Tuesday, April 23, 2013

Breif Thoughts on Tax Consequences for Musicians

This is not legal advice. Leave audio feedback at (512) 686-6329.

Last week in Brian's and my tax class (we don't have all of our classes together, but we happen to have tax together), it was suggested that musicians get a break on tax day. Considering both of my parents are full-time musicians, this struck me as odd. I'd never heard anything about the tax advantages of being a musician. NPR, or at least Patrick Jarenwattananon (what a last name!), seems to be on my side of the the debate on this one. I don't know if this is going to begin another point-counterpoint series for Brian and I. Since finals start next week, I certainly suspect Brian will be taking a break from content for the next two weeks.

I think any sort of tax break musicians might get has to do with the type of musician one is. Taxes changing the development of music has historical precedent. For example, individuals that can support themselves full-time through touring and gigging and do not teach are likely to get the benefits of being a sole proprietorship. If your band, ensemble, orchestra, etc. is incorporated, and you are an employee of that organization, then you aren't going to get the business benefits (though incorporation does have benefits, so don't discount it just due to taxes).

The other thing is that people that own copyrights can get some tax breaks. However, studio musicians generally do not own copyright in their performances.

So, what does this all have to do with Creative Commons?
Potentially, a lot. The tax breaks that musicians theoretically get primarily have to do with being able to prove that music is your business and not your hobby. Unless you are Amanda Palmer or NIN (both of which have released under CC), this is likely going to be tough. If people are interested, I can do another post specifically on hobby losses, but for now, while it pains me to say this, you might be better off (from a tax perspective) releasing under CC, but behind a pay-wall such as you can set up with Bandcamp or Magnatune (and possibly others, we aren't sponsored).

Since the tax code is so mammoth, I'd like to tell people some of the things Brian and I have covered in our tax class to give you some ideas on things we might be able to discuss in the future:

  1. Gross Income
  2. Gains and Losses from Dealings in Property
  3. Gifts and Inheritances
  4. Discharge of Indebtedness
  5. Fringe Benefits
  6. Business and Investment Expense Deductions
  7. Capital Expenditures
  8. Depreciation and Amortization
  9. Deductible Personal Expenses: Casualty and Theft Losses
  10. Other Deductible Personal Expenses: Taxes, Interest, Charitable Gifts, Moving Expenses, and Medical Expenses
  11. The Deduction Hierarchy: Adjusted Gross Income, Taxable Income, the Standard Deduction, and the Personal Exemptions
  12. Timing Rules and Related Principles
  13. Ordinary Tax Rates and Taxplayer Classification
  14. Tax Credits
  15. Capital Gains and Losses
  16. Quasi-Capital Assets
  17. Recapture of Depreciation
  18. Residential Real Estate
  19. Like Kind Exchanges
  20. Involuntary Conversions
  21. Alimony and Support
  22. Personal Injury Recoveries and Punitive Damages
We didn't actually directly cover in dept the The Charitable Contribution Deduction or Hobby Losses, but I think both of those are important for musicians to know about and I'd be prepared to do a post if people are interested.

If you are a musician in the US and need tax advice, I encourage you to speak with your local VLA chapter. I'd also be interested in hearing feedback from people in other jurisdictions about the tax consequences of being a musician. I'm hoping, specifically, that friend of the blog Marc, will chime in on whether he knows anything about the tax consequences of gigging in The Netherlands.

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