42: Taxes and the Working Musician
with Tiffany Soricelli
Most musicians are functioning as freelance musicians, meaning that they have income from multiple different sources and they don't have a single employer that is sort of paying part of their employment tax. Taxes for musicians is a huge topic. Worth courses. What are some simple concepts you could talk about to help a young musician begin to orient themselves in a good direction when thinking about taxes?
So taxes as a young musician and as a full-time independent business owner, which if you are an independent musician pursuing a solo career and even if you play in different orchestras, by and large, you are self-employed, you are a business owner.
Being a business owner is, I mean, taxes and your financial system are just as important as the work that you do. It's 50-50, because doing the service and the work is half of it, but then running the business of it is the other half. And I think a lot of musicians overpay in taxes because they don't know. And I think the IRS is-- they make it scary. And there's this fear around, Well, I don't want to get it wrong, so I'm just going to pay in, or If I, if I don't do this right, if I misstep, someone's going to show up in a black suit and bash my kneecaps. But they don't, the IRS doesn't do that. And really, the financial system in America is really on our best, best faith effort. So a good faith effort. They want you to try your best. And so young musicians need to be really, really clear on what their business expenses are. And early on, a lot of times everything is coming from one place. You get paid and you're running your life from the same account. And at tax time, you look at that account and you say, What's deductible? What can I write off? I think that one of the best things that you can do early on is develop a record keeping system for your taxes, for your business expenses.
And this dovetails very nicely with understanding one's own cash flow. Where is money going? How is it going out looking at what comes in from an income side and then looking at what your business expenses are more than just once a year is one of the best things you can do.
I teach that one should reconcile their books monthly, meaning look at all the money that came in and all the money that went out, and make sure that your record keeping, whether it's pen and paper or Excel or QuickBooks, it matches what the bank says. This also ensures that you catch any fraudulent transactions. It also allows you to know in real time, Are you overspending? Are you making enough to cover your basic expense needs? And by categorizing your expenses on a monthly basis, even weekly, if you really, really want to be on top of the ball. But by categorizing it monthly, you ensure that you don't miss any potential deductions. For instance, people who cram their tax preparation in March, you know, just before the deadline in April, you don't remember what that expense was for in February of last year. Was it a business lunch or was it not? Did I go out with colleagues? What did I buy it that day? Your brain doesn't remember.
And a lot of times people just go, Oh, it must have been a personal thing, or, Oh, I'm just not going to include it, because I don't remember. However, if we were to add up every time that you had to grab a meal while working or, you know, just an expense that you picked up while running errands with your personal expenses, that is actually a business expense. All of that adds up.
And if you have the records, it just makes tax time a lot easier. So the first thing a young artist should do is build yourself a good system for record keeping. Understand, and what are your deductible expenses? Be really intentional around them. And I'm not saying go spend money because it's deductible. Now just know what expenses are personal and what expenses can be a business deduction and then prepare for your taxes all year round. You don't have to cram it in March and in fact, those that do either miss and they leave a lot of of money on the table meaning they probably over pay back to the federal government. And also if you are working that spring and you have to take a week off to cram your taxes, you're going to miss out on doing some of your best work if you're on a contract.
Kellogg:
What are the top three tax deductible categories for a working musician?
Soricelli:
People go to-- like the big ones are travel and hotels. Those are no brainers. If you're traveling someplace, then you can do that. A lot of times people are also really clear on, if you buy music, if you buy books, or equipment, or reeds, or things like that, that are instrumental to your career.
Those are really clear to where people miss, are things like, the Home Office deduction: Part of your rent? Do you practice at home? Do you teach via Zoom? What are the expenses and what's the square footage of the place that you practice? That's part of what could be deductible for you to have a home office. Also included in that is your Internet, your cell phone bill, things like that, a portion of it that you use for business. I think where people miss the most is on food and drink. If you go out for a cocktail or after a performance with the maestro, if you grab a lunch with a fellow colleague because you're in town...
Being a working musician, so much of it is networking so much of this career is just keeping those relationships and nurturing them. Why not write them off? I'm not saying that every time you go out to dinner, you should write it off, but if you are meeting with friends who are colleagues who work in this industry, it might not result in in a contract immediately today, but those over time are just as instrumental to your business as your, your music and, and stuff like that. So I think the biggest thing is, is looking at what are the possible-- being aware and knowing what are the deductible expenses. That way as you're going through your month, you can have a system for capturing those expenses as they come up.
The whole thing about being a young musician and having money is something that we have to engage in regularly. It's not just something we think about during tax time. It's something that we're always aware of and we're always looking at understanding one's own income sources and, and outflows. The more we engage on it, the more we think about it, the more that we look at our numbers and the better handle you'll have. You know, it's, it's a practice. It's a muscle just like anything else. And it's just something that being a business owner is just part of the day-to-day.