When you earn your living as a musician, especially a self-employed one, tax time can present several tricky situations. These tips will help you navigate all of that red tape while keeping you on the right side of the law. There are several things you can do both during the year and during crunch time that will make filing your taxes a lot easier. So gather up your receipts, and let’s dive right into it.
1. Set Up A Separate Bank Account
With the numerous income streams that you likely have, setting up a separate bank account for work-related expenses is necessary to track what comes in from solo gigs, session work, merchandise, recording, teaching, and anything else that you may have going on. It will also help you keep track of work related expenses that may be tax deductible like travel expenses, advertising, studio hire, accommodations, and other things depending on your situation. This bank account should be used for all work related transactions and nothing else so that at the end of the year you can tally up your income and expenses at a glance.
2. Save Your Receipts
This is classic tax time advice, but you may be surprised how few people really stick to it. Remember that it’s no good to save receipts for some things and not others, or to shove a crumpled receipt into your pocket with the intention to save it, never to be seen again. Set aside a file folder to hold your monthly bank statements and all receipts for business purchases. Keep these records intact for a minimum of 3 years after filing your taxes. You’ll be thankful you did in the worst case scenario of an audit.
3. Deduct Your Expenses
Remember to deduct any applicable work-related expenses that you have incurred during the year. Be sure to check with a professional tax preparer, such as a firm of chartered accountants, if you’re not sure whether a certain expense counts as deductible or not, but here is a general list of common deductible expenses for musicians:
- Advertising costs
- Competition fees
- Professional dress rental for performances
- Accommodations on tour
- Instrument insurance
- Research expenses
- Office supplies
- Rehearsal space rental costs
- Work related travel
- Subsistence on overseas trips
4. Don’t Miss the Deadline!
Start filing your taxes early so that you have plenty of time to work out all the kinks. Filing them late is a sure fire way to rack up extra fees and fines very quickly, as well as interest on any balance that you end up owing in taxes. If it looks like you’re not going to make the deadline though, don’t panic, all hope may not be lost. You will want to file for an extension as soon as possible, which will allow you extra time to submit your paperwork.
If you follow these 4 tips, you will have a much easier time of it come tax season. All that time you might have spent pouring over receipts and puzzling out tax codes can now be spent honing your craft!