Taking Care of Business

March 1, 2023

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The reality of our chosen career path as professional musicians is that our creative vocation is a business. While we musicians spend a lot of time and effort constantly improving our musical abilities, talent and musical prowess alone are no guarantee of success in the music business. A little savvy with all the nonmusical aspects of your live performance career can go a long way.

One of the most important decisions you can make as a businessperson is to determine how you will classify your business. This decision is important because it can have legal and tax ramifications. Consider consulting an arts attorney or accountant if you are unsure what to do. (Note: this article is intended for “music businesses” and will differ from individual tax/business rules.)

How Should You Classify Yourself or Your Music Business?

This is an introduction to the three basic forms of business entities. We recommend that you speak to a business attorney to discuss your specific situation and avoid common pitfalls.

Sole Proprietor—A sole proprietor’s career may be truly freelance in nature, where income depends on attaining work from different sources. They might work in the local music store during the day or teach guitar from home; work as a solo artist or for a wide variety of gigs; and/or do some local pit or session work. Basically, a sole proprietor shows up, does the gig as defined by the appropriate AFM agreement, gets paid, and then starts the cycle over again. While this business model seems straightforward, it requires the same attention to detail as any successful business. 

Limited Liability Company (LLC)—An LLC does not have as many corporate formalities and will allow you to incorporate musician rights and rules as you see fit. While most musicians have nothing but the best of intentions upon the establishment of a new group, things can go wrong from time to time. The first order of business is to define in writing how your band partnership will operate.

The LLC that you form will be overseen by an agreement that every member of the band will accept. This allows you and your band to structure the company as you see fit and can address many issues. Does each member of the partnership have equal rights and obligations? Who owns the band name? What happens if the band does a self-produced demo or releases a self-produced album? What happens if a member leaves or the band dissolves? Don’t wait for situations to arise before addressing them. Seek advice when necessary.

The LLC for business is not offered in Canada. One option is the Limited Liability Partnership (LLP). Where appropriate, Canadians can set up an LLC in the United States but need to be aware of US tax filing, banking, and other regulations.

Corporation—The establishment of a corporation may be necessary for a variety of reasons at some point in your career. An artist or a group of artists/musicians often form a corporation to limit their personal and tax liability. Knowing when, and at what point, to consider incorporating your business is best left to the sound advice of an entertainment lawyer or other qualified professional resource.

Tax Time: Top Business Deductions and Expenses

As a musician, some of your biggest costs—instruments, cases, bows, music stands, even your music library—are usually considered capital expenses. They’re paid up front, as opposed to regular, ongoing costs like rent and utilities. While you might not be able to claim the entire upfront cost as a business expense, you may be able to claim some of the cost in small increments over time through a process called depreciation.

Running a music business likely requires certain monthly expenses, and you may be able to claim these as deductions to reduce your tax liability. These include:

• office supplies used for earning income
• industry-related subscriptions, magazines
• buying music (DVDs, CDs, or digital recordings) for research
• replacement parts or instrument repairs
• telephone and internet costs
• booking fees for recording studios
• agent or manager commissions
• headshots or promotional photos
• cost of recording demos
• rent for classroom or teaching space
• utility costs for your workspace
• the costs associated with registering for a business license
• fees associated with maintaining a website, like domain registration and monthly hosting
• professional services necessary for your business: legal fees and the business portion of your tax preparation costs

Of course, first review any expected deductions with your tax professional to ensure they meet current regulations and requirements.

Keep all receipts for travel to lessons, recording sessions, and performances, as you may be able to claim these expenses as well. Instrument upkeep and repairs, and the cost of consumable goods like rosin, are also deductible expenses. (A longer list of music-related deductions can be found online at: bit.ly/3EjJ6q2)

Strategize and Organize—Maintain meticulous documentation in the form of bills and receipts. Review income and expenses monthly, and organize this documentation. Be sure to set aside enough money for your quarterly estimated tax payments. Monthly review and adjustments will help spot any missing documentation.

Learning About Taxes—These days most tax preparation software will have detailed guidance to help you understand the intricacies of filing your taxes. There are plenty of online do-it-yourself options that will cost less, and some of them are even free for simple returns and individuals under age 25.

However, it might be best to hire a paid tax preparer if you have doubts about what to claim or not claim or are unsure about using business-related tax forms. This is especially true if you had had some major changes in your life last year—purchased a home or office space, moved to a new state, made a major business purchase, hired an employee for the first time, married or divorced, just retired or are planning to soon. The fee they charge usually starts at around $200 and is based on the complexity of your taxes.

—Business advice for informational purposes only, not intended to be a substitute for advice from an attorney or tax professional.

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