Are you a full-time musician, an aspiring career artist, or a serious side-hustler in the USA?

Did you have enough earnings or expenses throughout 2023 to warrant filing your next tax return as a self-employed business? 

Doing your taxes as a musician might seem daunting, but don’t worry. This guide should help get you started, whether you’re already a full-time professional or striving to turn music into your livelihood. 

Let’s explore the essentials of filing your tax return as a self-employed musician in the USA in 2024.

Disclaimer: I’m not a tax expert, and this article is not intended as legal, financial, or tax advice. Tax laws vary by country, so always refer to local regulations and seek professional advice if needed. For USA-specific guidelines and forms, refer to the IRS.

Is your music a business or hobby?

One thing to address upfront is how the IRS views your music efforts. Which may differ from how YOU view your music.

Even if you regard yourself as a hobbyist, your music income is taxable. So if you make your primary living as a school teacher, but also bring in an additional $10,000 throughout the year from bar gigs every Friday and Saturday night, that “extra” 10k is taxable.

However, if you don’t treat yourself formally as a business, you can’t deduct losses/expenses from your overall taxable income. Let’s say you make $70,000 from teaching and $10,000 from music. As a hobbyist, you may be able to show music-related expenses that reduce the taxes you pay on that $10,000. But you can’t show music-related “losses” greater than $10,000 to reduce what’s taxable from your $70,000 teaching salary.

If you DO intend to turn your music efforts into a profitable career, and can prove that you’re taking legitimate steps towards that goal, you CAN claim your music as a business. When you do, qualified music-related expenses are allowed to be greater than your music earnings for some period of time. Thus reducing the taxes you have to pay on your combined total of $80,000 earnings from both music and teaching.

The IRS does not expect business to be profitable out of the gates, and tax advisors usually quote a range of 3-5 years in which you need to show you’ve turned your efforts into an actual profitable music career.

Understanding your taxable earnings as a professional musician

As a self-employed musician, your income sources go beyond just gig payments. And you’ll want to consider reporting all income even IF it’s not adding up to enough to “pay the bills” yet.

In other words, even if your music is just a side-hustle that’s generating income, you may want to file taxes as a self-employed business.

It’s crucial to report all sources of music revenue, including:

  • Live performance fees
  • Album sales
  • Royalties from various DSPs
  • Social media monetization revenue
  • Livestream earnings
  • Publishing royalties (radio play, mechanicals, sync fees, etc.)
  • Merchandise sales
  • Teaching music lessons 
  • Grants and awards 
  • Subscription revenue (Patreon, fan clubs, etc)
  • Work for hire income from engineering, production, session playing, etc.

Detailed record-keeping is essential for accurate tax filing. If you don’t keep those records tidy as you go, then you’ll want to remember to check all the info sources: checking account, distributor accounting dashboard, PayPal, Venmo, etc.

Maximizing your deductions as a self-employed musician

To get the most tax benefits, you’ll want to leverage legitimate business expenses as deductions. These are qualified expenses that reduce the amount of your taxable earnings. 

Expenses you can deduct as a musician may include:

  • Instrument purchases, repairs, or maintenance
  • Studio rental fees 
  • Travel expenses related to gigs or tours
  • Costumes (though check the rules, because it normally has to be clothes used exclusively for music purposes)
  • Marketing and promotion costs (including web hosting, social ads, etc.)
  • Professional development and consultation
  • Education expenses such as online music or marketing courses 
  • Home office expenses (if you have a dedicated space in your house or apartment for music business activity) 

Keep receipts and records for all deductions claimed to support your tax filings.

What kind of taxes do musicians have to pay?

This may be stating the obvious, but if you have music earnings, you’ll need to report it as income on your Federal tax filing, as well as any applicable state or local taxes.

But as a professional musician, you may also want to research Self-Employment tax as well as Capital Gains as it relates to intellectual property assets.

IRS guidelines for navigating losses

Many self-employed musicians may experience initial years with more expenses than income. That’s typical for businesses when they’re in the startup phase. There are customer acquisition costs, as well as the significant upfront expense of creating music and merch that has not yet been released to the market. 

The IRS allows you to claim a loss for up to three out of five consecutive tax years as a business before they might reclassify your activity as a hobby. However, you must demonstrate active pursuit of a profit-making venture. Meaning, it has to LOOK like you’re taking your music career seriously. 

Maintain thorough records of business activities, gig calendars, studio dates, marketing strategies, and other related efforts to show that you are committed to turning a profit in both intent and action.

Reporting 1099s and payments to other music professionals

If you’ve paid individuals $600 or more for services rendered during the tax year, you are required to issue them a Form 1099-NEC and report these payments to the IRS. 

This could be money you shared with other band members from concert revenue, or fees you paid to session musicians, producers, engineers, photographers, or graphic designers. 

Keep accurate records of payments made to other individuals and obtain their tax identification information (Social Security number or Employer Identification Number) as early as possible to fulfill your reporting obligations. You don’t want to be frantically contacting these people in the days before your tax filing is due. 

Understanding Depreciation and its Application to Music Revenue

Depreciation allows you to recover the cost of certain assets over time. Musicians can apply depreciation to tangible assets like recording equipment, instruments, or vehicles used for touring, as well as intangible assets like copyrights or musical compositions. 

Depreciation can be a bit difficult to understand and calculation, and compliance with tax laws is crucial, so consult with a tax professional to determine if you have eligible assets and the most advantageous depreciation method.

Some other important tax considerations for self-employed musicians

  • Quarterly Estimated Taxes? As a self-employed individual, you may be responsible for paying estimated taxes quarterly. Failure to do so could result in penalties. So be sure to do some research to figure out what your obligations are in advance. 
  • Tax Withholding? Unlike traditional employees, self-employed workers don’t have taxes withheld from their income. So make sure to set aside enough of your earnings for taxes. You want to avoid any surprises later when tax season nears. 
  • Need Expert Advice? This article is just a general overview. Actual tax laws can be complex, and filing your taxes can be a cumbersome process. If you need help, hire a tax professional who understands all the intricacies of self-employment, so they can guide you through things like deductions, taxable earnings, depreciation, and more. 

Conclusion

Filing taxes as a self-employed musician doesn’t have to be a nightmare. 

By understanding your earnings, maximizing deductions, and staying informed about IRS guidelines, you can navigate tax season with fewer stresses. 

Remember to report 1099s as required, and put depreciation to use in order to reduce taxable income. Stay organized, keep good records, and pay for professional advice when needed. That should get you safely through tax season and back to making great music.

Happy filing, and then happier music-making!

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