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

Messages
1,723
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.
I had a partnership through an LLC a couple years ago. The problem we ran into is that you have to dispense distributions according to ownership of the LLC. That is, if everyone is equal members of the LLC, the profits must be distributed equally as well. If that's how yours is supposed to work, that's fine; but suppose one member really bails on the band, misses gigs etc. When profits are distributed, they are legally entitled to their full percentage, based on the operating agreement. Just something to consider.
 

Slideman

Member
Messages
1,665
Other than the partnership option (which I understand he doesn't want to do), the other options have a lot more downsides than upsides. Is the band leader taking the write-off for any "losses" or is this shared among the band members? Is this a situation where you're getting the 1099 for all the income you've earned, but not benefiting from writing off all the "overhead" expenses? Were the investments into the management of the band equal, or did he do most of the investment? When it's lopsided like this, the partnership route usually works best, as opposed to the LLC (as mentioned above) because you can change the % allocations of income/loss based on actual receipts.

In my particular situation, we created a "label", which acts as the management company for the band (as a general partnership), it covers all equipment, overhead, marketing, promotion, website, recording, rehearsal, etc. A % of every gig is pro-rated to pay for overhead to support band operations (compensating the band members who've fronted the expenses and infrastructure) and then the band members are compensated after that on an equal basis (not all band members are in the partnership). At this point, each individual can/cannot report their income as individuals, while the partners of the "label" not only have to report their income, but their losses associated with the band investments. It keeps it clean.
 

Lucidology

Silver Supporting Member
Messages
27,422
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.)
Nice breakdown morglad
This is exactly how I and many working musician's do it … keeping it simple and clean.
As he says … it's more logical to list your gear gigging purchases and repairs etc. under those categories
other then itemize and go into details otherwise not necessary …
Expense your items as morglad says is definitely the way to go.
This is a good solid 'musician' way to do it … Obviously not the same for all self-employed/independent contractors.

Probably the most important consideration is money paid to you beyond your 1099s…
even if you don't receive a 1099 for gigs you've played … Better make sure you report them anyhow.

I've been penalized a few times for failure to report money when the fellow (employer) who paid me did report it.
Yet I didn't receive a 1099 from him. Just because he did not give you one (which is his prerogative I found out) …
doesn't mean you're in the clear at the end of the year …

Accountants have told me that legally only the government needs to receive 1099's from an employer.
You are just required to be honest. This might be different in other states …
 

JimGtr

Platinum Supporting Member
Messages
997
I just 1099 everybody at the end of the year. I can't imagine why a bandleader would ask you to form an LLC or any other type of entity. How you structure your affairs is up to you.
 

335guy

Member
Messages
5,229
No need to form an LLC. Just be a sole proprietor/independent contractor. The band leader should 1099 everyone at yrs end, but even if he fails to do that, you still need to report the income.

As for the tax matters, all the typical expenses are deductible, including transportation ( you can depreciate a % of your car, if used for business ), a home studio, meals, business use of a cell phone, lodging, some insurance costs. Big ticket purchases ( guitars, amps, pa gear, auto ) sometimes have to be depreciated over time. But items used like strings, picks, tuners, pedals, gear repairs, that sorta thing, are deducted from earned income.

The big tax hit is the self employment tax, and will often be greater than income tax. A GOOD CPA will help immensely with all this. You MAY even have to file quarterly, if you expect to owe taxes at years end.
 

335guy

Member
Messages
5,229
In addition to what I said above, there MAYBE an issue with whether you can be considered a "self-employed" independent contractor. This was mentioned earlier. And an employer ( the band leader ) cannot simply choose to make someone an independent contractor. In CA ( and I'm sure in most states ), there are guidelines to determine who is an independent contractor and who is an employee. There can be grey areas. But, generally, if the band is the only band/music endeavour of yours, the band leader directs your "work", tells you what and when you are to perform, supplies some/all of your tools of the trade, and so on, you might be considered an employee.

Worth reading if you're not sure.

http://www.dir.ca.gov/dlse/faq_independentcontractor.htm
 




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