Taxes aren’t anyone’s favorite topic, but that April 15 deadline is barreling toward us all, and if you’re a procrastinator like me, you could probably use a few tips to take some of the pain out of all that down-to-the-wire number crunching.
TurboTax resident tax expert Lisa Greene-Lewis, CPA gave me some often-missed deductions that music industry pros—including recording engineers and live sound engineers—shouldn’t overlook.
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Top Tax Deductions for Music Pros:
Running a music business requires certain monthly expenses, which you can deduct. These include:
- booking fees for recording studios
- rent for classroom or teaching space
- utility costs for your workspace
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If your studio is in your home, the list of deductible expenses expands to:
- the costs associated with registering for a business license
- maintaining insurance
- fees associated with maintaining your website, like domain registration and monthly hosting
Other allowable deductions for your business include:
- membership fees to professional associations, like the Audio Engineering Society
- business travel, and related expenses, to functions sponsored by industry associations
- professional services necessary for your business, such as lawyers' fees and tax preparation costs
Bonus: Musical events can also be deducted! The costs of tickets, transportation, and parking when you attend other musicians' performances can also be deducted, as you are learning about musical trends.
Depreciation of Property and Equipment: If you’ve purchased property or equipment for your music business and expect it to last longer than one year, you can deduct the depreciation. However, claims regarding property must meet the following criteria:
- You must own the property, and it must be used or held to generate income.
- The property should have an estimated useful life, meaning you should be able to guess how long you can generate income with it.
- It may not have a useful life of one year or less, and may not be purchased and disposed of in the same year.
Bonus: Certain repairs on the equipment used for your business may also be deducted.
Strategies for Success: For any expenses you plan to deduct, you’ll need to keep records in the form of bills or receipts. I find it helps to keep all of your receipts in a series of folders. For example:
- Put home utility bills in one place so you’ll be ready to calculate your home office deductions at tax time.
- You may also receive a series of 1099 forms from your clients. Keep these and all other records of your income in one folder to easily calculate your total income.
It helps to review income and expenses monthly, organize your bills and receipts as needed, and ensure you’re setting aside enough money for your quarterly estimated tax payments if you are required to pay them.
Thanks, Lisa! The folks at TurboTax wrapped up their tips with their top five 2018 freelance tax questions and answers.
Am I getting all the deductions and credits I should? Which ones are most commonly missed?
The IRS reports that taxpayers claim more than $1 trillion in tax deductions each year, and still, many people miss quite a few deductions that they could possibly be eligible for. Some of the most common deductions people overlook are the value of their charitable donations, moving expenses related to changing jobs, and home office expenses. For a full list of the most commonly missed deductions and how to take advantage of them, check out the TurboTax blog HERE.
I became self-employed last year. What do I count as income and what expense deductions can I claim?
If you became self-employed this year, there are a few things to keep in mind at tax time. Any money or assets you receive doing work for your business count as income and should be reported on a Schedule C form. You can also take advantage of deductions related to your business expenses, from office supplies, equipment to auto expenses and business travel. For a full list of deductions you may qualify for look HERE and remember to keep careful records on all your expenses.
I’m a freelancer, which tax forms should I receive? Do I need to have 1099-MISC for every project?
As a freelancer, keeping track of your income can be slightly more involved than when you’re an employee as it is not summarized in a W-2. For each client from which you receive more than $600, you should receive a 1099-MISC form. Make sure you keep careful records of all your costs and income from your work and take advantage of the deductions available to you as a freelancer. For a rundown on what to look for on your 1099 and what you can deduct, look HERE.
Can I take the home office deduction and what can I deduct?
If you work out of your home, you can deduct your home office, as long as it’s a space that is exclusively and regularly used for your business. You can take the home office deduction for a percentage of mortgage interest, rent, homeowners insurance, and general maintenance based on the percentage of square footage used for your business. To look at other ways your home office can reduce your taxes, look HERE.
I heard tax laws changed. Does this impact my taxes this year?
For most taxpayers, the tax reform bill will not affect your 2017 taxes (the ones you file in 2018). However, there are a few tax provisions that have changed for this year. In particular, if you had high medical expenses or you were a victim of the recent disasters in 2017, you may be able to deduct them as the thresholds for these situations have changed. Interested in learning how your taxes will change next year? TurboTax has a detailed breakdown of the stipulations in the bill and what you can do now to prepare for next year.
TurboTax recently introduced TurboTax Live, which provides on-demand access to credentialed tax experts (CPAs, Enrolled Agents) who can answer tax questions and even review tax returns to make sure no deductions are left unclaimed. For more tax resources for freelancers, check out TurboTax Self-Employed.
Sarah Jones is a writer, editor, and content producer with more than 20 years' experience in pro audio, including as editor-in-chief of three leading audio magazines: Mix, EQ, and Electronic Musician. She is a lifelong musician and committed to arts advocacy and learning, including acting as education chair of the San Francisco chapter of the Recording Academy, where she helps develop event programming that cultivates the careers of Bay Area music makers.