“Hey, I’m a musician! Do I really need to pay so much in taxes?!”
Working with a variety of artists as I do, I find that despite their different musical profiles and goals, concerns about taxes are one thing that all musicians have in common.
So I thought I’d put together answers to some musician tax FAQs, as well as tips and tools for musicians looking to optimize their tax payments and savings.
Disclaimer: This article is not a substitute for professional advice from a certified tax preparer, CPA or lawyer. Its intention is to provide helpful hints to professional musicians like you on how to cope better with tracking and reporting income and expenses related to music, so you can get to keep more of your hard-earned money.
What Music Income is Taxable?
Musicians’ income often comes from a variety of sources, including live performances, recording sessions, songwriting and publishing royalties, licensing fees, music lessons, and merchandise sales.
What musicians need to remember is that income tax is calculated on net income, in other words, income after music-related expenses have been deducted. This means that keeping an accurate record of music-related expenses can help a musician bring down the total amount of taxable income significantly.
For example, a smart musician who uses DeNovo Agency’s expert music marketing services to (at least!) 10x the reach of their music can additionally benefit by writing off agency fees as a tax-deductible music expense!
Importance of tracking music business expenses
Retaining receipts and other proofs of expenditure is absolutely critical for musicians. When claiming tax deductions, be it on music instruments, touring or production-related costs, it is essential to have evidence to back up the legitimacy of these claims.
Musicians should carefully document everything that represents a music-related expense, including but not limited to the following:
- Music instruments, production gear, repairs to instruments and equipment
- Purchase and maintenance of computer, laptop, tablet or other electronic devices used strictly for music production
- Licenses and subscriptions for music-related apps, plug-ins and background audio
- Rent or lease of studios and other recording facilities
- Rent, lease or purchase and maintenance of office space used strictly for music-related activities such as production, promotion or music teaching)
- Hire of production crew – vocal and instrumental talent, technicians, sound engineer and other professionals
Music promotion and performance
- Tour-related: travel and transportation, stay, meals
- Event-related: rent or lease of venue, equipment (lighting, sound, back-up power), props, costumes and special effects, advertising costs, hire of stage crew
- Marketing and distribution-related: Agency and consultant fees
Music-related professional development
- Tutorials, workshops, courses related to a musician’s own or closely related genres
- Books and audio related to music production, promotion or performance
- Membership of professional organizations like ASCAP or Country Music Association (CMA)
For an in-depth breakdown of different music-related expenses that may be claimed as tax deductions, check out this blog from a certified CPA with music industry expertise.
Tip: Tax experts advise retaining copies of promotional fliers and posters as well as photographic and video recordings of live and studio performances, as these can be used to verify details of claims during an audit.
Income tax rate for musicians
The IRS considers income from music to be taxable if profits (income minus expenses) exceed $400. This includes earnings from composing, performing or producing music, music-related product sales (tracks, albums, promotional merchandise like souvenirs and clothing), royalties and licensing fees.
In 2024, the taxation rate for musicians, that is, the federal self-employment tax rate is 15.3%. This might seem steep compared to the income tax rate of 10% for employees in the below $9.950 earnings bracket.
Remember, however, that wage-earners’ income tax climbs steeply. For those earning from $10K to $40K, the rate is 12%, and for those earning above $40K, it is 22%. In contrast, as a musician, your income tax rate will hold at 15.3% all the way up to $142,000!!
Tax Requirements and Forms for Musicians
But first, let’s take a look at the paperwork behind music taxes. First off, we’ll take a look at basic requirements for artists filing their taxes. The next section will walk you through the tax forms relevant to a musician.
EIN, TIN and other requirements for music taxes
One of the first questions musicians face when sitting down to do their taxes is, “Do I need an EIN, a TIN or any other special ID?”
Musicians filing taxes as individuals or band members can use their Social Security Number (SSN) as the Taxpayer Identification Number (TIN). An Employer Identification Number (EIN) is required only for musicians in registered partnerships, LLCs or those whose music business has employees.
Tax forms for musicians
1. Form W-4 and Form W-2: Employee musicians
If you’re a musician employed by an individual or organization, chances are that you’ve already filled out a W-4 to let your employer know the correct amount of federal income tax to withhold.
The revised form W-4 (from 2020 forwards) doesn’t allow ‘personal exemptions’, but you can still claim allowances based on the number of your dependents, professional expenses listed on Form 1040, as well as medical expenses amounting to over 7.5% of your total income.
Based on the information you provided on the W-4, you should receive a form W-2, typically before January 31st each year. This lists the actual federal income tax, social security and Medicare taxes withheld from your pay. When filing your tax return (Form 1040), it is necessary to attach a copy of your W-2.
2. Form W-9 and Form 1099-Misc/ 1099-Nec: Freelance artists aka ‘independent contractors’
Freelance musicians in the US should receive a form W-9 whenever billing amounts exceeding $600 for music-related services. They should later receive a form 1099-MISC or 1099-NEC from the respective payer before January 31st of the relevant tax year (e.g., 01/31/21 for payments made in 2020).
The purpose of form W-9 is to provide your SSN (Social Security Number) or TIN (Taxpayer Identification Number) to the person who hired you, so that they can provide a record of payments they made to you to the IRS.
Anyone paying over $600 for music-related services is required to send the payee (musician) a form 1099-MISC, or its equivalent, the new 1099-NEC (used by the IRS from 2020 forwards to track ‘Non-Employee Compensation’ payments). Any amount withheld by a payer for tax purposes should be reported on form 1099.
Pro Tip: If using a tax filing service, ensure that it is ‘modernized e-filing’ or MeF compliant by using the IRS’ approved service provider list. Avoid stiff penalties for Form 1099s filed late (up to $110 per form post 31st January) or unfiled forms (up to $550)!
3. Form 1040, Schedule 1, Schedule C and Schedule SE
Form 1040 is the main form for filing individual income tax returns in the USA. This form is common across employee musicians and freelance artists.
Employee musicians need to report their earnings (from form W-2) on line 1 of form 1040, while freelancers or independent contractors are required to report earnings on line 8 (from Schedule 1, line 9).
Freelance artists must typically file Schedules C and SE in addition to form 1040 and Schedule 1.
Musicians can use Schedule C to claim tax deductions against music-related expenses, including studio/office rentals, equipment and maintenance costs, travel and meal expenses, professional payments, as well as costs of music memberships, fees and licenses.
Schedule SE is the main form for reporting self-employment tax paid by independent contractors in a wide variety of fields, from music to plumbing to agricultural occupations.
4. Form 8829
Many of our clients use a part of their home as a studio and/or office for professional, music-related activities. As such, form 8829 is an important component of tax filing for such artists, wherein they can claim the correct amount of tax deduction against their home office expenses. Allowable deductions include rental and utilities costs, as well as repairs and other maintenance.
Tax tips for musicians in bands
Experts recommend that a musician forming a band with two or more members should register it as a partnership or an LLC. By doing so, the artist shares responsibility for filing taxes with the other members of the band.
5. Form 1065, Schedule K-1, Schedule E And Schedule SE
When a musician enters into a partnership with one or more fellow artists, whether a registered partnership or an LLC, filing taxes on music income requires an additional set of forms. These forms cover the reporting of group income as well as individual income and expenditure.
Bands registered as partnerships or LLCs must file one Form 1065 for reporting cumulative earnings. Individual band members must additionally file a Schedule K-1 for individual earnings, Schedule E for business income and expenses, and Schedule SE for self-employment tax.
Filing taxes on band performances
The law requires tax reporting for each event or performance given by a band. This requirement holds irrespective of whether the band turned a profit or made a loss on a particular gig.
For band performances, event organizers typically release a single lump sum payment to the lead member, along with a single Form 1099. Band leaders must then report the entire earnings on their individual tax return, claim deductions for the other members’ payouts and issue separate 1099s to each.
How to Track Music-Related Income and Expenses
As the first section emphasized, musicians are taxed on net income, that is, total music income minus expenses. Laid out below are some helpful tips and tools to help artists keep accurate track of where their hard-earned $$ come and go. By following the guidelines here, an artist could easily save big bucks come tax time!
Keep in mind, though, that only a certified tax preparer or CPA experienced in working with music industry professionals can advise you on how to optimize your tax savings in ways that are customized for your unique tax situation.
That said, an artist is in a much better position to navigate tax filing and deductions claims if s/he has already laid in the prep. in terms of records of actual mileage, meal expenses, cash payments, and so on.
So, here are some income and expense-tracking strategies for the smart musician.
Use apps for smart monitoring of music income
Many musicians have been misled into believing that cash payments and income from small gigs are not taxable.
A common misconception among musicians is that small gigs that pay under $600 as well as cash payments are not taxable. According to US tax laws, income generated consistently (typically 3+ years) from music is taxable, irrespective of individual amount and method of payment.
Since cash payments are also taxable, it is highly advisable to develop a system for tracking incoming and outgoing cash. Use free apps like Google Pay and Venmo, which maintain a history of your music-related payments.
Per Diem rates (PDs) vs. actual expenses
A common question among musicians pertains to travel expenses: Should they use the standard, per diem rates set by the IRS, or save the actual receipts for expenses such as meals and gas?
The short answer is: It depends. (The tax deductions you can claim will depend on many factors, including the length of the trip, your car’s age, etc..)
The full answer: Hang on to those receipts, anyway. Work out the optimal strategy for claiming tax deductions after consulting a qualified tax professional.
IRS rule: “Ordinary” and “Necessary”
When claiming expenses as tax deductions, keep in mind that the IRS applies the thumb rule that they be “ordinary” and “necessary” for your professional activities. So, while claiming up to 80% of your home internet and utilities costs as your home office expenses would be likely counted as reasonable, hosting a lavish dinner at an upscale restaurant might not.
Taxes for musicians on tour in the US
Tracking and filing taxes can get (even more!) complicated for artists on tour. The example below illustrates how tax filing and tax planning might pan out for touring musicians.
Music taxes for solo tours
Say, Jane Bass of New York state goes on a solo tour through multiple US states. Here is what her tax-related activities for that year might look like:
Federal tax compliance
- Income tax: File annual federal income tax returns, reporting income from all sources, including music performances, merchandise sales, royalties, etc.
- Self-employment tax: As a self-employed individual, pay self-employment tax (Social Security and Medicare).
State tax compliance
- Home state (New York): File a resident tax return in New York, reporting all income, regardless of where it was earned.
- Other states: May need to file non-resident tax returns in states where performances were held, depending on each state's tax laws. This often depends on factors like the amount of income earned in the state and the number of days spent there.
- Local taxes: Some local jurisdictions might have their own tax requirements (e.g., city taxes).
- Collect and remit sales tax on merchandise sold at venues in states with sales tax. This can vary widely by state and locality.
- If Jane hires anyone (like a manager or technician), she may have to withhold and pay employment taxes.
- Jane must maintain detailed records of income and expenses. Expenses related to the musical tour (travel, lodging, equipment, etc.) may be deductible.
Taxes for bands on tour
Laid out below are some broad guidelines for the tax obligations of a band on tour in the US:
- A band must follow tax filing procedures appropriate to its tax status – Is the band registered as a partnership or an LLC? Or are all band members filing as self-employed, independent contractors
- Once the appropriate filing status is clearly determined, each band member must then file federal income tax returns either as self-employed individuals or as partners.
- Members may additionally be required to file state tax returns in their respective home states (see the Jane Bass example above)
- Bands must additionally file state tax returns wherever applicable in states where income was earned through performances
- Sales and local (city) taxes must also be filed as applicable
- Procedures for withholding taxes must be followed similarly to those for solo musicians, wherever a band employs personnel while on tour
- Finally, record keeping requirements are similar for solo artists and bands – detailed records of travel, stay, meals, equipment hire, venue billing and so on must be maintained
US states’ non-resident tax requirements: Ready reckoner for musicians
Across the US, tax laws differ significantly from state to state, especially concerning non-resident income. For example, some US states do not have separate state tax filing requirements, while in others, filing requirements depend on factors like the amount of income earned in the state and the number of days spent there.
It is crucial for both solo musicians and bands embarking on tours to seek guidance from a tax professional, especially one familiar with the entertainment industry and multi-state tax issues. Advance planning is essential to ensure compliance and optimize tax strategies and savings.
That said, the table below offers a rough guide to musicians planning tours on their likely tax obligations across different US states.
|Non-Resident (NR) State Tax Filing Threshold*
|US States Where Applicable
|No state tax
|Alaska, Florida, Nevada, New Hampshire✝, South Dakota, Tennessee✝, Texas, Washington, Wyoming
|Colorado, Idaho, Illinois, Kansas, Kentucky, Louisiana, Minnesota, Mississippi, Missouri, Montana, North Dakota, Ohio, Utah, West Virginia, Maryland, New York⚘, Virginia
|Connecticut, Massachusetts, Rhode Island, New Mexico
|Maine, Delaware ($2,000), Hawaii ($2,200), Wisconsin
|Indiana, New Jersey, Oklahoma, Oregon
|Pennsylvania ($33), Vermont ($100)
✝New Hampshire and Tennessee do not levy tax on income, but only on dividends and interest
⚘California (variable, typically over 45 days) and New York (183 days) have minimum stay requirements for filing state taxes
In the words of the sci-fi writer, Raymond Fisher Jones, “Next to being shot at and missed, nothing is quite as satisfying as an income tax refund.”
Hopefully, this post helps you make yours as big as it can get, but there’s one other important secret to getting a bigger tax refund — get bigger checks for your music to begin with! To explore how the DeNovo Agency can help you maximize your musical footprint through a zero obligation, no-strings consult, drop us a message.