What do Whitney Houston and Judy Garland have in common?
Both of these musicians were completely broke when they died. Whitney Houston earned over $33 million, yet when she passed all of her accounts were at a zero dollar balance. When The Wizard of Oz’ star, Judy Garland passed, she wasn’t only broke, she was also millions of dollars in debt.
As a musician, it’s easy to get so caught up in your career that you forget to invest time to handle your finances. Luckily, you can strengthen your financial knowledge today by learning how to file taxes when self-employed. Read on to learn 4 tax tips for freelance musicians.
1. How to File Taxes When Self-Employed
Learning how to file taxes when self-employed can appear overwhelming at first. However, once you know the basics, you’ll find that each time you file the process will feel easier. You can also click here to learn more about how to make things easier by filing electronically.
As a self-employed musician, you’ll generally need one return every year during tax season. You’ll also have to pay estimated taxes on a quarterly basis.
Depending on where you live, you will probably have to pay self-employment tax as well as income tax. The self-employment tax or SE tax is for Social Security and Medicare.
2. Net Profit and Losses
Before you find out whether or not you’ll need to pay both the income and SE tax, you’ll first need to know your net profit. If you’re a business owner, you’ll need to determine your net loss from your business.
You can figure out the net number by subtracting your expenses from your income. When your expenses are less than your income, the difference is your net profit. However, if your expenses are more than your income, you’ll need to record the funds as a net loss.
3. Income Records
Throughout the year, you’ll be receiving a variety of documents in the mail that will help you with filing your taxes as a musician. For example, you’ll be receiving tax forms for any W-2 jobs where you worked as an employee, any 1099 side gigs or contracting jobs.
If you don’t receive your income form from a client, it’s okay to call them and request they send it to you. Once you receive proof of your income, check it against the records you’ve kept over the year. You’ll want to verify that the income amounts are correct for every source of revenue.
4. Expense Records
Being a musician can be an expensive career. Luckily, you can write off many of the expenses to help you save money when it’s time to file your taxes. Here’s a list of some of the items you can usually deduct as expenses:
- Repairs on instruments
- Sheet music
- Insurance premiums for instruments
- Travel expenses to performances
- Food costs when traveling to and from performances
Throughout the year, you should be keeping receipts for every expense you incur as a musician.
Understanding Your Finances
Now you know more about how to file taxes when self-employed as a musician. When you have a strong relationship with your finances, you can spend less time worrying about money, and more time focusing on your musical career.