Working Pro Musicians: LLC, Expenses and Tax Writeoff Q'ss

[RockStarNick]

So I've joined a new cover band this year. Unlike my other cover band gigs, this one is turning out to be more like a part time job - which is great! - but there's a lot of rules that I'm learning I have to follow, when it comes to income, taxes, etc.

The band leader / owner has requested that we each form LLCs, and pay us as independent contractors. I'm fine with that - I'd have to pay taxes either way, and with this method, he can avoid treating us like "employees" that need Social Security, benefits, etc.

Here's my two biggest questions:

1. If you have an LLC, do you HAVE to use a Corporate Credit Card to make expenses that are "Write-off-able." Or can you use a personal credit card as well.

2. I know the lowdown on expensing things like gas, lodging, musical "consumables" (strings, picks). How do you write off things such as guitars? Pedals? Cables? Things that have an indefinite lifespan...

Thanks in advance so much for any and all info.

 

[Heinz57Pep]

2. I know the lowdown on expensing things like gas, lodging, musical "consumables" (strings, picks). How do you write off things such as guitars? Pedals? Cables? Things that have an indefinite lifespan....

There's depreciation involved with those, retroactive to when you bought them.

 

[bullfrogblues]

You may only need a sole proprietorship type business rather than LLC. That's the direction I went.

 

[Secret Ingredient]

A single member LLC is usually easy to form if your state allows it. Be aware that in my experience, the Federal gov. does not recognize the LLC as a business entity so you would be taxed as a sole proprietor if it's only you. In California it is a minimum of $800/year in income tax for any LLC.

 

[Lucidology]

Under 'Independent Contracter' Generally all 'expenses, accessories & repairs' will cover your gear, etc write offs …
Just keep proof of them on tact!!
Then if you are called upon to itemize a breakdown … you're also covered.

LLC's is completely different & can be a difficult situation … I'd much rather be given a 1099 …

 

[4inchjones]

So I've joined a new cover band this year. Unlike my other cover band gigs, this one is turning out to be more like a part time job - which is great! - but there's a lot of rules that I'm learning I have to follow, when it comes to income, taxes, etc.

The band leader / owner has requested that we each form LLCs, and pay us as independent contractors. I'm fine with that - I'd have to pay taxes either way, and with this method, he can avoid treating us like "employees" that need Social Security, benefits, etc.

Here's my two biggest questions:

1. If you have an LLC, do you HAVE to use a Corporate Credit Card to make expenses that are "Write-off-able." Or can you use a personal credit card as well.

2. I know the lowdown on expensing things like gas, lodging, musical "consumables" (strings, picks). How do you write off things such as guitars? Pedals? Cables? Things that have an indefinite lifespan...

Thanks in advance so much for any and all info.

Each member needing to be a separate entity seems a little extreme. Can't he set up a sole proprietorship and 1099 everybody at the end of the year? That's what my band has done the past couple years. That way each member is responsible for his share of the taxes.

Or set up a single LLC with all members included...which is what we just moved to this year.

I'm no tax or business expert though. It just seems unnecessarily complicated (and expensive) for EACH member do an LLC.

 

[jmoose]

You'll absolutely need to consult with both an accountant and an attorney to get legitimate answers, I don't believe 'single entity' LLC's are allowed in NJ and my first thought is the band leader is attempting to shuck responsibility that they're probably already setup for.

One very large rub is that if you form an LLC (or similar) your equipment will no longer be covered under homeowners or renters insurance. Since your operating as a business its no longer "a hobby" in the eyes of the insurance company. If something happens at, or on your to a gig its an out of pocket loss so you'll have to either add coverage, or find a separate company to insure your equipment.

Business credit card isn't needed to 'write off' expenses but it sure makes things easier to keep track of! Depreciation on 'capital purchases' is figured over X amount of years... not sure if it varies but everything I have is over a period of 7 years.

Again, you need to consult with a qualified attorney & accountant to get proper answers and make sure your ass is covered... good luck!

 

[RockStarNick]

Wow... ok. A lot to digest here.

So, what exactly do I need to do, in order to start operating as a sole proprietorship?

If I play a gig, get paid, and then make sure that I report the income - is that all it takes?

I'd actually prefer NOT to form an LLC if possible...

 

[Baminated]

talk to atty/cpa about starting a sole prop in another state and "doing business" in another

 

[Slideman]

Another option is to set up a General Partnership between all band members. It's easy to do and each "partner" is personally responsible for reporting their income/loss on their own personal income tax. It's a lot easier and more acceptable in most States than an LLC. Also it's flexible to determine % of income and % of loss (for write off) among each partner each year, depending on the partners that fronted $, took less income etc.

 

[RockStarNick]

The band leader is adamant against a partnership - strange, I know. But in his last band, the partnership went sour, and let to lots of head butting when it came to decision making. He wants to be the only person "Driving the bus" so to speak.

So, with that being said, his suggested solution is for each member to form an LLC.

 

[loudboy]

One very large rub is that if you form an LLC (or similar) your equipment will no longer be covered under homeowners or renters insurance.

AFAIK, the second you use anything to make money with, it's not covered. Doesn't matter what the business classification is.

To the OP - I think a sole proprietorship would be just fine, or even just 1099, as a contractor.

I use 20-30 people a year in my business, and it's all 1099 independent contractor, and I use some of them quite a bit.

You'll have to watch out for the Dept. of Labor, tho. They're realizing that there's a lot of money being left on the table and are starting to look for it.

This is mainly for your band leader, but the two main qualifications for employee vs. contractor are:

1. Does he tell you where/when you need to work and do you use his facility/equipment.

2. Are you available to work for other people.

A band definitely falls under yes for #1. Which means in the eyes of the Dept. you're an employee.

Definitely consult an accountant.

 

[morglan]

You do not need to set up an LLC to be paid as an independent contractor--the person/business that pays you simply needs to provide you with a 1099 at the end of the year. Your leader is setting it up this way so he can pay you like an employee, but withholding taxes from your check.

You do not need a 'corporate' card to pay expenses--you only need receipts for your business expenses as proof when you get your taxes done (and you will need to keep those receipts for a number of years afterward).

Guitars, strings, pedals, amps, etc are all business equipment, and may or may not be depreciable. With our business, the price limit that was set for tracking depreciable assets was $5000. Basically anything under that price is simply "expensed" that year. (For instance, if we buy a PC for $4000 it is simply deducted from income as an operating expense the year it was purchased. If it cost $5001, it gets booked as an asset and a portion of that $5001 is deducted as a business expense over a number of years--most likely 5 years.)

It's much easier to expense items than depreciate them. I suppose it could even be argued that certain pieces of gear do not depreciate as much as others--and some may appreciate.

I would not over complicate things. Save your receipts and use either an accountant or something like H&R Block to do your taxes (and nd unless you're buying vintage gear to take on the road, I wouldn't even worry about depreciation.)

 

[RockStarNick]

You'll have to watch out for the Dept. of Labor, tho. They're realizing that there's a lot of money being left on the table and are starting to look for it.

This is mainly for your band leader, but the two main qualifications for employee vs. contractor are:

1. Does he tell you where/when you need to work and do you use his facility/equipment.

2. Are you available to work for other people.

A band definitely falls under yes for #1. Which means in the eyes of the Dept. you're an employee.

Interesting.

What if:
- I'm using all my own equipment (right down to the mic and mic cable)
- the facilities are always different venues
- I do also work for other people (ie. studio sesisons)

 

[jb70]

the IRS is coming after a lot of bandleaders now- especially in NJ. i've played in a motown group since 2006 and everybody was considered to be independent contractors. earlier this year the IRS started cracking down on bands in NJ and told our bandleader that we should be employees and should've been considered employees ever since the creation of the band. all of the band members and subs had to send their tax info from the past 4 years in and the IRS randomly decided who was an employee and who was an independent contractor. for instance, i am considered an employee while the keyboard player and the sax player (both do as many gigs as i do) are considered independent contractors. one of the main singers is considered an independent contractor while one of the sub singers is an employee. it makes no *%^$# sense whatsoever! just be prepared for the worst.

 

[4inchjones]

The band leader is adamant against a partnership - strange, I know. But in his last band, the partnership went sour, and let to lots of head butting when it came to decision making. He wants to be the only person "Driving the bus" so to speak.

So, with that being said, his suggested solution is for each member to form an LLC.

That's ridiculous. If he fancies himself the bus driver, then he should be fine with taking all the responsibilities and being the sole proprietor. Sounds like he just doesn't want to bother with having to do all the paperwork.

If someone told me I had to cough up almost $400 (what my band's LLC setup fee was) to join their band, I would promptly tell them where they can shove that LLC.

 

[loudboy]

the IRS is coming after a lot of bandleaders now- especially in NJ. i've played in a motown group since 2006 and everybody was considered to be independent contractors. earlier this year the IRS started cracking down on bands in NJ and told our bandleader that we should be employees and should've been considered employees ever since the creation of the band. all of the band members and subs had to send their tax info from the past 4 years in and the IRS randomly decided who was an employee and who was an independent contractor. for instance, i am considered an employee while the keyboard player and the sax player (both do as many gigs as i do) are considered independent contractors. one of the main singers is considered an independent contractor while one of the sub singers is an employee. it makes no *%^$# sense whatsoever! just be prepared for the worst.

It most likely had to do with how many outside gigs the other guys had.

I was audited last summer and cleared, due to the fact that I had documentation from everyone which proved the two points I posted up thread. You need a website, linkedin page, or at least a business card proving you're available for other work.

If it's a band situation, you're screwed on #1.

 

[loudboy]

Interesting.

What if:
- I'm using all my own equipment (right down to the mic and mic cable)
- the facilities are always different venues
- I do also work for other people (ie. studio sesisons)

If he's providing PA/lights, you're using his stuff, probably the same for facilities...

If you can prove you're available for other work, it will factor in. You don't even have to do any.

 

[jmoose]

Interesting.

What if:
- I'm using all my own equipment (right down to the mic and mic cable)
- the facilities are always different venues
- I do also work for other people (ie. studio sesisons)

In the eyes of the IRS & department of labor your either in the business or out of the business, period. Its all black & white with them.

Meaning if your cover band is "legit" - and you have to file income on that alone you should also be filing on any and all session work and any and all other gigs even if your paid $50 in cash. The people who's sessions your playing on should also be reporting those expenses (your labor) as well as the cost of the actual session, paying the producer... studio... taxes associated with production costs and so on.

Failure to do isn't a huge deal until you end up with an IRS audit... might not even be something you did to bring that around but something an "employer" did or didn't do. You know, bandleader or producer cheats on taxes... fails to report income... maybe there's massive loss & insurance claim or something and you get caught in the crossfire. Its happened to people I know.

For example I have a drummer buddy who played in a hifi tribute band, his sole income for several years. He ended up with an audit & even in court with the bandleader after someone else left the band and reported the bandleader to the department of labor. Ended up ok for him & the other band members who got a lump sum of backpay & associated taxes but the whole thing dragged on for a year and change.

 

[loudboy]

Failure to do isn't a huge deal until you end up with an IRS audit... might not even be something you did to bring that around but something an "employer" did or didn't do. You know, bandleader or producer cheats on taxes... fails to report income... maybe there's massive loss & insurance claim or something and you get caught in the crossfire. Its happened to people I know.

Our singer got dinged for failure to report after a bar that we played all the time was audited, after being sued in a DWI fatality...

They found all these checks made out to him and checked his returns. It wasn't much, and we all kicked in our share to pay it off, but you never know when it will bite you.

Much worse than the Labor Board is the Unemployment people - they'll check entertainment mags and Facebook band pages to see who's working and collecting benefits. I know tons of people who've ben nabbed.