The music industry can be a complex beast, even more so when taxes are involved. The truth is that, no matter if you’re a hobbyist or professional musician, you’re likely subject to a complex and nuanced task when filing taxes. Traveling for out-of-state gigs, working from dual incomes, and even performing for the sheer love of music may translate into very unique tax qualifications and deductions in the U.S.
So, how can you stay on top of your gig income and ensure that you’re claiming the right deductions? What happens if you commonly perform paid gigs out of state? Depending on your tax filing status and the nature of your performance work, your tax filing process may be very different from that of your colleagues. Here’s what you need to know.
The Art of Making Music: Hobby Versus Career
Passion and drive are of course cornerstones of making music, no matter if it’s your full-time career or your favorite hobby. Thus, labeling the role of music in your life may seem unnecessary. But where taxation is concerned, it’s important to determine your status as a musician to ensure that your taxes are filed correctly and in accordance with state and federal law.
For some independent musicians, performing and making music is obviously a career, or perhaps a lucrative side gig. Others may find it more difficult to determine if music has become personally profitable. For example, what if you have a full-time career that’s unrelated to music but were paid to perform at a wedding or event, do you need to claim that payment as income when filing taxes?
Generally speaking, even if you only play a few gigs a year, you’ll likely have to claim that income. According to the Internal Revenue Service (IRS), if your net self-employment earnings total $400 or more, you must pay self-employment tax on that income. It’s important to note that you’re required to report self-employment income even if you receive social security benefits. Identifying and claiming self-employment earnings are integral to the tax filing process for many musicians, especially within the modern gig economy.
Music-Related Deductions
If you play music in more of a hobbyist capacity, you may not need to worry about identifying deductions. But if making music represents a significant portion of your income, this information is especially relevant. Professionals in myriad industries are allowed to deduct business-related expenses when filing taxes, and musicians are no exception.
The term “business-related” regarding expenses can be subjective, and it’s highly individualized. In the end, only you can determine if an expense is truly related to your music-making business or not. While instruments and mixing equipment are obvious candidates in the realm of an independent musician’s business expenses, other items may be less evident.
For example, many musicians balance life and work on their phones, making your smartphone a potential business expense. Keep in mind that any phone used in a business capacity likely contains a plethora of personal and financial information, so if you’re investing in a new smartphone for your music business, make sure that you know how to properly dispose of your old phone. That way, you can protect your personal data while also deducting a necessary business expense.
Even if you consider your musical endeavors as more of a hobby, you may be able to deduct so-called “ordinary and necessary hobby expenses.” Accounting professionals report that hobbyists are allowed to deduct those expenses that may help you develop your skills, such as classes and lessons. Further, you can deduct the necessary expenses related to your hobby. For musicians, that can include a new instrument or accessories such as guitar strings or reeds for brass and woodwind instruments.
Of course, full-time musicians and those who consider music a profitable side gig can also deduct new instruments and accessories. Depending on the scope of your work, additional music-related deductions may be allowed, ranging from music studio space to recording sessions. It may also be possible to deduct travel-related expenses when you attend other musicians’ performances in order to learn about industry trends.
Tax Codes and Traveling for Out-of-State Gigs
Travel is often an integral part of a musician’s life, as branching out from your hometown’s safety net is crucial for musicians looking to connect with a larger fan base. Embarking on a multi-state tour may be especially lucrative, both from a promotional and a financial standpoint. Yet earning income from gigs in multiple states, or even other countries can drastically complicate matters when it’s time to file your taxes.
If you earned money in a state other than your state of residence, you may need to file a nonresident tax return in that state. Yet there are exceptions, most notably in states with reciprocity agreements in place, allowing for residents of neighboring states to earn income without having to file a non-resident tax return. Reciprocal states include Illinois, Indiana, Michigan, Maryland, Virginia, and Washington, D.C.
But reciprocity isn’t the only way in which tax codes can differ by state. For example, seven U.S. states have no income tax, meaning that wages earned in those states are taxed differently than in other states. The seven states with no income tax are:
- Wyoming
- Nevada
- Alaska
- South Dakota
- Washington
- Florida
- Texas
If you’re an independent musician who earned income in one of those states during the tax year in which you’re filing, you may find that your wages aren’t taxed at the state level. Federal taxes, of course, are a different story altogether.
Final Thoughts
When it comes down to it, independent musicians may want to consider hiring a professional at tax time, especially if your work brought you to various states or international destinations. Take what you know about self-employment wages, business-related deductions, and state income tax into the tax preparer’s office, and take charge of your music career and your taxes in 2020 and beyond.
Courtesy of Indiana Lee