| The best idea is to find a professional to do your taxes!
Some of the things I was told by my tax preparer that I could do:
1. Depreciation of equipment over five or ten years. This assumes that
the value is zero at the end of that period. But: if you sell it at
any time for *more* than the depreciated value, you are expected to pay
tax on that "profit". Make sure when you get rid of stuff you give it
away for free! 8^) 8^) BTW, the gear need not have been bought that
year. The first year I filed I started depreciating *every* pice of
gear I owned based on the current appraised value.
2. You can deduct mileage on your car for traveling to gigs,
rehearsals, etc. You need to keep a mileage log. You can also claim
tolls and do not need receipts for them.
3. All expenses like guitar strings, cords, maintenance, etc. are
deductible. Also things like tapes, CDs are deductible although this
is an area ripe for some stretching 8^) (i.e. you claim every CD you
buy is so you can learn a song off it). If you take music lessons, you
can claim the cost of them, too.
For part-timers (like most of us in here), the issue is whether this is
a "business" (makes money) or "hobby" (loses money). The "rule of
thumb" is that if you can't show a profit in a certain period of time,
it's not a business. My tax person says this is almost impossible for
the IRS to prove for musicians because we never make any money anyway
8^), but it is something to think about.
So far I've been losing money as far as the IRS is concerned (good
thing I have my day job!), but it actually has saved me money on my
taxes by claiming my music income because it allowed me to take massive
deductions. Of course, once you depreciate all your gear, a major
deduction goes away. The answer: buy more gear! Yep, Uncle Sam will
subsidize your purchase.
One down side: if you are worried about insuring your stuff as a
non-professional, filing with the IRS is not gonna be ignored by your
insurance company when you have to make a claim!
The person who does my taxes was recommended by another musician who
had heard of her from another musician, etc. The advantage is
that she is used to the sort of deductions available, and she saved me
a lot of money by suggesting some things I would never have thought
about.
Brian
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| Brian's advice to see a professional is good, but be aware that most professional
tax preparers will not have any experience with tax law as it pertains to the
arts as business. I'd suggest that you try to find someone *with* this
experience before proceeding.
There are whole sections of the tax law which deal entirely with art as business,
though I've not delved into them greatly. For instance, it looks to me as if
writers can write off (sorry!) what seems like most of their living expenses
when they're "researching" a new novel. Also, there are aspects of the law
which deal with the valuation and capital gains tax on artistic works in
progress. If you're serious about treating your music as a business, looking into
the relevant tax code *carefully* with professional advice might pay off
handsomely.
FWIW:
The standard rule for profitability is that a business must show an operating
profit in three out of five years. While this is only a guide, not a
hard-and-fast rule, be prepared to make a case for why you expect to make money
if you're not doing so. I've been through an audit for another business which
can be viewed as hobby or business, and while the auditor was pleasant and
professional, recall that they *are* there to ensure that what you put on your
tax return is a fair representation of the truth. (Read: they will *not* grin
and wink if you're obviously cheating, nor should they.)
Bob
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| db,
I'll find out for sure when I see my accountant this week. I sure hope that
practice space is still deductable (between this, mileage and depreciating
equipment, I can write off most of my reported gigs)...
/Billy_K
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