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hey guys what's up it's Claudio here and today I wanted to make a video on how to prepare your taxes as a musician or independent artist I've done a lot of questions about this topic and it's taken me years to understand how to approach tax season as a working musician and business owner as someone that's self-employed you're technically a business owner you're sole proprietor which means you are a person who is the exclusive owner of a business you're entitled to the profits but you're also liable for all the losses so it's important to develop that business mindset I'll go over deductions business expenses estimated tax payments tax brackets 1099 and a few other topics the first thing you should do is hire a CPA a certified public accountant I'm not a tax professional so anything I say is just casual advice a good CPA will maximize your refund or minimize your taxes owed so save yourself the headache and invest in someone my CPA specializes in musician taxes he's great and he's based in New York I'll link him down below when I was younger I wondered why I should even pay taxes it was hard enough trying to make money as a musician all the gigs I played were under $100 and paid in cash I also had to sell a teaching job to pay the bills so why not just stay on the DL about my musician income it's a good question and many people live off their cash but that has limitations what if one day you want to buy or even rent a house or an apartment you're going to have to show proof of income or if you ever want to start your own business and take out a loan you're going to run into the same problem you have to prove that you can make a living as a working musician or artist and the more money you claim every year the more you can reinvest into your art and grow your business to reach higher levels of income let me explain that and talk about investing for a moment ok so the thing about investing is you want to invest you want to invest in the things like equipment gear advertising lessons maybe camera equipment ok an intern what happens you get a better product it's more value and it doesn't just have to beat these material things it can also be you can invest time very important okay now you have a better product and as a result two things happen one you start to get recognized and also you build more confidence very important as a result of that you get more gigs more quality quality gigs from there obviously you'll make more money which then you can reinvest into equipment gear lessons advertising cameras time to get a better product with more value which will give you more confidence get recognized you'll get more gigs more quality gigs which means more money and then you can reinvest and you'll see the cycle continues you also get higher salary now how is this relevant to taxes because a lot of what you invest into your business is tax-deductible which means it will lower your taxes let's talk about tax deductions these are things that you spend money on that directly contribute to you being a professional musician or working artist instrument gear computers recording costs as well as office supplies business cards websites all that stuff my CPA has this worksheet he asks everyone to fill out before seeing him I'll link it in description okay so one thing to remember is that taxes are something you need to think about all year round not just a few months before they do in fact if you are self-employed you should technically be making estimated quarterly payments throughout the year okay this is the worksheet as you can see a lot of things can be cleaned as a business expense advertising audition expenses bank fees demos recording copies insurance music books office supplies parking stage wardrobe piano tuning repairs equipment maintenance okay so what I did was I created my own Excel worksheet with these categories and any time I spent any money in these areas I logged it this worksheet stays open on my desktop all year round and I'm constantly updating it I made this one just as a demo for this video let's go over a few of these things advertising Facebook ads YouTube promotion business cards you would write that down here website and services domain registration for your business that's a good one here any kind of rental for example we rented a canon lens for a photoshoot and an extra subwoofer for a gig banking thank you for your business account only we'll go here is all yearly let's see stage wardrobe only wardrobes that you were exclusively for gigs internet this is my home internet I took a fifty percent deduction I'm use that about half the time that I use the internet it was for work purposes any equipment over five hundred dollars goes in a separate category so some speakers a mixer a camera if you're a photographer that would all go here phone I took a sixty percent deduction that means that sixty percent of the time that I picked up the phone or use it for anything it was business related parking taxes does the block cabs to and from gigs tax deductible any kind of software for professional use I would go here supplies random supplies like little cables microphones here and there I would add those up here at the end of the year you take this auto summit you get a total for that category any musical instrument okay obviously it's a big deduction and you can use a method called depreciation I'll talk about that in a minute instrument Insurance anything you do to enhance your professional development classes music lessons that's all tackle adjustable hair and makeup so this is any kind of personal grooming specifically for a gig for example right before a big photo shoot or right before a big production where are you going to be on stage some things like musical instruments can be deducted using a method called depreciation the IRS lets you deduct the entire cost at once or spread it out over a period of 7 years if you're just starting out and expect low income during the first few years it might be wasteful to deduct the entire cost at once so depreciation might be the way to go cause your CPA about this since they're the experts let's talk about your car's gas mileage the IRS lets you deduct fifty four cents per mile driven to and from gigs in 2017 it's going to be fifty three point five cents per mile they're really particular about how you log your miles she's gonna have to keep track carefully what I do is I google map every venue I Drive to and figure out the round trip distance then I use this app called mal assistance for a mileage expense log and I put in all the details location which car I'm using the amount of miles there's also space here for your tolls very convenient at the end of the year I can export this whole thing into an excel worksheet and it'll calculate how much I can deduct for my car's gas mileage very convenient app highly recommend it to stay organized on a side note make sure to keep all your receipts stored and organized for at least two years in case you get audited by the IRS you should know that the IRS works in a two-year delay which means that you won't get audited for 2016 taxes until 2018 that's just how they work so don't think you're in the clear if you don't get audited right after tax season for that year a 1099 is a tax form that reports how much money someone makes that year and does not take out taxes so the person receiving it is responsible for calculating and paying the taxes on their own if you work as a sideman you probably receive several if not many 1099 from the different band leaders and businesses that you played for many freelance musicians are classified as independent contractors and are responsible for paying taxes on their own as opposed to an employee position where the employer takes out taxes on every paycheck for example if you play in a full-time professional Orchestra if you're a bandleader and business owner you only need to issue a 1099 to your band members if you pay them more than six hundred dollars that tax here a really easy way to fill out and submit 1099 if through a file of my taxes calm it's really quick and for a few dollars per form they will mail out the 1099 to all the recipients you're expected to collect sales tax on any transaction that involves tangible goods if you sell CDs and merchandise at a gig you'll need to collect sales tax the same goes for photographs and artwork music services such as performances are not considered tangible goods so you don't need to collect sales tax for that for photographers if you deliver the photos electronically over the web you don't need sales tax for that where if you physically deliver them via hard drive or a CD you'll need to collect sales tax check with your state since these guidelines may vary for 2016 the self-employment tax is 15 points three percent that's twelve point four for Social Security plus two point nine for Medicare then we get taxed again depending on what tax bracket we fall under here the tax brackets for 2016 okay so because we don't get taxes taken out of our paychecks paying our taxes all at once can be kind of painful what I suggest is have a separate savings account where you put aside anywhere between twenty five to forty percent of every paycheck depending on your tax bracket if you fall on a higher one it's best if you make estimated quarterly payment to avoid fines from the IRS here the deadlines for quarterly payments for 2017 ask your CPA to help you calculate these and if you overestimate you'll simply get a refund I'll link below where you can make payments for the IRS and don't forget you still need to pay state taxes I'll link that below as well so all now we're being taxed pretty heavily for being self-employed if you fall in that second tax bracket you're looking at 27% taxes plus an additional six or $700 for New York State packs I know that's a lot of information to take in especially if you're new to this remember that it's common to file at a loss during the first few years of starting a business or being self-employed that just means that your expenses and deductions were greater than the amount you earned and it's okay if you were investing back into your business a lot I didn't have any real profits during the first three to four years of working as a band leader I made money but I completely reinvested all my earnings back into the band so I could grow it more quickly back then I had plenty of work teaching music lessons so it was easy for me to reinvest so aggressively whether you're a band leader Seidman or independent artist remember the importance of investing in yourself if you're confident and have a passion for what you do it will pay off so I hope this video was helpful if you have any questions or comments feel free to leave them down below and if you'd like to see more content like this geared towards creative entrepreneurs hit that subscribe button in the meantime happy tax season [Music] you 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