From the course: Taxes and Accounting for Music
Join today to access over 22,600 courses taught by industry experts or purchase this course individually.
Is music your hobby or your business?
From the course: Taxes and Accounting for Music
Is music your hobby or your business?
- 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…
Download courses and learn on the go
Watch courses on your mobile device without an internet connection. Download courses using your iOS or Android LinkedIn Learning app.