Getting Paid

[Zed]

Our band is getting more and more paying gigs and need to determine the best way to handle that. It's not going to be any huge amount of income, mind you, but enough that some issues start surfacing. Like if checks are involved, who are they made out to? How is it all properly reported... are the band members employees? I can see things getting messy real quick like.

Just wondering how you handle it.

[JDARTGOD]

If it gets that "big" and will likely stay that way, treat is like a small business. Somebody will have to be "the boss", the rest are employees. As far as taxes go, treat your taxes like another member of the band. Let's say the band consists of you and 3 other people and you all split the money equally. You play a gig and get paid $500 bucks. Each of you get $100 and you put $100 away to cover the taxes. As far as how you file and where you can get breaks/find loop holes, swing by H & R Block (or similar) and they'll tell you what to or what not to do.

[sbarnes]

i've been doing this for years and years (and years and years)....i treat it like another job and report income and pay the taxes on it BUT the good part is ALL (well, most anyway) music related expenses become deductible....need a new mando - write it off...need to finance that new master model - write off the interest....need a new truck to haul that stuff around - write it off...
the kicker is to keep good records - mileage (also deductible) to and from rehearsals and gigs, meals while 'on the road', certain clothing expenses are deductible....
keep records - individually -
some of our members do not report this income and are obviously taking a chance with the irs

[Rob Powell]

Back in the day, I used to be the "accountant" for the band I was in. All the checks were made out to me and I paid all the band members by check (even when we were paid in cash.)

When they got their check, it was for their split of whatever was left after the gig expenses and my tax liability. They didn't need to report it since I did and my taxes were covered.

So they would get some tax benefit from it (like sbarnes says) some of them reported the income up to whatever they wanted to write off.

Now this was easy cuz we weren't going to make enough money to put me in a higher tax bracket...harder to figure if it's a boatload of cash!

[GTison]

IRS says all income should be reported.
BUT... some things are considered a Hobby. If you arn't really making money at it. I'm not sure they even want to know. It's justa pain of paper work etc. But if this is how you want to take care of it. Keep good records of expenses. Go ask an accountant to get good advice.

[Atlanta Mando Mike]

One person can get the checks, use his SS# when needed as a tax ID. At the end of the year give all of the band members 1099's with what they made. Everybody is taken care of that way. You don't even have to actually set up any kind of business, just treat it like everyone owns their own sole propreitership(sorry about the sp)

[Frankmc]

Our band thought we were doing the right thing by forming a Corporation.It was great. All the benifits of the big leagues. We gained a following by constant touring while getting our salaries,recordings, equipment, vehicle/trailers, insurance etc, etc,--- we never ever once thought about what an ugly divorce could do the Company. We would've been fine until she got the IRS involved, not for improper tax filings, but for not behaving as a Corp. We allowed her husband to be put in compromising postions, we did not allways have a meeting or records when we traded or upgraded equipment etc.. this allowed them to "pierce the veil" of the Corp and it went downhill steep from there. So whatever you do, before you do it, pay the money and get some legal advice.

Frank

[jlb]

Big corporations find ways to rip us all off, so you should too. #Write-off everything...EVERYTHING! #CDs, strings, pickles, gas, pixie-sticks, tiger-balm, flowers for your wife, motrim, 2 X 4s...and best of all, mandos! ...just about anything you can think of, you can say, "Well, I got it on my way to or because of a gig!" #Just stay smart and keep those receipts!

[Zed]

Thanks for all the input, everyone. I think i'm seeing that it's going to be snarly enough to have a chat with my accountant about it. My computer company is already incorporated so i'm used to the protocol there. I just thought if there was an easier way to handle the taxes... (now there's an oxymoron for ya!)

[steve in tampa]

Don't forget to deduct your expenses like strings, equipment, depreciation on equipment etc. Work all the angles that you can. An "S" corporation can operate at a loss for 3 of 5 years. (hobby exeption). There are some easy and interesting ways to keep more of your money yours.

[Rroyd]

The simplest way is for everyone to be paid separately by the employer. #Each player provides his or her social security number and is paid as an individual employee. #That way one person doesn't end being responsible for taxes on the entire income generated by the group. #(A friend of mine had a lounge band, and sitdown jobs lasting for months at a time. #His SS number was the one on file with the club owners, and after the first year, he received notification that he was responsible for taxes on about $60,000, which had been divided four ways. #Needless to say, the band immediately changed the way the finances were being handled.)
Explain up front how you expect to be paid; usually no one has a problem with doing it that way. #(Even though you are working as a unit, it is really not much different than several people working side by side on an assembly line putting together a car. Their end product is a vehicle; yours is musical entertainment.) If they do, play someplace else!

[solerydr]

Keep the reciepts for gas to gigs as well as oil changes on every vehicle used to get there.
P.S. cool tunes on soundclick I left a message on your message board.

[Rroyd]

A couple of other comments, also. There is something described as a "hobby business" by tax preparers, which would apply to those doing the weekend gig, or the occasional party. You can do the usual deductions as mentioned in other posts, but as I recall, it has to generate enough income to make the business seem viable. You can't make $300 a year and write off a $15,000 mandolin and a new van to go to the occasional gig. You also can't write off all the vehicle expenses unless you don't use it for anything else. You can deduct
a percentage of expenses (repairs, etc.) if you account for how much it is being used for your hobby business. If you put on a 1000 miles a month on it, and 250 miles of that are music related, then 25% of maintanence, repairs, and so on are deductible, as well as gas for gig travel. Your accountant could certainly fill you in on the options available, and then you could decide how best to handle the band business

[TommyK]

I think I'd be careful calling anyone an 'employee'. There are certain resonsibilities the employer (the guy that receives the money and disburses 'payroll') has, like FICA, not just deducting the employee's portion, but do all realize your employer (the guy you work for at your dayjob) also pays half your FICA? i.e. your paystub says $100.00, your employer cuts a check to FICA (IRS) for $200.00! This doesn't even include MEDICARE. I'd hate to be on the end of that IRS bill!
You'd better get a good ACCOUNTANT! Forget the lawyers. They don't know spit (most of 'em) about taxes.
Ask about Limited Liability partnerships. I'm not an expert here, but I believe it insulates the individuals from financial problems of the onlyone partner and no one is considered an 'employee'. If the group purchases equipment, then it may not be the best idea. Get a good ACCOUNTANT. It'll cost you money, but better to write a check to the bean counter than be indebted to the IRS... I know I've been there!

[Zed]

I think I'd be careful calling anyone an 'employee'. There are certain resonsibilities the employer (the guy that receives the money and disburses 'payroll') has,
Exactly. The very reason i do not have or want any employees in my computer biz. Things get waaaaay complicated then.

[JiminRussia]

There is always the "Contrsct Labor" way to go as well. I am not an Attourney (but I play one on the internet) but I am contracted labor in my work (Telecommunications). Construction companies, Telcoms comapanies, Private Seurity companies, Taxi-cab companies, all of these use contracors for their labor force, why not bands? No benefits to pay, no unemployment insurance to pay (you thought that only the employee pays for this? HAH!), no liabity for Workmans Compensation. NO wories about lay of notices and probable ause for termination (Just ire them!) It's as close to slave labor as we can get! Get on the bandwagon (no pun intended).

[mando bandage]

Talk with your accountant about taxes, but talk with your lawyer about business organization. Most states have limited liability company laws, which is an attempt at the best of both worlds: limited liability for the members, and partnership tax treatment. Another advantage to an LLC is that the formalities are much less rigorous than corporate form, so you won't get burned for not having your minute book up to date.

Good luck

R

[TommyK]

Another thing to consider:
I gathered from one post that the 'paymaster' received payment, reported it as income and paid taxes. Then disbursed the 'earnings' to the members, thinking the taxes were already paid.
WRONG! Remember you're dealing with the IRS. They don't miss a chance to collect. http://www.mandolincafe.net/iB_html/non-cgi/emoticons/mad.gif They're gonna want tax on the member's income as well. Make sense? http://www.mandolincafe.net/iB_html/non-cgi/emoticons/tounge.gif Of course it doesn't you're dealing with the US Government.
Best watch your back on this one.

[Tom C]

The best way to get audited is to write off a computer or an instrument. Even if it's legit, who wants the inconvenience unless big$ involved.

[mandofiddle]

Aside from my normal 40 hour a week filing, I file extra income as an "Independent Artist". I can't remember the form # off the top of my head. Very few of the gigs we play actually see my SS#. I think only 2 in the last year. Mostly we get paid in cash after the gig, or at weddings by personal check. We don't do anything financially using our band name. Since some band members are involved in other money-making music projects, this seems to work out best for us. Also, I have to file for freelance graphic design that I do, which also falls under this category. Our fiddle player's accountant recommended we do it this way. Also, that way if one person screws up their return, it doesn't put the rest of us in jeopardy too...

[mcashion]

As long as I keep getting paid in bar-b-que dinners, I don't have anything to worry about, do I? Bet the IRS would love the tax the value of the dinner! http://www.mandolincafe.net/iB_html/non-cgi/emoticons/biggrin.gif

[TommyK]

As long as I keep getting paid in bar-b-que dinners, I don't have anything to worry about, do I? #Bet the IRS would love the tax the value of the dinner! http://www.mandolincafe.net/iB_html/non-cgi/emoticons/biggrin.gif
They most certainly would! Maybe you can Maybe you can stop by the IRS office and dump a load of used BBQ after you're done with it http://www.mandolincafe.net/iB_html/non-cgi/emoticons/laugh.gif

[Paul Kotapish]

I play in several bands, and we do the following with all of them. All of us are independent contractors with no formal, written agreement with one another. One person in each band--usually the most organized--is the designated business person who handles all the money. All gig fees filter through that one person. He or she, in turn, disperses the (equal) shares to each of us via check. At the end of the year we each receive a 1099 form to report the income on our individual Schedule C filings for our own little music businesses. The business guy reports the total income for the band, but can demonstrate that he disbursed all but his little slice of the pie. Each of the rest of us report our slice(s) when we file our taxes.

Some of the players I work with are full-time musicians, but I have a day job and report my music income as a separate business in which I am self employed. I file a Schedule C along with my regular short or long form for the rest of my income and espenses.

I used to file quarterly taxes for the music business, but now I just have my day job deduct enough extra to cover the estimated taxes.

At tax time, I take all my 1099s from the various bands and from a few organizations where I play enough on my own to break the limit that requires them to report my income, hand them to my tax person along with receipts for all of my music-related expenses and a reckoning of how many miles I traveled and how many days I spent on the road (and some other specific details), and she does the rest. I used to do all the tax prep on my own, and it wasn't that complicated, but I find that paying someone else to run the numbers is less stressful.

I deduct all of my strings and accessories, repairs, music-related equipment (amps, preamps, mics, stands, etc.), and I depreciate all big-ticket items such as mandolins, guitars, sound systems, and so forth. If I sell an instrument that I've depreciated, the tax person has to run a calculation to figure out any tax liability. I also deduct the miles I drive to a gig where I'm hauling gear (you can't deduct most travel that doesn't involve hauling gear, but even a little mandolin is gear, so...), a portion of my phone and Internet service bills, and I take a travel allowance for room and board expenses for gigs when I am away from home. Recordings that you use for learning new music for your busines (you can define that for yourself--my CD library is mostly stuff I buy to learn from) and music-related books are also deductible, as are training expenses such as lessons and symposia.

If you use your computer for your music business, you can deduct for that and your peripherals, too. Talk to a tax advisor who is savvy about the small, individual musician for more details.

Even in a bad year with fewer gigs and more expenses I usually show a profit, but it it is perfectly legal to run a business--at any level--that loses money. The red flag would be if you deducted everything under the sun and never played enough gigs to justify calling it a business. Most music folks show profits most years, but there's nothing particularly alarming about showing a loss in a year when you invest in that Gilchrist to improve you sound and grow your music business.

Two of the titular business leaders in band I play in have been audited--for other reasons--and the way we're running the music businesses has examined and never been attacked.

Hope this helps.

PK

[Zed]

Thanks Paul.. good stuff. I guess what i have to decide is if we're going to be playing enough, making enough, to warrant going the route you have. I want to keep everything above board, but we're going to have to make quite a bit to make it worth all the hassle of tracking every little nit.

[Bradley]

How about "Hey Mr.Smith my band will play (2) $45 minute sets. We charge $750 if paid by check,or $500 if paid by Cash.The band comes out ahead,the person paying comes out ahead...and the good old IRS...well..... http://www.mandolincafe.net/iB_html/non-cgi/emoticons/biggrin.gif

I understand that in some cases you cant do this,but in the ones that you can,go for it!!

[Paul Kotapish]

How much of your cash-economy income you report is matter for you and your conscience.

Unless you are handling many thousands of dollars in cash and radically change your spending patterns, it's unlikely that your cash income from your occasional gigs will make a blip on anyone's radar.

Even if you are getting paid with checks on a semiregular basis, it's unlikely that you will suddenly become a target for an IRS investigation unless you are making huge deposits in the bank every month that you can't explain.

As far as the method I described above, it's pretty darn easy, and all of the accounting can be handled on a couple of sheets of looseleaf paper. Filling out the forms at the end of the year is equally simple and can be done with a ballpoint pen and some preprinted carbonless copy forms or on a computer. It really isn't anything fancy.

Just keep track of the gigs and how the money was split up.

CD sales and local sales taxes are a different and altogether more complicated issue. Most acoustic acts sell the bulk of their product from the stage. Ususally this is pretty small potatoes, but at some big gigs it can amount to a thousand or more extra dollars to take into account.

If you are making a real business of selling CDs from the stage, it might be worth looking into the regulations. Different states and counties and even cities have different sales-tax rates and different collection arrangements. Some of the pros I know who move a lot of product (CDs, T-shirts, songbooks, etc.) keep a little diary or ledger that records the location of the gig (city, county, state) and how much stuff the made. Every quarter they go through and do a little calculation and dutifully send off checks. Other pros who also move a lot of product don't bother. I'd estimate that most bands that aren't moving at least 100 CDs a month or more don't bother thinking about sales-tax issues.

Once you get into accounting for your CD expenses, inventory, income, and tax liability, the music business suddenly becomes a lot more like a real job.