Because of the self-employment tax faced by many musicians, it is critical to deduct as large of a portion of your income as possible. This way you are paying taxes only on the portion of your income that cannot be written off. If you are new to self-employed taxation, please see my earlier post on the basics.
My primary piece of advice on beginning this process is to get a good certified public accountant. Your degrees are in music, not tax law. Your CPA can help ensure all your forms are filled correctly and you are paying the correct amount in taxes. A tax return signed by a CPA looks better to tax officers than one filled out by an individual trying to take numerous deductions.
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Your role as a musician is to communicate all the items you would like to deduct to your CPA. Propose as many as you can, and your CPA will tell you what will fly and what will not. Keep in mind he or she is not a musician and is most likely unaware of the numerous expenses you have.
So, what can the musician deduct? Things you have purchased in the last year to do your job can be deducted. Some of the common ones are:
Standard deduction- Everyone gets this! It was $6,200 in 2014. This is a nice start to lowering your taxable income.
Self-employment tax- Using the Schedule SE form you can determine your grand total of self-employment tax and then use the formula to determine the large portion of self-employment tax that can be deducted, about half.
Health insurance-If you are over 26 and self-employed, there is a good chance you are buying your own health insurance. The grand total of your monthly premium payments can be written off.
Retirement- Regardless of your age, it is important to set up a retirement account. If you open a traditional IRA, you can deduct these contributions, up to the maximum allowed, for the year.
Educational credits-If you are still in school, either enrolled undergraduate or a graduate degree program, you can write off the tuition paid. Your university can provide you with the needed form.
Student loan interest-Speaking of school, you may have completed your degree but are still paying loans. You may be eligible to deduct all the interest you have paid for the year on this loan, which can add up, especially in the beginning of your repayment period. Note, you cannot do this if you are married and file separate tax returns.
Insurance- this can be insurance on your instruments, your car you drive to work, liability insurance, or renters/home insurance if you have a home office.
Depreciation- You can depreciate the value of your instruments needed for your job over time. You can choose to either write off the entire value if you buy it in the current tax year, or depreciate it partially over a period of years. Either way, you must get an appraisal to verify the declared value.
Repairs-any repairs or maintenance on your instruments can be deducted.
Legal and professional services-you can use this column to deduct anything you paid for you tax return preparation for the previous year.
Car-If you use your car for your job, the government offers a standard rate for each mile driven for work. For 2015 it will be 57.5 cents per mile. If you drive a lot this really adds up. You must keep track of exact miles driven. Additionally, tolls and car maintenance can be written off too.
Supplies- You can use line 22 of your Schedule C to account for all necessary musician supplies. This includes sheet music, mouthpieces, ligatures, reeds, necks, strings, bows, instrument/music stands, and any other gadgets like iPads, computers, recorders etc. This category has a lot of potential so look back through your purchases to make sure you are not missing anything.
Travel-if you traveled for a conference, audition, or performance you were playing you can write this off, along with the cost of food for these trips.
“Other expenses” -Line 48 of your Schedule C allows for any other expenses that are not covered earlier in the tax return. This is a key area for musicians, because we frequently have unique expenses. Some to consider here are:
Facility use fees paid to lesson teaching locations
Fees to collaborative artists such as piano accompanists
Any lessons you take from others as professional development
Domain names for personal websites
PayPal fees if you use this for your students to pay you
Conference registration fees
Home office-People are sometimes scared to take this deduction, but if you have a room in your house or apartment dedicated to your profession you should go for it. This cannot be your living room with a computer in the corner, but rather a single room, with a door, used for work only. Not sleeping, eating, or partying. For this deduction you must know the square footage of the room and house and you can deduct a portion of your rent/mortgage. Also, add up all your utility bills and a portion of this can also be deducted with the home office.
All these things add up and help reduce your income to a more manageable, level for taxation. You must keep receipts for these items in case the value needs to be verified for up to 5 years after the return. I use a filing cabinet to keep receipts during the year. Then on Jan 1 I total everything up in a document and send it to my CPA. Good luck and happy deducting.
*Disclaimer-Please seek professional assistance in filing your taxes. Musicstudioteacher.com takes no legal responsibility for results from this post.