How to File Taxes as Self Employed for Musicians
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All musicians, music entrepreneurs, visual artist, singers, songwriters, producers, poets, performing artist, in general, need to know how to file taxes as self-employed.
For tax purposes, to comply with the IRS, an artist must consider if their art practice is a business or a hobby.
Artists often have financial losses—overhead exceeds the profit brought in by the sale of the music/artwork.
It is your duty for doing business in this country. Even if your business is a hobby or not you are obligated to pay self-employed taxes. Yes even for a hobby!
Although you must claim the full amount of income you earn from your hobby, hobby-related expenses are generally deductible only to the extent of income produced by the activity. Therefore, if you do not generate any income from your hobby, you cannot claim any deductions.
The Constitution gives Congress the “the power to lay and collect taxes.” When Tax Day comes along each April, many don’t know what to do about the income they’ve made for the year and what is owed if anything is owed to the IRS.
We pay taxes because the federal, state and municipal governments pass tax laws. That tax revenue is supposed to pay for government services. The federal government collects about the same as the state and local governments combined.
According to pewresearch.org, Individual income taxes are the federal government’s single main revenue source. In the fiscal year 2017, which ended Sept. 30, the individual income tax was expected to bring in nearly $1.66 trillion, or about 48% of all federal revenues.
It’s helpful to take a closer look at how the tax system works presently in the context of its recent history.
The act of paying taxes can be evidenced all the way in the history through the story of Moses. Jesus even gave his thoughts on the act of paying taxes. You can read the passage here. Bottom line is EVERYONE who receives income pays.
Do Musicians Pay Taxes?
Yes, if you’re in a country that requires it, all musicians should pay taxes… If however, you’re an independent musician, you will need to sort paying taxes out by yourself.
In most countries, music isn’t one of those things that are tax-free.
The federal government expects you to report ALL of your income from ANY source when you file your taxes.
That includes the income from all of your gigs – if you’ve earned at least $400 in total from them – and from any “regular” job you may have.
Most visual artists are considered “self-employed” in regards to filing their taxes. … All these forms are part of the year-end 1040 income tax filing.
As a self-employed artist, you will usually be required to pay estimated quarterly taxes using Form 1040-ES if your Federal tax liability is over $1,000 for the year.
What Does The IRS Do If You Don’t Comply With U.S. Tax Laws?
- They encourage taxpayers to self-correct their returns and comply with their tax obligations.
- They will forcefully apply both civil and criminal sanctions, including prosecution and prison sentences, against those who persist in violating the tax laws.
According to the IRS, taxes benefit everyone and you must do your share in this country. If you aren’t complying, read this pdf from www.irs.gov about the consequences of non-compliance of the U.S. tax laws.
All you need to do is check out these 13 music artist/musicians who didn’t comply with the IRS.
Self-Employed vs. Employee
The self-employed sector is growing. From 1989 to 2016, the U.S. workforce has more than doubled.
About 50 million workers in the U.S. are self-employed. Americans are finding they love the control, independence, and freedom from the routine that being self-employed gives them.
Self-employed customers work for themselves and provide a service or a product to another individual or a business. Most work part-time and full-time W-2 employment.
The IRS requires us to file as self-employed or as a business, because we have income, TurboTax will generate the correct forms for filing your business.
The self-employed are often paid with:
- 1099-MISC form (instead of a W-2) especially with box 7 income.
- 1099-K form for Payment Card and Third Party Network Transactions. Those who receive a Form 1099-K (Payment Card and Third Party Network Transactions) are sometimes confused about what this form is and if they need to enter it into TurboTax.
- Cash, often without any tax form received and they may keep their own records concerning their payments. Many use QuickBooks products to track this information!
Examples of self-employment income include:
- On-Demand service like Uber, Lyft, Task, Rabbit, etc.
- Freelancers/consultants/independent contractors
Anyone with even a serious part-time e-commerce/online business they’re running on the side is going to be getting an 1099 every year about this time.
If you are self-employed and haven’t been paying income tax on this revenue, you need to learn about self-employment tax.
That’s the type of tax you’ll owe on your online income or any income you made while self-employed in any industry market.
The major differences for self-employed files are:
- No taxes are taken out at the time of payment because the filer is not employed by anyone. They are their own business.
- They pay an additional tax called self-employment tax, which will cover social security and Medicare tax.
For the self-employed base, about ¼ of them will owe taxes.
This will calculate in TurboTax and will affect the tax due/refund amount differently than a w-2 employee’s return with no self-employment.
When tax time rolls around, you can hear the collective cry out of all the self-employed people whether online or offline who have to start sorting their financial records and finding out just how much they’re going to have to pay the government this year.
Chances are that even though you operate an online business, you’re feeling pretty much the same way as the dreaded tax season approaches.
However, there are some facts about your taxes that might help simplify your distress and you can do it without having to hire someone else to handle your taxes for you. You can do it yourself!
Myths about Doing Your Own Taxes!
A professional tax adviser may help in certain situations; in many cases taxes can be fairly simple.
If you’ve never filed your own taxes, you might be scared off by all the mystery and complication that seemingly surrounds the process.
However, like many things in life, once you’ve filed your own taxes once, a lot of the drama vanishes. Hiring a professional may not have the effect you think in terms of audit protection or liability.
Here are some myths about doing your own taxes.
1. Taxes are too complex!
The media makes taxes seem complicated by quoting politicians demanding reform and referencing just how many volumes the tax code fills.
In reality, the majority of taxpayers don’t have to worry about most of the tax code, which applies to very specific situations.
Although times are changing, most American taxpayers still hold a “traditional” job, work for an employer, and receive a W-2 filled with tax information at the end of the year.
While you shouldn’t avoid itemizing if you have the necessary expenses, for most taxpayers this isn’t an issue—more than half of all taxpayers don’t even itemize deductions, using the standard deduction instead. This makes doing your own taxes a much simpler process.
For the self-employed, you can follow the instructions which the Internal Revenue Service provides annually for free. You can list your income, subtract your deductions and credits, and arrive at the correct amount of tax you owe all on your own.
If you feel better getting a second opinion, an online or software-based tax preparation service like TurboTax can provide all the help you need as a musician. TurboTax has specific products for the self-employed online or you can buy the cd/download.
TurboTax even lets you speak with tax professionals like CPAs, EAs and tax attorneys for free by phone or live chat, in the event you run into any questions.
2. The thought that you will get audited!
Doing your own taxes in and of itself doesn’t make you more likely to be audited. Similarly, having someone else do your taxes doesn’t necessarily make it less likely that you’ll be audited.
Since the IRS can’t possibly review in detail every single tax return it receives, it has a series of triggers that flag suspected returns for further review.
If your return carries any of these red flags, it might not matter whether you did your taxes yourself or used the highest-priced accountants you could find.
Professional tax preparers may be less likely to make certain errors since they are more familiar with the tax filing process in general, but hiring one is no guarantee you will be shielded from an audit.
When you use TurboTax to prepare your taxes, you automatically gain access to their Audit Support Center and can talk to their tax professionals year-round in the unlikely event you are audited.
3. You think you don’t have to file!
Some taxpayers believe that if they don’t make enough money they don’t have to file a tax return. While in some cases this may be true, they are considerably rarer than you might imagine.
From a direct income perspective, you have to file a tax return for 2017 if your gross income is above $10,400 for single filers or $20,800 for married taxpayers filing jointly.
However, many other factors come into play when it comes to filing. For example, if you earn any self-employment income, you’re responsible for filing a return as soon as you earn just $400.
If you qualify for various taxpayer credits, such as the earned income tax credit, or if you had excess money withheld from your paycheck, you should file a return no matter what your income. You can’t get money back from the IRS if you don’t file a return.
Let’s face it and not run from our truth! Tax season is here, and whether it’s your first year in business or your tenth year, it always feels like there’s an endless list of tasks to get through to file your return.
If you live in the US, TurboTax step-by-step software will help you get organized so you can get a jump start and file your tax return well before it’s due which is April 17 of each calendar year unless you file to get an extension then you have until October of the same calendar year.
How to File Your Taxes for Musicians
1. Get Organized And Know Your Tax Obligation
That means that the IRS considers your gig work to be a business, and there are two types of federal taxes you need to pay on the money you earn from your performances, the classes and lessons you teach, and the music and arrangements you create:
- Income tax
- Self-Employment Tax
Knowing how to stay organized to file your taxes correctly will save you plenty of headaches and the threat of an audit!—down the line.
As a musician, you can feel overwhelmed by needing to go through the seemingly endless piles of paperwork. Just know you don’t have to go at this alone. Fortunately, there are plenty of tips, tools, and resources that can make the process a little more painless.
For example, Intuit the parent company of QuickBooks and TurboTax has software specifically for the self-employed musician to assist in getting your bookkeeping up to date and getting your receipts in order.
If you haven’t done so already, it’s time to go paperless. Storing your receipts online, tracking miles, income & expense, invoice & payment, tax deductions, and tax checklists will save you from a mountain of paper to sort through come tax time.
The QuickBooks Self-Employed tool will help you organize your bookkeeping the paperless way.
Subtract your total gig expenses from your total gig income to determine your net income. It’s the net income that you’ll pay the self-employment tax on.
You can and should subtract (“deduct”) normal expenses from the income you receive from your music business.
A “deduction” is an item that can be subtracted from the income you earn before you pay taxes on that income, such as the goods or services (“expenses”) you need to buy in order to run your gigs.
Remember that you need to have some income in order to deduct the expenses. Check with your tax advisor or if you decide to DIY, TurboTax will make sure you are getting specific deductions for your line of work.
Some instruments aren’t deductible but you can reduce taxable income by depreciating the instrument instead. Read How to depreciate your instrument to reduce taxable income- Tax tips for musicians.
Before you roll up your sleeves and go cross-eyed looking at a bunch of digits, it’s smart to first decide what method you’ll use to tackle your taxes: Will you do it yourself, or will you recruit the help of an expert?
Like I stated before, it’s definitely possible to file your taxes on your own—as long as you’ve kept your records organized and are prepared to do the necessary work.
TurboTax lets you speak with tax professionals such as CPAs, EAs and tax attorneys for free by phone or live chat, in the event you run into any questions.
If you decide that you will DIY you will need to find a reputable software company to assist you with filing your taxes.
4. Choose The Best Product For Your Business Needs
TurboTax Online Home & Business is now TurboTax Online Self Employed.
With the TurboTax Online Self Employed product, you can file self-employed taxes for free.
You can learn how this product helps you as a musician here.
These changes were made in an effort to make the filing process and running a business easier for the self-employed filer.
As an Online music entrepreneur, I personally use the TurboTax Online Self Employed and I love it!
Read this TurboTax Online Self Employed Review I wrote for all the benefits of this package.
Check out TurboTax’s Musician’s Guide to Taxes to get even more tips to file your taxes specifically for your line of work.
5. File For An Extension If You Need To.
Let’s face it—sometimes life happens. Despite your best intentions to stay ahead of the game and get all of your tax information submitted by the deadline, you’ve realized there’s no way you’ll be able to make it happen.
And, failing to meet that end date can result in some pretty costly penalties.
Fortunately, the IRS is willing to cut you some slack every now and again—meaning you can file for an extension to give yourself a little more time to look everything over.
TurboTax can help you with that too! Are you thinking about how to buy some time for your business? Here’s everything you need to know about how to file for a tax extension.
Tax time can be enough to beat fear in the hearts of musicians/artists etc. The steps above will help you file self-employed taxes free to get started
Taxes might not be the stuff of our music entrepreneurial dreams. But, they need to be done—and they need to be done right.
Use this information to your advantage and you’re much more likely to tackle your first tax time as a musician with an organization, strategy, and as less confusion as possible.
Don’t forget to read this article for more tips on filing income taxes online for the self-employed musicians!
I hope this article inspires you to be more organized and take your music business more seriously to maximize the benefits of being financially free one day. Need ideas to make more money as a musician? Read my article 24 Ways Music Artist Money!
If you would like to give your thoughts on the self-employed for musicians taxes leave them in the comments form below.
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