Thursday, January 30, 2014

5 Vital Tax Tips for Musicians

Found this on Pledge Music. A good read!




5 Vital Tax Tips for Musicians

Brittany Cooper Brittany Cooper 
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Tax season is quickly approaching in the US, and if you’re a musician, you likely don’t get one clean W-2 each year, have someone else figure it all out for you and then hope for the best. While it’s true that preparing taxes as an independent contractor can feel like a mess of receipts and paperwork, here are 5 important tips to help you make it to April 15 as an organized, calm and collected individual. We can’t promise you’ll get a giant return, but here’s hoping …
1. Keep Your Receipts: 
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For a freelancer of any kind, this tip really can’t be stressed enough. From the $4 latte you bought yesterday to the gas it took to get down to SXSW last year, you never know what’s going to be deductible, and some items that make the cut just might surprise you. When you either prepare your own taxes or present your CPA with a list of your deductions for this year, he or she will request that you have a piece of paper to serve as a specific record of each listed expense. That said, if you haven’t been diligent in this area, you can print your itemized bank statement as a record of any expense you paid with a credit or debit card.
It’s best to think of a good system for storing and filing receipts. If possible, create different folders or files for different categories (travel, food, lodging, entertainment, etc.) That way, when you dump the receipts from your wallet throughout the year, you can put them in the proper folder right away and save yourself a whole weekend of sorting and filing around tax time.
2. Know What’s Tax Deductible for You:
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First off, there’s no shame in listing your deductions for the year. This is one area where artists and musicians really get a break from the government, and it’s worth taking it. Though you probably don’t work for a company that buys you lunch often or pays your travel expenses, the government gives you a little help when tax season comes around.
Though it’s best to ask your professional tax planner for the specifics of what you can deduct, some things you may not initially think to include are books, your subscription to “Billboard,” the album you downloaded last week, business insurance, business meals, cabs, printing, cultural events, editing software, your home studio, instruments and instrument repair, museum memberships, notepads, guitar picks, your phone and Internet, travel to and from gigs and more. If it’s something you use to further your career, it’s likely tax deductible. (Of course, the IRS has strict limitations on how you claim deductions for a home office, a phone, etc., so be sure to seek professional advice on doing this properly.)
3. Be Familiar with the Forms:
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This will vary among musicians, depending on the type of work you do. If you do regular work in which you’re hired by a company or individual to record or write music, you’ll likely receive a W-2 from each employer who paid you any amount of money throughout the year. If you’re filing as an independent contractor, you can get a breakdown of the necessary forms as well as some advice on how to file electronically here.
4. Find Tools to Best Track Your Income:
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In the end, the only person responsible for tracking and reporting your income is – you guessed it – you. When you have income coming from different places (i.e. if PledgeMusic artist and are having to keep track of all the Pledges you’ve received on a campaign), it can sound like a lot to handle, and it is. However, just as technology has made income more complex in that way, it has also allowed for some giant innovations in financial tracking and planning. One incredible resource for tracking income and deductibles is the one-stop free financial lifesaver Mint.com.
Mint lets you link all your bank accounts, investments and budgets into one place, so you see a comprehensive and real-time list of what you’re spending, what you’re making and how it all balances out. If you spend the time setting up your budgets through Mint, you’ll save tons of time in the end. If you don’t use Mint, you can also research other software that offers similar services, though it might not be free. Another helpful tool is setting up a filing system for your receipts, as we mentioned before.
5. Be Aware of the Self-Employment Tax:
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Yes, it’s true that the self-employed among us get a number of tax breaks, but there’s also this little thing called the Self-Employment Tax. This is how the independent contractor pays Social Security and Medicare payroll taxes. If you had an employer, the company would commonly pick up half of this tax and you would pay the rest, but if you’re self-employed, this one’s on you.
Self-Employment tax is comprised of a 12.4% Social Security tax on the first $117,000 of net self-employment income (for 2014) and then a 2.9% Medicare tax on all net self-employment income. If you earn a more substantial income, beginning in 2013, you will have been be taxed a .9% Additional Medicare Tax. If you have any questions about this tax or any other tax-related issues for the self-employed, the IRS offers this helpful guide.
PledgeMusic and its employees are not certified tax preparation agents and all advice given should not be taken as official and/or legal advice. These tips are intended as informal suggestions. Please consult a certified CPA for any questions you may have. We take no responsibility for misuse of the contents herein.

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