Join Richard Stim for an in-depth discussion in this video Finances and taxes, part of Music Law: Managing a Band's Business.
- Hopefully, you already have a simple accounting system. Some method of keeping track of income and expenses. If not, it's time to start. You can use paper, spreadsheets, or bookkeeping software applications to categorize and record income and expenses. Begin by breaking out income and expenses into discreet categories, for example, distinguish performance income, merchandise income, iTunes revenue, crowd funding payments, et cetera. Do the same for expenses, for example transportation, salary, studio rent, telephone, insurance, and hotels.
The more specifically you can categorize and track these things, the better you'll be able to make business predictions. For example, how many women's t-shirts to order before the next tour. Any simple bookkeeping system will work as long as you can track cash flow, money coming in and going out. It is also essential that you separately track when a member makes a financial contribution. For example, pays for gas on tour, as these contributions can affect the partner's ownership interest.
Any payments made to bend members should also be recorded. And of course, be sure to track cash transactions. Remember, unreported income results in harsh penalties if the IRS finds out. You should also keep documentation. Maintaining receipts, invoices, or proof of payment. You can handle this the old fashioned way, toss them in a shoe box, or the more modern approach, scan it with an iPhone and download it. Either way, accurate documentation is essential.
By the way, software applications have simplified bookkeeping. Consider programs such as Quicken, FreshBooks, or QuickBooks, or the online mint.com for bookkeeping. And look into tax tracking apps such as Expensify, MileIQ, and Evernote for maintaining digital documentation. Separate accounts. Can you keep band finances separate from personal finances? Ideally, in the form of a separate band checking account. That could simplify your accounting and tax management.
To obtain a separate band business bank account, you'll probably need a fictitious business name statement, FBN also known as a DBA statement. You'll have to fill out a form furnished by the county clerk, pay a fee, and then arrange to have the contents of the form published in a local newspaper. The county clerk will be able to walk you through the procedure. You may also need a federal employer identification number, EIN, provided by the IRS. Setting up a band business bank account will simplify your bookkeeping life.
But many bands find that bank fees and requirements burden some. If you cannot not manage a separate band business checking account, consider a credit card dedicated solely to your band business. Bands that cannot qualify for a business credit card sometimes use a personal card, owned by one member. With one card dedicated to your band expenses, you'll have less trouble downloading and calculating your annual expenses and interest. In addition, it's a good idea to pay touring and equipment bills with credit cards, as your credit card contract typically provides a method for resolving disputes with merchants.
If you're band is a partnership, here are some tax rules. Form 1065, though a partnership does not pay taxes, it must complete and file form 1065 US partnership return of income to report any income or losses. Whoever files form 1065, a partner or a tax preparer for example, must also give each band member partner a report called the schedule k one that contains all the relevant annual profit or loss information about the partnership.
Each band partner declares a portion of the profit or loss on his or her schedule e which is submitted with that person's individual 1040 form. Partners must pay taxes on profits, even if the partnership leaves the profits in the business. If your partnership is able to retain profits each year, consider forming a corporation for the tax benefits. FEIN, in order to file a form 1065 and to open a band bank account, you will need a federal employer identification number.
Refer to either as an EIN or FEIN, the business equivalent of a social security number. To obtain one, you can use the IRS' online EIN assistant. You'll be asked a series of questions for example, what type of business you are claiming, list other musical services, or alternatively you can download and mail in a copy of form SS4. Does your band have employees? If so, you'll need to calculate and record payroll taxes and the resulting deductions.
If you don't want the hassle, consider an online payroll service, such as Paychex or QuickBooks payroll services. Deductions matter. Unfortunately many bands don't bother deducting such things as professional dues, educational expenses, home studios, subscriptions, musical equipment and supplies, travel, meals, entertainment, lodging related to band work, union dues, and computers and software used for band purposes.
Deductions are especially important because if your band is a loss, more deductions than income, each of the band members can deduct this loss against ordinary income. For example, against income from a day job; something that may lower your tax bill or result in a refund.
It starts with what it means to be the manager of a band, and what types of business structures are available for bands. Once you've decided on a business structure, you can create a band partnership agreement that covers voting rights, postbreakup scenarios, new members, and terms for resolving disputes. Richard also exposes potential sources of disputes, like ownership of the band name, songs, equipment, and recordings. He includes advice on negotiating solid band contracts and managing financial basics: taxes, income, cash flow, and bookkeeping. Finally, he'll address how to protect your work, including your copyrights, band name, and songs, and explains how to find a lawyer—and save money on attorney fees.
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.
- Putting together a band partnership agreement
- Working out ownership disputes
- Limiting band liability
- Protecting your copyrights and band name
- Hiring a lawyer