The reason is the elimination, beginning in tax year 2018, of the current deduction for what the IRS labels “Employee Business Expenses”. Under prior tax law, if you were an employee, the IRS allowed a deduction for “ordinary and necessary expenses” incurred in connection with your job. An expense is “ordinary” if it is “common and accepted” in your field; it is “necessary” if it is “helpful and appropriate” for your business.
Deductions and credits phaseout adjustments
But here’s some advice, from someone who has filed taxes as a freelance artist, to help get you through the muck of tax season. Steve White is a Principal at Janover LLC where he provides business management, tax, and royalty services to entertainment clients, and is also Treasurer of The New York Chapter of The Association of Independent Music Publishers. Given that W-2 wages are a limitation, some may consider re-structuring as an S corp vs. a partnership as owners are issued W-2s by S corps, but not if partners in a partnership. However, the tax effects of adopting a corporate vs complete passthrough structure has its own set of limitations and drawbacks which should be carefully weighed beforehand. Scott Stratton earned a Doctor of Musical Arts degree and holds the CFP® and CFA credentials. Scott taught music for the State University of NY at Geneseo and at Texas Christian University before embarking in a new career in personal finance.
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Our up to the minute industry news alongside insightful commentary helps our readers sift through the rumors and developments to find the information they need to keep their businesses moving forward. The president threatened to impose fresh tariffs and export restrictions on advanced technology and semiconductors in retaliation against other nations’ digital services taxes that target U.S. technology companies. Transportation between home and business destination by airplane, train, bus or car. If you travel by ship there are additional rules and limits; see IRS Publication 463 or speak to your tax advisor.
Is it a hobby or a business?
If you take the time each month to figure out how much you earned, how much you spent, and your bottom line, you can pay estimates when you have a profit and avoid penalties and interest. Estimates are due every April, June, September, and January, to the IRS and the state. Bookkeeping or tax software can help you figure out how much you owe, but a good rule of thumb is that for every $1,000 of profit, you’ll owe at least $150, or more. Plan on paying 15-35% of your profit to the Federal IRS, and then some to your state as well.
TurboTax Online: Important Details about Filing Simple Form 1040 Returns
The world needs hobby musicians – it’s one of the most satisfying hobbies in the world. Many musicians have both W-2 income (say from a school or full-time orchestra) and 1099 income (church gigs, part-time orchestra, etc.). You will probably want to apply as many expenses as possible towards your 1099/Schedule C income going forward. The newly passed Tax Cuts and Job Act of 2017 (or GOP Tax Reform or Trump Tax Cut) big tax changes for musicians in 2018 will apply to taxes for 2018, due in 2019.
You aren’t operating with an intent to have a profit and you’re spending money from your day job on supplies and materials. So whatever money you spend on your hobby can reduce your taxable hobby income down to zero but you can’t put a negative number in there. So it’s my mission to demystify the tax process for you and give you confidence to work hard, earn money, and file that tax return on time.
- So many people are only contributing the amount that their company will match, often four to six percent.
- Unlike passthrough businesses, “C” corporations are not eligible for reduced tax rates on capital gains.
- But it also means that if you have itemized deductions below $12,000 (single)/$24,000 (married), you will no longer receive any benefit from those expenses in 2018.
- Contact us for the latesst stats, ad rates and sponosorship opportunites.
- From ragtime to rap, from the early phonograph to today’s digital recordings, the AFM has been there for its members.
Am I required to file a new Form W-4 for 2018?
- It’s a mixed bag for those in the music industry though music publishers are more advantaged.
- The employer pays half of their Social Security and Medicare payroll tax (combined, this is 7.65% of income, paid by the employer, and the same amount withheld from pay).
- Many musicians accustomed to itemizing deductions may have a difficult time accumulating enough expenses to exceed the standard deduction.
- The reason is the elimination, beginning in tax year 2018, of the current deduction for what the IRS labels “Employee Business Expenses”.
- For example, the nonpartisan Congressional Budget Office (CBO) projected that the tax and spending plan will add $3.4 trillion to the country’s deficit between 2025 and 2034.
The deduction has not been updated since and has only been available to those making less than $16,000 a year. There are numerous issues raised in interpretation that will require the Service’s clarification in time. In the meanwhile, taxpayers should have a review of their structure to ensure that they are availing themselves of potential tax benefits under the new law and, to the extent possible, avoiding increased liabilities. As a tax professional, you surely know about the new 20% tax deduction for “Pass Through” entities under the Tax Cuts and Jobs Act (TCJA).
Even at the slightly lower tax rates that Congress included in the new tax bill, the tax they end up paying to the IRS will be higher—in some cases, much higher. For every expense you need to provide who, what, where, when and why in a business-like format. Business expenses for self-employed work such as those which you receive Form 1099-Misc are generally deducted on Schedule C . Sometimes there is a separate “state only” W-2 for other state’s income and taxes withheld or the information is reported on your main W-2.
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The second benefit for self-employed musicians is the expansion of Section 179 rules. Section 179 allows small business owners to immediately deduct business purchases, such as musical instruments, sound and recording equipment, computers, office furniture, or certain business vehicles like an SUV or van. Without Section 179, these large purchases would have to be depreciated over a number of years.
Most taxpayers will see a 1% to 4% reduction in their marginal tax rate, although some single taxpayers in the 28% bracket for 2017 have been bumped up to 32% and some in the 33% bracket will pay 35% in 2018. The new tax brackets have a sunset after 2025, when the 2017 tax rates are scheduled to return. However, the law is also projected to add $3.4 trillion to the federal deficit by 2034,1 according to the Congressional Budget Office. It also reduces Medicaid funding by nearly $1 trillion and cuts billions from the Supplemental Nutrition Assistance Program (SNAP). The measure ultimately cleared Congress after a narrow 218–214 House vote on the Senate-amended version.
Particularly as a musician, income can be sporadic and difficult to manage on a self-employed basis. Thankfully, there could be some very good news for musicians in the U.S. So if you were given $25 as a per diem and you spent $35, the additional $10 you spent can be deducted. If you’re not satisfied, return it within 60 days of shipment with your dated receipt for a full refund (excluding shipping & handling).
As the details of the tax law changes become more and more clear (though some details are still in the dark), these deductions look like a not-too-distant memory. Please don’t take any steps until the final version has been made into law. However, if the House version passes the Senate, I think many musicians will want to be prepared to take steps to pay 2018 expenses before December 31, 2017.