The Manager’s Corner December 2011

by Chris Daniels

[email protected]

I’ve managed my own band since the 1980s and despite the amazing change in technology, success in the music business is built around four tried and true elements: great music, really hard work, and timing (often mistaken for luck). The other key element is getting the help you need to make that luck happen. These days that help is everywhere. The book I wrote for my UCD class on artist management is called “DIY: You’re Not in it Alone,” and that is exactly what you need to understand.

Nobody that I know likes to talk about taxes. But here are the sad facts. It is not just major stars like Willie Nelson who ended up paying the IRS 16 million dollars for an accountant’s “mistake” that fell afoul of the IRS. I will NOT name names, but several of the musicians I have worked with over the years, both local stars and local work-a-day musicians have been in serious debt to the IRS because of unpaid taxes. This is no joke. And if you don’t believe me here is the poop from a respected musician’s website. “…all payments for gigs, income from teaching, sideman work, session work, CD and recording sales whether retail or at the gig … all of it … regardless of whether you receive a 1099 at year-end … is subject to income tax. It is a common misconception that if you do not get a 1099 then it is not reportable income. This is untrue!” ArtsTaxInfo.com/Musicians.html  To make matters worse, several of the clubs and festivals that I work for do not send me 1099s so it is easy to get to thinking that, “Hey, they didn’t send me a tax-doc so I don’t have to report it. WRONG!”

As boring as it might seem – and to save some young musicians from making some really dumb mistakes – let me give you a “music business 101” guide to taxes and docs. Anytime you do a gig for money at a club, venue, festival, etc., they SHOULD ask you to fill out a W-9 form. This will ask you to (1) write down who is getting paid; (2) what their address is; (3) what their social security number is. If you or your band has created a company (like a partnership or an LLC) then the venue will want to know the name of the “entity” (like Chris Daniels & The Kings LLC), their mailing address, and the Employer’s Identification Number (EIN). But even if the venue blows it and does not ask for this info, you MUST report the income. Some venues do this very informally, asking for this information at the “settlement” after the show … when they pay you (at least I hope they pay you).

At the end of the year (actually by January 31 after the New Year), the venue is required to send you a 1099 form stating what they paid you or your band (partnership or LLC). THEY will report that payment to the IRS via a 1096 … so YOU are on the books of Uncle Sam. Now if you’re a solo artist, you just report that income on your 1040 form in April when you file your taxes. And if you had expenses getting to the gig like gas or van rental, you write that expense off on Schedule C of your 1040 form.

Why does the venue or festival send you a 1099 and not a W-2 like your day job? Because you are not an employee of the venue. You are an “independent contractor” coming in to provide a “service” and not an employee of Herman’s or Larimer Lounge or wherever.

OK, got that. Now, let’s say you are a band. If you are the leader of the band, and you set it up so the venue recorded all those pay checks to you on YOUR SS number – and you paid the other band members – then you have to make sure YOU send 1099s to your bandmates for what you paid out to them so that YOU don’t look like you made all the money on each check. Then, on your 1040 Schedule C, you write off those “band mate expenses.”

But it gets even more complicated. Are your bandmates employees? If they are, then you need to be sending them W-2 forms at the end of the year AND you will need to be reporting monthly the amount of salary you paid out AND you will need to make your “employer’s contribution” to the IRS … which is why most bands set it up to show everybody as individual independent contractors.

Last but not least, one of the best ways to organize your band is as an LLC. In most cases it really helps to get a lawyer to guide you through this process so you can get an EIN number for the band. That said, many bands set up their own LLCs or partnerships using available web documents and resources. There are tons of them, but I encourage anybody doing this to get a lawyer to check things over before you file it. The advantage of having this organization is that the checks from the gigs will be made out to your company and not just one individual. But in the end SOMEBODY is going to have to make sure that the income made by each band member is reported to the IRS.

So that is the basic primer and there is much more to consider (1) if you are teaching what expenses you

can take (2) if you are selling CDs and making revenue that you should report (3) what kind of road and equipment expenses can you write off, and (4) what “red flags” are there that you want to avoid because they tend to trigger IRS audits?

The long and short of it is, if you make money playing, recording, or selling music … that is income and needs to be reported. There are tons of websites about this but if you just want to talk to some great local accountants that really understand musicians, I would suggest talking to Schumacher Accounting here in Denver. There are others, too, that are great. Schumacher does a lot of the accounting and taxes for teachers and performers at Swallow Hill and they know the music business tax maze as well as anybody out there. You can give them a call at (303) 777-5535. The bottom line, don’t blow this off! It is an essential part of your worldview. If you are a DIY artist and it is up to you to navigate these waters, you’ll need to make the most of the write-offs and opportunities offered by the IRS codes in order to survive in today’s music business. It sucks, but there it is, now deal with it.

Tags: Chris Daniels, taxes, music taxes, willie nelson, 1099 form

Category: The Post