Join Richard Stim for an in-depth discussion in this video Is music your hobby or your business?, part of Taxes and Accounting for Music.
- If the IRS targets you for an audit,…one question the auditor is likely to ask…is whether music is your business, or just a hobby.…The distinction matters to the IRS as it's estimated that…the government loses $30 billion per year…in unpaid taxes…when people incorrectly claim their hobbies as a business.…Why does the government lose money?…If you're a self-employed musician,…you can deduct music losses from your day job income.…
That could reduce your taxes by hundreds of dollars or more…and may even result in a refund.…That's a substantial savings for you,…and a substantial loss for the government.…But if music is considered your hobby, your deduction is…limited and you pay more taxes to Uncle Sam.…The IRS focuses on two criteria when making a…hobby/business determination.…Whether you are actually operating like a business,…and whether you have shown a clear and reasonable…intention to make a profit.…
The IRS operates under a presumption known as the…3-of-5 rule, according to which, any business that…loses money for three out of any five consecutive years…
In this music business course, author Rich Stim covers the most important tax issues for musicians. He starts with the basics: determining if music is a hobby or a business for you and how that affects your deductions. He then discusses money and the sources that determine gross income. From there, he shows the items you can deduct from your gross income—mileage, studio spaces, touring expenses, and other miscellaneous deductions—that can add up to big savings. Next, he covers the different tax rules for individual musicians, bands, general partnerships, LLCs, and corporations, and explains how to get an Employer Identification Number (EIN) when you need one. Finally, Rich navigates through the tax forms, including Form 1040, Schedule A, Schedule C, Schedule SE, Schedule K-1 (Form 1065), Form 4562, Form 8829, and Form 2016, and provides advice on hiring a tax preparer or going the DIY route with tax software.
DISCLAIMER: This course is taught by an attorney (or other instructor) and addresses US law concepts that may not apply in all countries. Neither LinkedIn (including Lynda.com) nor the instructor represents you and they are not giving legal advice. The information conveyed through this course is akin to a college or law school course; it is not intended to give legal advice, but instead to communicate information to help viewers understand the basics of the topic presented. The views (and legal interpretations) presented in this course do not necessarily represent the views of LinkedIn or Lynda.com.
- Managing bookkeeping
- Counting income
- Claiming expenses and other deductions
- Understanding tax entities such as LLCs
- Getting an employer ID number
- Preparing and paying taxes