Few of us ever test our powers of deduction, except when filling out an income tax form.
- Laurence J. Peter
Think of tax deductions like music scales. Once you are familiar with major scales you can move onto minor, diminished, augmented, whole tone, harmonic, egyptian, you name it. Let’s build a foundation with 3 of the most common tax deductions for musicians. At the end of this post I will share a link to download a much longer list of tax deductions to dive into.
Before we begin, I must disclaim that the major overhaul in the tax code this year will affect some or all deductions for musicians. For instance, if you earn income from W2 sources that withhold your taxes (like a church, school, regular job) then you are most likely unable to make these deductions on your taxes. Please refer to your CPA to confirm this.
Here are 3 of the most common tax deductions for musicians:
The recent tax law reform leaves room for debate whether this deduction will be in play. The new code removes deducting “entertainment for clients” and CPAs, the IRS and lawmakers will eventually come to a conclusion here.
For example, if you have a client who wants to hire you for a gig and you go to a baseball game and discuss business at the game, then you would no longer deduct the expense of going to the game from your business income.
The debate is whether meals are considered “entertainment” so keep an eye out as this develops. I will make a public update when I hear confirmation on the matter. Keep track of your meals nonetheless just in case.
Also, note that when deducting meals on your taxes that you must only deduct 50% of the cost, so only half of that post gig In-N-Out burger is deductible!
Remember to pick one and stick with it. In Texas, we drive A LOT for gigs so many will choose business mileage over auto expenses. The standard mileage deduction in 2018 is 54.5 cents per mile which includes the average costs of gas, repairs, insurance and depreciation.
For example if you drove 10,000 miles for work in one year then you would deduct $5,450 from your income. Remember to keep track of miles driven for business purposes only. Driving to the grocery store does not count as business mileage.
If your car requires an unusual amount maintenance, eats up gas or is brand new and depreciating fast than you might consider using the Auto Expense method. You must determine what percentage of the time your vehicle is used for business purposes. Let’s say it’s 70% of the time. You would add up all of your gas, repairs, insurance, car payments, depreciation, license and registration expenses and deduct 70% of the total from your income.
This can be a bit confusing so here is a link to the IRS website if you want to dig deeper. Here is a simplified version. If a space in your home is strictly dedicated to business like a recording studio then you might be able to deduct the amount of space compared to your entire home and deduct that percentage from your mortgage interest, insurance, utilities, repairs, and depreciation.
For example, if a room in your home is dedicated to recording then you would measure the square footage (width x length) of that room then either measure or look up the square footage of your entire home and determine what percentage the studio utilizes. Let’s say your 3rd bedroom serves as the studio and it’s 8’ x 10’ = 80 sq ft. and your entire home is 800 sq ft. then your studio would account for 10% of your home allowing you to deduct 10% of the previous mentioned expenses from your income.
This is a great start for musicians who have yet to track their income, expenses and file taxes. For those of you ready to get more advanced I created a longer list of musician specific tax deductions you might want to start using. Click here to download the PDF for free!
Email questions, comments and future topic ideas to [email protected].
P.S. If you download the PDF you will get exclusive discount codes for my All-In-One Finance & Taxes Spreadsheet and “Taxes Basics for Musicians” Course!