income
Taxes are a necessary evil for everyone, and they are particularly difficult for people who are self employed like singers, artists and dancers. Most people with one job have simpler taxes due to the fact that they get one income statement at the end of the year from their company, and have their taxes taken out of their paycheck weekly. Self employed people often get many income statements due to the fact that they have many gigs, shows, concerts, commissions and other occasional jobs. These jobs generally are contract jobs, and taxes are not taken out. That does not mean that no taxes are due on this income-- it just means that you have to pay it later, but you must know how to pay it.. Some self employed people also may receive income that has taxes already removed from the take home income, like work at office jobs, or Starbucks. Other income is taxable also--inherited income, income from stocks and bonds, interest from bank accounts etc. Almost all income comes with a tax, and every piece of income has a different form. Here I will be primarily focusing on income that comes from Self Employment, and the form that is used most often by self employed singers and artists,Schedule C. |
Basic Tax information
To begin, one needs to know about the first page of the tax forms, Schedule 1040. It looks like this:
Everyone has to file this form, or else one called 1040 EZ. I have never met a singer who has been able to file 1040 EZ. Our taxes are just too complicated!
Notice at the heading "Filing Status" that you will check the box that applies to you "Single", "Married" etc. This will allow you to take a standard deduction set by the government if you don't plan to make any itemized deductions. Itemized deductions are things you can take off of your income. If you take the standard deduction you do not have to keep receipts for things you plan to deduct. If you do not take the standard deduction you must save every receipt for the things you are applying to your taxes.
Next there are "Exemptions". Here you check off the number of people in your household. If you are single, it's easy--the answer is 1. If you are married, 2. And so on. The more exemptions you have, the higher your standard deduction.
Locate the next heading "Income". This is where you report all of the monies you have received during the calendar year, including anything and everything you have earned according to numbers 7 through 22. Notice Number 12, "Business income (or loss) attach Schedule C or CZ. This form is the form that every self employed artist must know about and file, and this is the form I will mostly be discussing here.
At the next section entitled "Adjusted Gross Income" there are a few lines that do pertain to self employed singers and artists. Line 23 "Educator Expenses" may or may not be pertinent to you. These educator expenses are expressly for people who work in a classroom, and generally have W-2 Income. Going back to line 7 you will notice that it says "Wages, Salaries and tips Attach Form(s) W-2. A W-2 is your wage and tax statement. It looks like this:
Notice at the heading "Filing Status" that you will check the box that applies to you "Single", "Married" etc. This will allow you to take a standard deduction set by the government if you don't plan to make any itemized deductions. Itemized deductions are things you can take off of your income. If you take the standard deduction you do not have to keep receipts for things you plan to deduct. If you do not take the standard deduction you must save every receipt for the things you are applying to your taxes.
Next there are "Exemptions". Here you check off the number of people in your household. If you are single, it's easy--the answer is 1. If you are married, 2. And so on. The more exemptions you have, the higher your standard deduction.
Locate the next heading "Income". This is where you report all of the monies you have received during the calendar year, including anything and everything you have earned according to numbers 7 through 22. Notice Number 12, "Business income (or loss) attach Schedule C or CZ. This form is the form that every self employed artist must know about and file, and this is the form I will mostly be discussing here.
At the next section entitled "Adjusted Gross Income" there are a few lines that do pertain to self employed singers and artists. Line 23 "Educator Expenses" may or may not be pertinent to you. These educator expenses are expressly for people who work in a classroom, and generally have W-2 Income. Going back to line 7 you will notice that it says "Wages, Salaries and tips Attach Form(s) W-2. A W-2 is your wage and tax statement. It looks like this:
You probably have seen this form before if you have worked anywhere, in a restaurant or a retail store. Self employed singers may get a W-2 sometimes, but more often singers are contract labor, and receive a 1099 from the employing organization to record their earnings. This is because the singer is not an actual employee of the company or organization, and your income being treated differently than that of an actual an employee. We will come back to this.
Find line 24 under "Adjusted Gross Income" . If you are a qualified performing artist or another professional, and you paid for job-related expenses from your own pocket you can claim those expenses as a tax deduction as an" above the line deduction" that you don't need to itemize. Normally job-related expenses are a miscellaneous itemized tax deduction, subject to the 2% floor. An "above the line deduction" is a deduction you can take on the first page of your 1040, not on your Schedule C. Some above the line deductions you could have might be contributions to a SEP-Ira (Self Employed IRA), student loans interest or a health savings account.
If you provided services in the performing arts for two or more employers, receiving at least $200 or more in wages from each employer, your job-related expenses are more than 10% of your income from your performing artist jobs, and you have adjusted gross income of $16,000 or less you can claim this deduction, but only if you are claiming you are single. (If you are married you cannot claim this deduction).
This is what Back Alley Taxes says about line 24: "Qualified performing artist – This is by far the most confusing exception. To be allowed the 1040 Line 24 deduction instead of a Schedule A deduction, you must be a performing artist who worked as an employee for at least two employers during the tax year (meaning you were paid on a W-2 instead of a 1099 or scholarship, which I understand is extremely rare), you received at least $200 from each employer, had business expenses related to your performing art of at least 10% of your performing art gross income, and your total adjusted gross income for the year before deducting these expenses is less than $16,000."
In short, this is a good place to take a deduction if you make no more than $16,000 a year. Such a small amount, that it probably won't help you. On to Schedule C.
Schedule C is where self employed artists find their greatest possibilities for taking tax deductions. This is a beautiful thing. Here is a copy of the form. Become very familiar with this form, as it can save you a lot of money if you know how to use it.
Find line 24 under "Adjusted Gross Income" . If you are a qualified performing artist or another professional, and you paid for job-related expenses from your own pocket you can claim those expenses as a tax deduction as an" above the line deduction" that you don't need to itemize. Normally job-related expenses are a miscellaneous itemized tax deduction, subject to the 2% floor. An "above the line deduction" is a deduction you can take on the first page of your 1040, not on your Schedule C. Some above the line deductions you could have might be contributions to a SEP-Ira (Self Employed IRA), student loans interest or a health savings account.
If you provided services in the performing arts for two or more employers, receiving at least $200 or more in wages from each employer, your job-related expenses are more than 10% of your income from your performing artist jobs, and you have adjusted gross income of $16,000 or less you can claim this deduction, but only if you are claiming you are single. (If you are married you cannot claim this deduction).
This is what Back Alley Taxes says about line 24: "Qualified performing artist – This is by far the most confusing exception. To be allowed the 1040 Line 24 deduction instead of a Schedule A deduction, you must be a performing artist who worked as an employee for at least two employers during the tax year (meaning you were paid on a W-2 instead of a 1099 or scholarship, which I understand is extremely rare), you received at least $200 from each employer, had business expenses related to your performing art of at least 10% of your performing art gross income, and your total adjusted gross income for the year before deducting these expenses is less than $16,000."
In short, this is a good place to take a deduction if you make no more than $16,000 a year. Such a small amount, that it probably won't help you. On to Schedule C.
Schedule C is where self employed artists find their greatest possibilities for taking tax deductions. This is a beautiful thing. Here is a copy of the form. Become very familiar with this form, as it can save you a lot of money if you know how to use it.
Schedule C Is fairly complicated. Yes, it clearly lays out exact titles on the lines, but what it doesn't do is to tell you EXACTLY what it means by word on the line, and what it entails. For the exact meaning of the words under "Income" and Expenses, you must also have IRS Publication 334, the Tax Guide for Small businesses, Publication 535, Business Expenses, and Publication 505, Withholding and Estimated Tax. You can download these and other forms at https://www.irs.gov/www.irs.gov/
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Line 2: Returns and allowances: This pertains to a business that is involved in sales. It Probably will not apply to you.
Line 5: Gross Profit: Write your Gross Income again in this box, and this is the Total Amount you made before taxes.
Line 6: Ignore this. Your other income should be W-2 or possibly investment income, and will be reported elsewhere.
Line 7: Again, enter your Gross income.
Now for Part 2, Expenses. This is where you get to deduct the costs of supplies and services you use to materially operate your business. It is for this section that you need to have kept ALL your receipts during the year, no matter how small they may seem. It is here you can deduct the cost of Parking, Tolls, internet access,advertising, phone bills, utility bills, mileage, music, travel, meals, publications, books, coaching. lessons and anything else that directly pertains to your business.
The difficult part here is knowing which line to use to deduct your expenses, because it is not always obvious. The IRS knows that it is not always obvious, and on page two there is a section entitled "Other Expenses". There you can put the ones that seemed to fit no category.
Line 8: Advertising: For a self employed singer, this would mean business cards, promotional packets you send to managers or directors, Head shots, or notes advertising your upcoming concert or opera. Enter the total amount of advertising on line 8.
Line 9: Car and Truck expenses: This is a very good deduction, but again, you must keep good records. You have the option to deduct the actual expenses of using your vehicle for business or taking a standard mileage deduction. There are very specific guidelines for this. For example, when you choose to take the standard mileage deduction for your car you cannot change to the actual expenses as your car ages and you find your repair bills are getting higher. Likewise,cannot choose to take actual expenses and then switch to standard deduction. Further, the actual expenses only apply to the percentage of time you use your car for business, not all your auto repair bills.
If you have another job that provides you with a W-2 income you can NOT deduct any car and truck expenses for this portion of your income. ONLY the portion of your income that is from 1099 is eligible to be deducted.
I personally have never done anything but the standard deduction for this. The bookkeeping for actual expenses is not worth my while, and I am quite happy with the results of the standard deduction. Each year the standard deduction goes up and down. 2017 it was 53.3 cents per mile traveled. In 2018 it will be 54.5 cents per mile traveled.
If you do decide to do actual expenses you will have to keep even better records. You will also have to do a fair amount of math to discern the actual amount of time that you spend in your car for self employed business. In the end you may find that it is easier just to take the standard mileage deduction than do all that bookkeeping. I do.
Line 10: Commissions and Fees: You may or may not have this income, but if you hired someone to do a gig for you and paid them out of your own money, this is where you deduct that. You are not required to pay taxes on the income off someone else. If you paid someone over $600 in fees you are required to give them a 1099 and to file a copy with the IRS.
Line 11: Contract Labor: This is confusing, because it is basically the same thing. Ignore this and put your contracts over on line 10.
Line 12: Depletion: You won't have this. Ignore this line.
13: Depreciation expense: The dictionary definition of this word is: noun: depreciation, a reduction in the value of an asset with the passage of time, due in particular to wear and tear. This could apply to you, but probably won't. Suppose you bought a new keyboard or a computer. The value of the computer or keyboard will go down over time, so instead of allowing you to deduct the entire cost of the item in one year the IRS has some formula with which you can deduct it over several years, with a depreciated value that goes down over time.
Depreciation is very complicated. I am not sure most accountants even really understand the rules, but they don't really seem to apply to performing artists. I have heard conflicting information about this, but I have always ingnored the depreciation line, and simply have written off the entire cost of the keyboard or computer at once. I believe that it is kosher.
14: Employee Benefit programs: You definitely don't have this
15: Insurance (other than Health): This might apply to you for example if you had a home office in your home or a teaching studio. IRS Publication 587 is
what you need to read in order to see if you qualify for this deduction. If you use your home as a teaching studio you are likely able to take this deduction.
Line 16: Interest Did you pay interest expenses on loans pertaining to your business? Enter it here. Line 16a and b likely do not apply to you unless you are renting a studio for business purposes.
Line 17: Legal and Professional Services: This is uncommon, but might pertain to you if you had to sue a company for fees or you had to hire someone to represent you, as in professional management. Here you would deduct the fees you paid your manager providing that the income you received from it is 1099 income, and not from W-2.
Line 18: Office Expense: This sounds like paper, printer ink, office supplies etc, but it isn't. Don't deduct office supplies here. This is for things like plants and toilet paper, cleaning supplies and stuff that your office uses.
Line 19 Pension and profit-sharing plans. Ignore this.
Line 20: Rent or Lease: This is probably irrelevant to you, but if, for example, you had to rent a car because your's broke down and you needed to get to a gig, that could be an example of a deductible expense. If this was the case, you could not deduct the expense for the entire time you rented the car, but just for the day you needed it for business.
Line 21: Repairs and maintenance: This is where you would deduct piano a tuning, for example, or reconditioning your instrument. If your guitar cracks and it needs to be fixed, this is where you deduct it. (That is, if you are a professional guitarist).
Line 22: Supplies: Here is where you deduct your office expenses:
Line 2: Returns and allowances: This pertains to a business that is involved in sales. It Probably will not apply to you.
Line 5: Gross Profit: Write your Gross Income again in this box, and this is the Total Amount you made before taxes.
Line 6: Ignore this. Your other income should be W-2 or possibly investment income, and will be reported elsewhere.
Line 7: Again, enter your Gross income.
Now for Part 2, Expenses. This is where you get to deduct the costs of supplies and services you use to materially operate your business. It is for this section that you need to have kept ALL your receipts during the year, no matter how small they may seem. It is here you can deduct the cost of Parking, Tolls, internet access,advertising, phone bills, utility bills, mileage, music, travel, meals, publications, books, coaching. lessons and anything else that directly pertains to your business.
The difficult part here is knowing which line to use to deduct your expenses, because it is not always obvious. The IRS knows that it is not always obvious, and on page two there is a section entitled "Other Expenses". There you can put the ones that seemed to fit no category.
Line 8: Advertising: For a self employed singer, this would mean business cards, promotional packets you send to managers or directors, Head shots, or notes advertising your upcoming concert or opera. Enter the total amount of advertising on line 8.
Line 9: Car and Truck expenses: This is a very good deduction, but again, you must keep good records. You have the option to deduct the actual expenses of using your vehicle for business or taking a standard mileage deduction. There are very specific guidelines for this. For example, when you choose to take the standard mileage deduction for your car you cannot change to the actual expenses as your car ages and you find your repair bills are getting higher. Likewise,cannot choose to take actual expenses and then switch to standard deduction. Further, the actual expenses only apply to the percentage of time you use your car for business, not all your auto repair bills.
If you have another job that provides you with a W-2 income you can NOT deduct any car and truck expenses for this portion of your income. ONLY the portion of your income that is from 1099 is eligible to be deducted.
I personally have never done anything but the standard deduction for this. The bookkeeping for actual expenses is not worth my while, and I am quite happy with the results of the standard deduction. Each year the standard deduction goes up and down. 2017 it was 53.3 cents per mile traveled. In 2018 it will be 54.5 cents per mile traveled.
If you do decide to do actual expenses you will have to keep even better records. You will also have to do a fair amount of math to discern the actual amount of time that you spend in your car for self employed business. In the end you may find that it is easier just to take the standard mileage deduction than do all that bookkeeping. I do.
Line 10: Commissions and Fees: You may or may not have this income, but if you hired someone to do a gig for you and paid them out of your own money, this is where you deduct that. You are not required to pay taxes on the income off someone else. If you paid someone over $600 in fees you are required to give them a 1099 and to file a copy with the IRS.
Line 11: Contract Labor: This is confusing, because it is basically the same thing. Ignore this and put your contracts over on line 10.
Line 12: Depletion: You won't have this. Ignore this line.
13: Depreciation expense: The dictionary definition of this word is: noun: depreciation, a reduction in the value of an asset with the passage of time, due in particular to wear and tear. This could apply to you, but probably won't. Suppose you bought a new keyboard or a computer. The value of the computer or keyboard will go down over time, so instead of allowing you to deduct the entire cost of the item in one year the IRS has some formula with which you can deduct it over several years, with a depreciated value that goes down over time.
Depreciation is very complicated. I am not sure most accountants even really understand the rules, but they don't really seem to apply to performing artists. I have heard conflicting information about this, but I have always ingnored the depreciation line, and simply have written off the entire cost of the keyboard or computer at once. I believe that it is kosher.
14: Employee Benefit programs: You definitely don't have this
15: Insurance (other than Health): This might apply to you for example if you had a home office in your home or a teaching studio. IRS Publication 587 is
what you need to read in order to see if you qualify for this deduction. If you use your home as a teaching studio you are likely able to take this deduction.
Line 16: Interest Did you pay interest expenses on loans pertaining to your business? Enter it here. Line 16a and b likely do not apply to you unless you are renting a studio for business purposes.
Line 17: Legal and Professional Services: This is uncommon, but might pertain to you if you had to sue a company for fees or you had to hire someone to represent you, as in professional management. Here you would deduct the fees you paid your manager providing that the income you received from it is 1099 income, and not from W-2.
Line 18: Office Expense: This sounds like paper, printer ink, office supplies etc, but it isn't. Don't deduct office supplies here. This is for things like plants and toilet paper, cleaning supplies and stuff that your office uses.
Line 19 Pension and profit-sharing plans. Ignore this.
Line 20: Rent or Lease: This is probably irrelevant to you, but if, for example, you had to rent a car because your's broke down and you needed to get to a gig, that could be an example of a deductible expense. If this was the case, you could not deduct the expense for the entire time you rented the car, but just for the day you needed it for business.
Line 21: Repairs and maintenance: This is where you would deduct piano a tuning, for example, or reconditioning your instrument. If your guitar cracks and it needs to be fixed, this is where you deduct it. (That is, if you are a professional guitarist).
Line 22: Supplies: Here is where you deduct your office expenses: