So my accountant was doing my taxes last night and asked about side businesses (ie - my band). 2005 was really a start up year for my band and we made almost no money (nor did I spend very much). I decided to not even worry including it in the 05 form.
2006 will be a different story. We are now playing regular gigs and starting to make little cash (and spending more on equipment). I am the one that normally gets us our gigs - and have been having the checks written to me - then I split up the money to the band. I'm worried that the IRS will assume all that money went to me and I'll be taxed on it (especially for some of our summer gigs where we'll make $1,000 or more - will a 1099 get filed on me?).
What recommendations might you all have in order to start running our band as more of a business where one person doesn't get the short end of the stick?
Start a band checking account? File our band as a LLC (if that's even possible)? LOL - I am running blind here and would really appreciate some help on what we can do!
Kevin Briggs
Feb-24-2006, 11:51am
I'd set up a checking account in your band's name and report 1/5 or whatever of what you made as a group. Until you start making $6,000 or more, as a group, I don't think you need to worry about it.
Paul Kotapish
Feb-24-2006, 12:56pm
It's pretty simple, and there's absolutely no need to enter a legal partnership arrangement with the other band members unless you plan to structure the business with equity owners and underlings and so forth. Some big show bands with leaders and a rotating cast of support musicians are run this way, but if you are just a regular band, you can keep it very simple. And there's no reason why the band leader should take a bigger hit than the other band members, unless you are getting finders fees and band-leader fees and so forth. The single most important thing is keeping track of everything--all income and all distributions to band members. A simple notebook can do the trick, but computer-based accounting programs such as Quicken make tracking even easier.
Pay everyone by check for every gig, even if you receive cash for the gig. A dedicated bank account is a good idea but is not essential as long as you keep careful records and pay everyone by check. Most venues insist on a single recipient for payment, and any established promoter, club, or festival will file a 1099 is you receive more than $600 from them in a year. You will, therefore, appear to have earned all the money, but don't panic. When you file your taxes you will offset that apparent large income on your Schedule C form by entering the amounts you paid the other musicians. Different accountants handle it in different ways, but I just have a line item on my Schedule C that says Payments to Other Musicians. I fill in the total I've paid everyone else. Easy peasy. If anyone is paid more than $600 for the year, you'll need to fill in 1099s for them, too, but it's a very simple procedure and form, and because you'll be keeping such good records and will be paying everyone by check, it's easy to sort out. Ten minutes with a calculator and some scratch paper will do the job.
And remember all the deductions to which you are entitled, too. Overnight gigs entitle you to a per diem deduction. Mileage for gigs where you use your vehicle to transport stuff--instrument(s), P.A., etc.--is deductable at a standard rate. If you forget to write down the mileage for a particular gig in that little notebook, and few minutes at the Rand McNally mileage calculator Website will help you reconstruct it. And don't forget instrument, string, and accessory deductions. You can do one-time depreciations on big items or write them off over time. Your accountant can help you with that. Books and CDs that you use to learn music for your income-producing performance business can be deducted. All instrument repair expenses are eligible. Continuing education in the form of lessons and workshops might be eligible. A portion of your tax-preparation expenses is deductible. A portion of your phone and Email expenses can be deducted, although be cautious with this and keep the proportion reasonable with the scope of your business. Instrument insurance, musician's union dues, and certain other fees can be deducted, too. Check with your accountant.
Have a quick chat with your accountant for their recommendations about how to handle all of this, but you shouldn't need much more than a carefully kept notebook and a shoebox. This is a bad time of year to try to book time for advice, but a short session with a professional after April 15 will get you set up for next year.
Good luck.
PK
And because it's bluegrass..... You will probably end up taking a loss and reducing your taxable income. http://www.mandolincafe.net/iB_html/non-cgi/emoticons/tounge.gif