So...when Does A Band Become A Business?

Discussion in 'The Sound Hound Lounge' started by campbellcj, May 19, 2015.

  1. campbellcj

    campbellcj Member

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    Specifically, at what point does it make sense to incorporate (legally) or take other steps to set up a formal structure?

    An important background data point here is that I'm inquiring on behalf of a band consisting of minors not even old enough to drive yet. They are serious musicians, picking up some bigger gigs and working on an EP as well as potential involvement in a movie project. Several of the kids seem to be on music career tracks.

    At this point the outlays are vastly more than the revenues, and obviously the parents (of which I'm one) are picking up the tabs for gear, wardrobe, production, instruction, marketing, transportation etc. It would be ideal if some of that could be a tax deduction. If there ever gets to be a net-positive income then of course taxes will have to be paid.

    I know there are many other considerations as well. Thanks in advance for any insights. (I did try to search the archives but didn't see anything on-topic.)
     
  2. Paleolith54

    Paleolith54 Member

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    I won't try to answer your question, but if you end up getting qualified advice on this you should check the premise that you pay tax on "net positive income". I don't think that perspective is shared by the IRS, at least in the absence of the kind of business structure you're asking about.
     
  3. MONSTER ZERO

    MONSTER ZERO Member

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    Same here I cant answer the tax deductions thing. I can say every paid gigging band I've been in has been treated like a business as far as paying taxes go. I've never tried to itemize music gear or travel money. I probably should look into it though.

    I'd start with registering myself as a Management Company if I was going to Manage an artist or group of people.
     
  4. Valus

    Valus Member

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    +100000
     
  5. Lephty

    Lephty Member

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    Once the starts getting 1099's with their paychecks with any frequency, it starts to make sense to set up an actual business so that you can get a bank acct. in the business name, and avoid getting all the 1099's attached to one person's SSN. If they're still getting paid in cash most or all of the time, or if they're just not making any real money, it may not be worth the bother yet.
     
  6. campbellcj

    campbellcj Member

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    Thanks All. You are correct, without a corporate structure we have this scenario - this is the exact problem I'm trying to improve upon. (Using fake round numbers as I don't know the real numbers. ) Let's say we have $25,000 in expenses during a year and bring in $5,000 in revenues. With the current setup that $25,000 is paid with after tax funds from income from other sources. So really, it costs more like $40,000 pre-tax i.e., we have to earn $40K from these other sources, then pay tax on it, to have $25K leftover to pump into the band. Then, the $5,000 in band revenues is also taxed, let's say $3,000. So we've earned $45,000 and paid $18,000 in taxes to generate a $2,000 net income.
     
  7. loudboy

    loudboy Member

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    I think entering into any kind of legal agreement involving teenage kids and their parents is just asking for it.
     
  8. pickaguitar

    pickaguitar 2011 TGP Silver Medalist Silver Supporting Member

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    The moment you accept money for your efforts op
     
  9. gennation

    gennation Member

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    Regarding the taxes, if your are taking money in and claiming it then you can show deductions. It's more clear cut if you are living off that money though. What I mean it let's say the group takes in $500. But as far as gear goes you are spending money from your "real job" to pay it, and let's say you spend $1000 on equipment, travel, expenses, etc...

    If you claim that $500 you have to justify how you spent $1000. Hope that makes sense. If you claim the $500 (and especially if it's in the thousands) and it's non taxed it's going to hit you at tax time. How much you claim as deductions is up to you, but more than likely you would either not want it to go over $500 or not claim any at all.
     

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