Separate names with a comma.
Discussion in 'Guitars' started by axe4me, Oct 25, 2020.
If you report your income from gigging then you rite off the gear.
What if my gear is more expensive that my gigging yearly income?
You can take depreciation for 3 years on new gear purchases, as well-- last I checked
It all depends on how you set it all up . You can make a loss for your gigging job and make it look like you have less income and pay less taxes . So the government is paying for your gear .
Either you depreciate it over time or you declare it as a loss, for a one time deduction, IIRC. But to do that I think you have to file a schedule C expense form with your taxes. As a business I've had to do that for years, but doing the schedule C is a lot of work, because then the IRS / State want to know about all your other expenses which you have to separate out, etc. Best to ask a CPA or accountant which way to go.
Tax deductible does not mean, "The government is paying for your gear". It simply means that you bought and paid full price for that gear like anyone else. Only difference at the end of the year you pay less in taxes. That number will come nowhere close to what your initial purchase was.
Contact your accountant. They will be able advise you on the best way to structure your income/expenses.
Dude I'd say never. I'm not an accountant. I have two business degrees (BBA, MBA) and I'm working on a PhD (business engineering, so not related to GAAP accounting, which is what is used for taxes and stuff). I have a bit of exposure to the field though, from my generals for my undergrad. So the below is my understanding of tax law and how it relates to personal/business expenditures and deductions. Don't take this as an exact lecture of how it works, because like I said I am not an accountant in any way, shape, or form. This is just one guy's tertiary understanding of the field.
My understanding of it goes like this. If you are going to claim the gear as a tax deduction, it needs to be directly used for a business. If the business (your band) is a separate entity, then it will likely need to be shown as such: i.e. a partnership, LLC, S Corporation. If you use the gear yourself, you can't just deduct the full value. So you'd have to say, "I use the gear x% of the time for my gigging band and y% of time for my own personal practice and pleasure." It's like if you have a car that you drive for business trips you can deduct a certain amount of your car expenses, but you have to estimate what percentage of the vehicle's use is directly for work (not commuting to and from work).
Now, if the gear is owned by the organization (band), then you can deduct all of it. But either way, if you are trying to deduct something then you are saying you are deducting it from an income-generating activity. That means now your band's gig revenue is taxable and it has to claim it. Any money that passes through to the members will also be very visible and taxable. So now not only you need an accountant, but your band needs an accountant and has to keep books. Your band may run at a loss, so you don't have to pay taxes on the income, but you can only run at a loss for so long before the venture is identified as non-profitable and you can't write anything else off on it, because it is seen as a tax shelter.
Long story short: Don't do it. The deductions from your gear are likely very small if you're in an amateur gigging band (even one that plays out every weekend), and that kind of thing will make you a more attractive audit target. It will also complicate your books, and added complexity of your personal tax situation makes it more likely that something will fall through the cracks.
I think most people would be doing taxes as an independent contractor if they gig
The bigger question is, DO you pay taxes on your gigging income, and HAVE you ever? I'm gonna bet a whole lot of people haven't.
IF that is the case, you probably shouldn't try to deduct.... unless you intend to start paying taxes. Then, legally, iirc you can deduct losses as a gig worker contractor for 3 years, and then it no longer counts and the IRS calls it a hobby (literally, that's the term they use).
Although if you want to deduct equipment on a zero-income AND no-profit business venture, I suggest you prepare for the possibility of audit.
(Then again, if you have a music room in your garage and a laptop full of unsuccessful demos, there's your "proof" and if the rest of your taxes are clean and aboveboard, the IRS can suck it.)
Pro Tip: Play in an original rock band that makes no money whatsoever and instead accepts offers of "we'll let you close the night out, you get free well drinks and soda, and each member gets three beer tickets."
I'm no expert but I have to disagree with the guy saying never. At least here in Australia it is totally acceptable and beneficial to add gear to your tax deductables. But with the system in America, like most govt practices over there, probably not.
So it's too broad a question as it depends which country you reside in.
I have been claiming mine as business expenses for many years - I've been a pro player and teacher for close to 20 years.
My accountant deals with the numbers for me, but essentially i can claim depreciation, and investment benefits ( uk based )
If you're being paid a salary by your band it makes the band your employer and then it's complicated. If you file a Schedule C it's easy, at least it was when I was gigging, and I don't believe it's been made overly difficult since. You can amortize your expenses for gear over 3 years, and yes, you have to report your income earned from gigging. If it's less than the cost of your gear it can be reported as a loss against your total individual income if you have a day job etc.
As an example, I changed strings before every gig and included the cost as expenses. Big stuff like guitars and amps were amortized. An accountant will be able to tell you how to proceed, and it's not out of the question to check with different accountants until you hear what you would like to hear. Sooner or later you'll find one who has experience with the band-money-Sole Proprietor thing. If you're unsure, have that accountant do your taxes for you. When it comes to the IRS, paying a pro to do your taxes is often money well spent. Ask other musicians in your area what they're doing.
Filing a Schedule C is pretty seamless as far as federal taxes but some state-run collection agencies, errr, Depts of Revenue, can get picky about expenses etc. Keep receipts for everything you claim as expenses. I love paper receipts and filled shoeboxes with them every year in case some state-paid minion conducted an audit. Never happened but it happened to some of my friends who claimed some square footage of their homes' floorspace as dedicated practice space used only for rehearsals. That situation is easy to question, but gear & equipment is part of the cost of doing business, a concept even government understands - sometimes grudgingly.
The gear I buy cost more than the money I make, so my receipts wipe out any taxable income. But that only lasts for so long.
The other side of the coin is getting home owners insurance companies to cover your gear. If you tell them you made any amount of money using a piece of your gear that was stolen, they will claim its a business and shoot you down.
The music industry is bad enough without the govt and insurance companies ripping you off.
This pretty much. Here in France we can benefit from tax deductions (and even tax credit in some cases) for music gear (and even some clothing) in proportion to your music-related income. A few years ago, when gigging money was most of my yearly income, I was able to get my switching rig (and travel expenses, and consumables such as strings, picks and tubes) as deductible from my taxes. (note that here in France we also have a special unemployment status for artists and techs)
But yeah, it depends on your local tax law and how you get paid for gigs.
If you are working towards the intent of making a profit even if it doesn't come right away, then I would look into expensing some gear on a schedule c.
If that's not the case, I wouldn't do it, and you shouldn't do it because it's not a business expense.
In the pursuit of making a profit some other deductions would be advertising and mileage on your car. If you're doing that there's certainly our expenses in advertising if you are getting music out, using a photographer, printing posters etc.
Another awesome expense to bring your income down is driving miles. Again, if you are beginning the pursuit of profit, put a mileage book in your car and keep track of the miles you drive to rehearsal and gigs. Those miles could add up to be a huge deduction for a business.
I've had a normal w2 job, and also done my own schedule c using tax cut software, for almost 20 years with a home business. Never been audited but we are claiming income because we get a 1099. The idea is to drive your taxable income down as far as you can with legitimate expenses, but still showing a profit.
A guitarist in my band also teaches lessons and his accountant depreciates and deducts whatever the maximum amount he can each year. It is a pro-rated amount, so he cant deduct the entire amount of everything each year. It is spread over several years.
I reduced my 9-5 taxable income for a few years due to my music “losses”. One of the bars we played at gave us 1099s, which at the time I was angry about but turned to be a blessing in disguise. Once you add up rehearsal space, gear, etc etc most side hustle musicians are losing money. I just claimed my band as an independent contractor and didn’t have to incorporate an LLC.
BIG CAVEAT: Trump’s new tax plan made itemizing deductions basically impossible, so unless you are spending LOADS on gear it didn’t even give me the option in HR Block anymore. Your mileage may vary.