taxes are pretty straight forward. But working musicians like us also get our income reported through a Form 1099.
Basically, you pay independent contractor taxes for the music work you do.
This article will focus on the three major areas of taxes for musicians: basic background information, bookkeeping for musicians, and the top musician tax deductions. And all of this is only for American musicians. I literally have no idea about any other country, so if you're not from the U.S., you may want to find help elsewhere.
All tax payers are required to pay three different taxes to the IRS - FICA Social Security, FICA Medicare, and Income tax. The two FICA taxes are non-negotiable - all tax payers everywhere pay 15.3% of their income into FICA.
If you're an employee, your employer covers half of that 15.3% as a benefit to you, and you pay the other half out of your paycheck.
But if you're self-employed - or in other words, a freelancer or a contractor - you are responsible for paying the entire 15.3% yourself.
This is separate from income tax, and it gets added onto your 1040 as "Self-Employment Tax."
But first, two big disclaimers. Now before we go any further, I need to state that I AM NOT AN ACCOUNTANT and I'm not in anyway qualified to give tax advice. You'd be an idiot to trust me (a musician!) with your tax tips and you should independently confirm things. Second, this article may include affiliate links which generate a commission for clicking through them. However, this does not bias my opinion.
1099 For Musicians & Filing Taxes
A Form 1099 for musicians is basically the way all independent contractor taxes are reported. This is how the IRS knows that you need to pay taxes for musicians...
Theoretically, before working with a client, you fill out a W-9 form with your tax information. For example, if you're playing a legit gig. Or if you're licensing your music through Pond 5, they make you fill out some info.
The form 1099 is how all income for contractors is recorded. If a company pays you more than $600, they are required to issue you a 1099 to reflect that income. They'll ask you to fill out a form called a W-9 - this form collects all the contact information needed to issue your 1099 at tax time. The W-9 can be downloaded from the IRS's website (link) and the information includes name, address, and tax ID number (social security number or EIN). When you go into business, it's a best practice to fill out and sign a W-9 and keep it readily available for anyone who asks.
What is a 1099?
According to the IRS, a 1099 is used to:
... payments made in the course of a trade or business to a person who's not an employee or to an unincorporated business. Report payments of $10 or more in gross royalties or $600 or more in rents or compensation. Report payment information to the IRS and the person or business that received the payment.
After the end of the year, you'll start to receive copies of the 1099 forms from the folks you've worked for the previous year. You'll then use these to enter your 1099 income when filing your taxes.
However, I should note that even if you don't receive a 1099, you're supposed to report all of your income (and pay taxes on it). I know plenty of times where people think they don't need to pay taxes as musicians, but if you're getting paid under the table for a gig, you should still be tracking and reporting that income.
And yea, that means you need to pay taxes on merch sold at gigs (and this probably also sales tax implications, but that's beyond the scope of today's post).
Update: I've actually switched to using an experienced business accountant, Stephanie, who is ALSO a musician. She gets it, is really easy to work with, and charges comparable rates to TurboTax. You can find her firm, Tax Co Solutions, here.
In the past, I've used TurboTax , and it worked well for me, especially when I just had a little bit of side income coming in. I found it really straightforward. It asks all the right questions and helps you through all the various deductions you can take. TurboTax will automatically calculate things like depreciation, and it will carry them over from year to year.
Bookkeeping for Musicians
If you've got taxes to pay, you need to keep track of your income and expenses. Bookkeeping for musicians is essential to make sure you don't miss anything along the way, and will save you countless hours of time during tax season.
I use Mint.com (totally free) to keep my books and to track all of my expenses and income. Every weekend I go through the transactions for the past week.
The main thing to worry about when keeping books as a musician is to make sure you use clear, consistent tags and descriptions for your transactions. That way, at the end of the year you'll quickly be able to find your relevant transactions. You'll also no what they were. So if you bought gear on Amazon, you don't want just a $30 charge to Amazon, you want to add a description, like "A 5 Pack of New Strings."
But honestly, bookkeeping for musicians isn't too much more complicated than your regular day-to-day budgeting. Just be consistent about categorizing expenses, and let Mint's free automation track and record everything.
And save your receipts!
Top Musician Tax Deductions
This isn't an exhaustive list of all tax deductible items, by any means, but these are the top five tax deductions for musicians. As a performer or recording artist, you can use each of these tax deductions to reduce your taxable income. You can use these deductions to offset your 1099 income, so that you have to pay little to no taxes on your side hustle income!
The important thing is to become aware of all of the possible tax deductible items as soon as possible so you that you keep track of them all year long. That's why bookkeeping is so important for musicians.
Is Your Music Income a Hobby or a Business?
Here's a big, smelly caveat: you're only eligible for these deductions if you're trying to run a business.
If music is just a hobby and you only get the occasional cheque, you may not be eligible for it.
The basic rule is this: if you're honestly TRYING to make a profit, even if you're failing, you probably can make take these deductions.
For example, in 2014, the United States Tax Court issued its decision in favor of artist Susan Crile, and found that she had indeed “met her burden of proving that in carrying on her activity as an artist, she had an actual and a honest objective of making a profit."
CD Baby has a great in-depth discussion about what it means to be a professional musician here.
Can I Deduct Musical Equipment?
You're probably wondering, can I deduct musical equipment from my income.
You can deduct all of your musical gear, your plugins, software, all that good stuff. There is almost no limit to the type of tax deductible items that you can use - basically, if Guitar Center sells it, you're probably good. Not only is it great that you can deduct your musical equipment (which can save tons of money), but it also makes you feel ever so slightly less guilty about being a gear slut.
You can also deduct the cost of servicing your equipment, so if you get something repaired, or if you get your guitar setup, then boom. Deduction.
Educational expenses that help you advance your career are all valid deduction with taxes for musicians. So whether you're buying a book like How to Make it in the New Music Industry, joining a course on how to license your music like mine, or subscribing to a music magazine, these are all valid educational expenses.
On top of that, you can also deduct that cost of concert tickets - you're keeping up with industry trends after all!
Working musicians can deduct gear, Spotify subscriptions, and even concert tickets from their taxes! #musician #sidehustle #taxes
Your Studio Space
One of the biggest perks to the deductions you can take on your taxes as a musician is the space your studio takes up in your home. Or your rehearsal room. Plus you can also deduct that utilities, insurance, etc. associated with the space.
The main rule is that the space needs to be used exclusively for a business purpose (so no man caves). But if 25% of home is taken up by your studio, then you can deduct 25% of your water bill, for example
Transportation & Mileage Deduction
Within reason, musicians can also deduct transportation and mileage from their taxes when they are traveling for a business purpose. So let's say your driving to a gig that's 10 miles away. Well you look up the mileage deduction and boom.
Or if you're flying to a conference or a gig or a recording session. Just, as always, be sure to maintain all documents.
If you're getting all of your money through 1099s, whether because you're a full time self-employed musician or a musician/freelancer as a lot of creative folks are, if you save for retirement in a qualified account, you can deduct those savings.
It's not my place to say whether a SEP IRA, a solo 401K, or Roth IRA might be best for you - it will depend on your personal situation. I use Betterment to invest my money, though. It's got low fees, broad exposure to diverse funds, and is super simple to use.
A List of The Best Tax Deductions for Musicians
- Musical equipment
- Music software
- Maintenance and repairs
- Subscriptions to educational course & books
- Subscriptions to music services like Spotify
- Concert tickets
- Advertising and promotional material
- Travel to gigs and potentially food and drink
- Studio/Rehearsal space
- Retirement savings