Tips for self-employed musicians filing taxes

Tax season is stressful for everyone, but even more so if you’re your own boss for the first time. This guide will help get any professional musician through the treacherous process of filing taxes in 2024…

by Chris Robley of the ReverbNation Blog

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: 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.

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.

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!