Deductions for 2017
Let me preface this by stating that I’m not a tax accountant or expert by any stretch of imagination. I’m just a musician doing my taxes and learning how it works along the way. I’m sharing what I’ve learned but it may/may not apply to you or be 100% correct. The information below is not replacement for expert tax advice/services. In other words, don’t quote me on it :)
That said, here are a few things you might find useful when filing your taxes this year if you’ve set up your music business.
Contractors vs Legal & Professional Services
Musicians for hire
- If you’ve hired somebody multiple times AND you’ve paid them $600 or more in this tax year, then you’re required to provide them with a 1099-MISC. This can easily be created online. We created ours using TurboTax.
- If you’ve hired somebody only once, you could deduct that in professional services instead, even if it is over $600.
Other items that fall under professional expenses
- Production Services (production, mixing, mastering) if hired on a per-project basis. If they’re hired on a full-time or contractor basis, then report them appropriately.
- Subscription to professional publications in your field (i.e any music industry publication)
- Membership fees to join professional organizations such as a musician union, a songwriter association, or websites like Taxi and BroadJam that offer members only access to opportunities.
- Distribution service fees such as TuneCore, CD Baby to make your music available on various digital platforms.
- Short-term consulting fees
- One-time management consultation fees
- One-time marketing consultation fees
- One-time engineering consultation fees
- Fees paid for website analysis
- Other outside consulting fees for short term advice on specific deals
- One-time logo/web design fees
- Fees paid to talent agents and business/personal managers who are not paid as employees.
- Legal fees for business matters
- Accounting fees
If you use your car for business reasons (eg to go to your gig), you can deduct certain expenses such as:
- Miles driven for business
- New tires, repairs, maintenance
- Gas/oil changes
- Insurance, registration, license fees
- Lease payments or depreciation (see Assets)
There are two ways to claim these expenses: actual expenses and standard deduction. If you use a software like TurboTax, they usually guide you to figure out the best way to go for your situation.
- Rental car
- Taxi/ride-sharing services
- Baggage fees
- Gear rental for gigs
- Internet access fees (e.g on planes or in the airport/hotel)
- Phone calls when away on business
- Tips while traveling (except for meal tips, which are only 50% deductible)
- Dry cleaning
- Cost of shipping your equipment that is necessary for a gig
- Cost of storing baggage/equipment during business trip
- Late check-out charges if you’re required to stay over-time for business
- You want to have receipts for anything $75 and over. You have to be able to show the business purpose of an expense if requested.
- Photography services can be deducted under miscellaneous business expenses
- Music Conferences that you’ve attended to improve your skills, maintain relevance in your field, or otherwise improve your professional performance can be deducted under miscellaneous
- Cloud services/software such as LANDR, Dropbox, etc also fall under miscellaneous.
- Accompanist fees.
- Banking/credit card/financial service fees (including interest) for your business accounts/cards.
- Books, magazines and other subscriptions for business
- Tax return software
- Startup costs
- Prizes to fans
- Cell phone service.
- Internet service.
- Second phone line.
- Long distance calls.
- Voice mail/answering machines
- Call-waiting/message center fees
- Video conferencing services (e.g if you use Skype or other such tools to call clients)
- Modems and wireless routers
- Ringtones for your work phone (who buys ringtones still, I don’t know…)
- Fax line for work
- Text messaging service (auto-responding text service)
- Website hosting, Domain name purchases,Website design (e.g Wix, Bandzoogle, SquareSpace, GoDaddy, 1and1 hosting, WordPress, etc)
- Business cards (for your music business)
- Poster design & printing
- Design services of any kind (artwork, posters, etc)
- Online ads (Google AdWords, Facebook Ads, Twitter Ads, LinkedIn Ads, local newspaper online ads like patch.com, event promotion ads like Evensi)
- Print advertising (duh)
- Any merchandise that you’re giving away for free
- Fees paid to ad agencies or PR firms
- Yellow pages listings
- SEO/web traffic analysis
- Marketing email/direct mail campaigns
- Professional performance videos and CDs (promo material)
- Package design fees
- Signs, display racks
- Basically any cost directly related to promoting your business.
Taxes and Licenses
- Cost of applying for your business license.
- Business license.
- DBA/Fictitious business name one-time filing fee.
- Incorporation fees.
- Business name search fees.
- Copyright application and registration.
- Trademarks and logo fees.
- Domain name search fees.
- Fees paid to the state board.
- State and local taxes.
- Property taxes (NOT for home office).
- Fees to acquire, draft, or cancel a lease.
- Cover song licenses that you might have paid via Loudr, EasySongLicensing, CDBaby, WeAreTheHits or others.
- Software licenses.
- Image/Video footage licenses (purchases on sites like pixabay, shutterstock).
- Payroll taxes for employees such as Medicare, Social Security. *
- Unemployment taxes for employees. *
* We did not hire anybody as an employee or intern, so we don’t know much about the deductions for that. Feel free to comment below if you know more.
If you have a home office/studio, you can deduct the following, pro-rated for the square footage and percentage of business use:
- Improvements/renovations on the home office
For example, if you rent a 500 sq ft place for $1000/month, and your office is 100 sq ft, then your pro-rated rent for business use is:
(Office space/ total space) * rent or mortgage per month
(100/500) * $1000 = $200 per month
So if you use that office room for business 100% of the time, you can deduct $200. If you use the room for business 50% of the time, then you can deduct 50% of $200, which would be $100.
- Office supplies
- Shipping & postage
- Office cleaning
- Shredding services
- Security system
- Office decoration, soundproofing
- Equipment accessories (carrying cases, straps, pedals, music stands)
- Instrument accessories (cases, strings, reeds, tuners, metronome)
- Sheet music and books
- External hard drives, trackpad, mouse, cables/cords
- Cleaning supplies
- Safety/protective gear
Equipment purchases of over $200 can be deducted as assets. Some examples include your computer, guitar, keyboard, studio monitors, etc.
Equipment purchases of $200 or more can be declared as asset purchases. These assets can be depreciated over time (5–7 years). If you use TurboTax, it will automatically set the correct lifespan for it.
Some examples of common assets for musicians would be:
- Recording equipment
- PA system
- Studio monitors
How depreciation works
Let’s say you buy a piano for $5000. Suppose you can depreciate it over 5 years. Each year you’re entitled to claim an equal amount of depreciation.
However, there are a few other options to consider:
Section 179 allows you to take the full amount of depreciation in that first year (year when the asset was purchased/put into use) instead of depreciating it over a number of years. However, it requires that you have income of the same amount or more, meaning you can’t use it if you’re running at a loss. This is a good option if you have a high enough income the year you buy the piano.
Didn’t make enough money for Section 179 to be an option?
If you bought the piano NEW, then you can use “Bonus Depreciation”
Bonus depreciation allows you to take 50% of the cost as depreciation in the first year. So that means you’re left with $2500 to depreciate the “regular” way, over 5 years. That remaining $2500 is your “basis for depreciation”. You can take the first year depreciation on the basis on top of the $2500 Bonus depreciation.
Good to know: Bonus depreciation can be taken as a loss, meaning you can take it regardless of how much money you’ve made this year.
Bonus depreciation is not available every year, and tax laws change all the time. Be sure to stay updated. We use TurboTax, which updates according to tax laws every year.
Here is a video that helped me understand the difference between the two. It goes into much more detail and is worth watching:
If you have CDs or other merchandise for sale, you are required to declare them on your taxes the year you acquired them. I’m not sure about the grey areas such as if you paid for them in a different year than you received them. I’m not a CPA :) Do your homework.
You are required to maintain inventory (ie you’ll need to report how much you had at the start and end of the year).
That’s All Folks!
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