Tax questions for musicians

College Majors Music Major
1

<p>I file a very simple schedule C every year as a piano teacher. My expenses are minimal, and I keep a basic record of income / expenses as I go. Not a big deal.</p>

<p>S2's Schedule C becomes more complicated every year. He has much more travel involved with gigs - only partially reimbursed. Some travel is deductible (going to gigs), some is not (going to auditions.) He has several varieties of income - either straight gigs (where he pays taxes and social security) or 1098s (taxes, but not SS). He is also buying equipment that would fall under capital expenses (new horn, new recording device) that require a lot more work figuring depreciation, etc. We haven't claimed any capital expenses so far, because we're in over our heads on that stuff. Paying a tax preparer would be more than it's worth at this point - income is still very small.</p>

<p>We were wondering if anyone has any experience with any type of computer record program for Small Business owners or self-employed people -- or more specifically - musicians - that would help him/us keep track of legitimate expenses and income, and guide us on what is deductible.</p>

<p>We were also curious if any portion of his ongoing education would be deductible. I think I remember that education is only deductible if it is necessary for your current job, rather than qualifying you for a new one, right? His main reason for wanting the MM is because it would help land him a teaching job at some point. </p>

<p>He is going to be so broke the next few years, and yet every year he ends up having to pay taxes, despite being so poor. (We haven't figured out if he will qualify as a dependent next year or not - expecting not, since he will be on his own more than half the year.) We aren't the type to do things "under the table" - and aren't looking for ways to cheat; only ways to not pay more than he legitimately owes.</p>

2

<p>Great questions, Binx! I would be interested in this as well. Last year was the first year we didn't claim #1. He earned barely enough last year to pay a little bit in taxes and get the stimulus check. He will likely earn more this year, but much of it is cash. We have been encouraging him to keep track of it, but I don't know if he is doing a very good job of that. Eventually he will have to start paying quarterly taxes and withholding his own SS. At least we hope that he eventually makes enough money to do those things.</p>

3

<p>We would be interested to. DS keeps VERY detailed records of all of his expenses and his income. He used Turbotax last year and had no difficulty doing his taxes..but his records were detailed.</p>

4

<p>I found a few websites by Googling taxes schedule C musicians. Here is one that looks pretty helpful:</p>

<p>Musicians</a> and Singers</p>

5

<p>I did son's taxes last year, a combo of music and non-music W-2's, a stack of check bottoms from various gigs and sub appearances, 2 1099's as an independent contractor. He had most of the backup and receipts, but it involved making sense of them and deciding if the expense was legitimate per IRS rules. All the paperwork was in a shoebox, in no particular order, and took a couple of hours to sort through.</p>

<p>As with most start-up musicians, he actually had enough legit deductions to have a loss against his musician's income. Given the IRS view of losses against self-employment income (repeated losses may cause them to question the enterprise, and reclassify it as a hobby, not self-employment, with the potential loss of all related deductions) we made the decision NOT to take all expenses, show a small profit, and save showing losses for when it has significant impact on that years taxes.</p>

<p>Some expenses are tricky, such as the travel which can vary based on the type, distance, and employment status (employee versus freelancer), multiple gigs/services, etc.</p>

<p>What makes sense to me is to get and keep receipts for everything, and assemble all expenses for one time gigs as a single packet for each. I insisted he start and maintain a mileage log, and he has an accordian folder where the main categories are instrument related, music purchases, educational/professional development expenses, professional memberships and periodicals, one time/short term gigs, subcontract work, and his one orchestral contract job.</p>

<p>We'll see if this year is any easier. At this point, it makes no sense to have them done professionally, as the dollar amounts if I err are inconsequential penalty and taxwise. I'm going to err on the side of caution anyway. I have no idea if the canned programs can do an adequate job... I guess the trick there is to know if the expense is legit to begin with when entering the info. That's the biggest confusion I've had.</p>

<p>There are a number of sites that can found by Googling; binx linked to one of the best. </p>

<p>Here's one that seems to be a great organizing tool The</a> Creative Tax Planner : Home
I found it at tax time, hoping to get him one for this year, but they were sold out. I keep checking and will order one as soon as it's available. Could be money well spent.</p>

<p>Dammit Jim, I'm a father, not a tax pro. When it becomes too much to figure out, he can deal with or pay to have it done.</p>

6

<p>Education expenses are deductible in two situations:
1. If the education or course maintains or improves skills required by the individual <strong><em>in</em></strong> his employment or other trade or business, or
2. If the education or course meets the express requirements of the individual's employer, or the requirements of applicable law or regulations, imposed as a condition to the retention by the individual of an established employment relationship, status, or rate of compensation.</p>

<p>If the education courses are necessary to meet the minimum requirements for a teaching position, then they would not be deductible, arguably because teaching would be a new profession and the courses would be necessary to get into that new trade or business. If, however, the musician is already qualified (by law or regulation) to teach music, and does some teaching, but is taking courses merely to bolster the resume, one could argue that the expenses are incurred to maintain or improve skills in a trade or business that he is already in (a musician) and, therefore, are deductible.</p>

<p>If he does no teaching at all at this point, but is qualified, the answer is a little grayer -- it depends on how you define his current profession. For example, if you define it narrowly as a music performer (i.e., one who doesn't teach), then perhaps teaching would be new profession -- and education expenses would not be deductible. If you define it broadly as a musician (involving many aspects), then perhaps teaching is within the same profession -- and education expenses would be deductible.</p>

<p>Like most tax questioins -- answer is fact dependent and not simply answered!</p>

7

<p>Yep, clear as mud! :) Actually, S2 is going after a Master of Music Performance. Technically, he does not NEED a MM to perform. (He doesn't even need a BMus). And it is not an education degree, either. He has just been advised that IF he ever wants to teach at a college level, many colleges want/prefer a master's level or higher. (However, his teacher at Juilliard didn't even have a BS....) Meanwhile, a very strong argument could be made that his extended education is helping to maintain and improve his performance skills. He has filed a schedule C and paid taxes for the past several years (or more - not sure.) So he is already on file with the IRS as a self-emplyed musician.</p>

<p>He will only have a few thousand dollars worth of tuition left after his scholarship. Plus he will have his new horn - a capital expense. He will probably only make a few thousand this year. I agree with violadad that we don't want him to claim a loss and risk his business getting demoted to a hobby! But I wouldn't mind helping him break even on his taxes.</p>

8

<p>binx, I don't think he can take tuition costs for the MM as a Schedule C expense. He could take a portion on the 1040 through Hope credit , Lifetime learning credit, educational expense allowance, and student loan interst deduction if he can itemize.</p>

<p>Now beyond that, seminars, workshops, masterclasses, private lessons that are paid for can be taken on the C as educational/professional development expense.</p>

<p>Confusing, isn't it?</p>

9

<p>violadad:
I respectfully disagree with you re the Schedule C expense. I think it is a business expense which can be deducted from the business's income on Schedule C.</p>

<p>Another point -- the fact that it is a Master's in Performance and the fact that he is already a performer and good facts, supporting the deductibility of the expense.</p>

10

<p>Linde, if that's the case, I'd love to see the IRS guidelines. My s is in a similar situation to binxs'. He has a BM in performance, and is taking a year plus off to financially position himself for an MM program. </p>

<p>Now, if he can take the tuition, fees, and books ( or even a portion thereof)as a valid schedule C expense, it sounds too good to be true.</p>

<p>In that case, why could not the associated BM costs be a valid expense on schedule C for a performing musician?</p>

11

<p>I read the guidelines yesterday, and they don't really explain really well. The main issue seemed to be that the degree NOT qualify them for a better or different job, and that they already be working.</p>

<p>If violason was already established (in the eyes of the IRS) as a freelance musician in HS and the BMus doesn't offer him any different options, it could be argued that it should be deductible. But most IRS folks (who don't know music, generally) won't believe that a BMus doesn't offer new opportunities.</p>

<p>Both my S's are starting grad school this year, and the issue of deduction came up with the eldest. He is an economist, and will be continuing his job and attending school part-time. But his grad degree will be in public policy, so he does not believe it will be deductible, since it will not further his current career. However, if, along the way, he is required to take courses that do augment his current job, he is planning to deduct those specific courses.</p>

<p>So then, with S2, where every course will directly augment his current career, it seems the argument could be made to deduct it. If I can find the IRS link, I'll post it.</p>

<hr>

<p>Here's one, (not pertaining to music, though):
Tax</a> Law (Questions About Taxes): Education as a business expense, form 1040 schedule c, www irs gov</p>

<p>I presume that you are an undergraduate student. The IRS interpretation on this is that the education qualifies you for a new trade or profession, and therefore, are not deductible.</p>

<p>Here are the tax guides:</p>

<p>Publication</a> 970 (2007), Tax Benefits for Education</p>

<p>more specifically, business related educational expenses:
Publication</a> 970 (2007), Tax Benefits for Education</p>

<p>
[quote]
To claim such a deduction, you must: </p>

<p>Be working,</p>

<p>Itemize your deductions on Schedule A (Form 1040) if you are an employee, </p>

<p>File Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040) if you are self-employed, and</p>

<p>Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education.

[/quote]
</p>

<p>
[quote]
You can deduct the costs of qualifying work-related education as business expenses. This is education that meets at least one of the following two tests. </p>

<p>The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer. </p>

<p>The education maintains or improves skills needed in your present work. </p>

<p>However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it: </p>

<p>Is needed to meet the minimum educational requirements of your present trade or business, or</p>

<p>Is part of a program of study that will qualify you for a new trade or business.</p>

<p>You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree.

[/quote]
</p>

12

<p>By the way, violadad - since your S took a year off between undergrad and grad, it seems he would have an even easier time arguing that grad school is a business expense. But since he has a regular job along with his self-employment, I don't know how it all works. There is also another rule about 2% or something.</p>

13

<p>violadad: I will try to dig up some written authority for you but it will have to wait until later today or tomorrow.</p>

<p>violadad and binx: The basic rule is that the costs of a first degree are never deductible. Why? Because that's the rule........... We could argue, say, that many first degrees are taken in order to make money or make a living, so they are related to a trade or business. But, the line had to be drawn somewhere. So, where the statute literally refers to expenses incurred while carrying on a trade or business, the interpretation is that one must actually BE in a trade or business to take any trade or business expenses deductions at all, including education. Thus, the costs of the first degree, not being incurred while one is IN the trade or business, are not deductible. </p>

<p>If, say, a doctor takes a non-credit course on a new development in his or her field, the cost of that would be deductible. So, the next question is, what if the doctor goes on to get certification in a particular type of procedure? Also deductible because the doctor is already in the trade or business of being a doctor so the costs are trade or business expenses. (The same cost for the same course would be nondeductible to someone who is learning to be a doctor but is not yet a practicing physician.) A gray area would be, say, a practicing dermatologist who goes back to school to learn to be a cardiologist and switch practice areas. One could argue that this is a different trade or business; I would argue that once a doctor, always a doctor, so not a trade or business....... but people may differ on that one.</p>

<p>Graduate degrees are the next step and get tricky. If a graduate degree is required to engage in a particular business or profession, e.g., law or medicine, it is not deductible. But, if the degree does not satisfy the minimum requirement for a field and also doesn't contribute to the creation of a new skill, but rather enhances or improves skills one already has and uses in his or her trade or business, then it's deductible. What is tricky is determining whether the graduate degree entitles one to enter a new profession or merely to continue working in the old one. A classic tax class hypo in this regard is the lawyer who practices tax law and attends a graduate tax program evenings while practicing tax law during the day. Most would agree that the costs of the graduate tax degree are deductible. That's how I analogize to a Masters in Music Performance.</p>

14

<p>I threw out the BM as a hypothetical, as he did derive income as a performer in high school. </p>

<p>The info on the MM is very interesting.</p>

<p>I'm going to have to study these regs. He does have a per service contracted chair, stand alone gigs and subwork, and teaches both as an employee and contractually as an independent contractor in a couple of different programs. Currently, the bulk of his income is derived from his part time day job, not his music activities but not from lack of trying. Off the top of my head, last year about 40% of all gross income was music related.</p>

<p>Linde, I as well as others (shennie, thumper, _thewallflower) would greatly appreciate your efforts.</p>

15

<p>^ and I left out binx. Oops. </p>

<p>(Sorry,got distracted d was complaining that the dryer destroys her bras. I have no sympathy. If you spend big bucks for lingerie, buy a lingerie bag to wash em in. No, dear, I'm not allowing the ruined bra as an offset against your room and board payment.)</p>

16

<p>violadad, Thanks for posting the link to the Creative Tax Planner. I hope it is not permanently out of stock. My son plans to start keeping records of his playing and teaching as an official business in January, and this looks like it could be the perfect Christmas present for him! I bookmarked it and will also keep checking back--or perhaps email to find out when they will be available.</p>

17

<p>Ah - I was going to complain about being left out, but you fixed it before I could.</p>

<p>By the way, glad I'm not the only one capable of taking a thread wayyyyy off course. ;)</p>

18

<p>Linde, my son is in a similar position. He is working on a Masters in performance. BUT here is the single reason WHY he can't claim this as a schedule C on his taxes....he has NEVER been self supporting as a musician. We were told point blank by an accountant that he can NOT claim his tuition/fees for school as a business expense. He CAN use expenses related to other things that are NOT working towards a degree but rather are to improve his work as a performer (tuition, travel etc for summer festivals for example). </p>

<p>In addition, DS's tuition bills would far far exceed the amount he earned as a self employed musician WHILE also attending school. </p>

<p>We have an excellent accountant who is well versed in these types of deductions for self employed. Because DS has never been self supporting as a musician, our accountant says he cannot deduct his college tuition expenses.</p>

19

<p>Interesting, thumper. The tax code mentions nothing at all about being self-supporting. Nothing else in the Schedule C for self-employment is dependent upon being self-supporting. Do you still claim him as a dependent?</p>

20

<p>Does any music school have a mandatory class on the business of being a musician? I know NEC has career workshops covering many of these issues, but they are optional. D has only gone to a couple when her schedule allows.</p>

<p>It seems a one semester class that covers things like tax issues, simple contract law, financial strategies, publicity, etc. would be so helpful to aspiring musicians.</p>