It's that time of year again... every commercial on TV is for tax software, every artist you played with last year is reaching out for a W9, and every expense receipt you have is being tracked down. Taxes are not sexy, but I had a couple of thoughts I figured I'd share to help out my friends who constantly struggle with tax season.
1) What should you write off?
When I first came to Nashville in 2011 I was told to save every receipt and write off anything I could possibly write off: car trips to coffee meet ups, snacks from the road, instrument purchases, etc. This helps alleviate some of the tax burden for the year but could actually be hurting you if you're looking to get a loan in the next couple of years (house loan, car loan, business loan). Whatever you write off comes out of your "provable income", so if you're asking a bank for a house loan and you've written off half of the $40,000 you made last year with things like guitars, gas reimbursement, coffee, etc. then you'll look like you make a lot less each year than you actually do. If you're not looking at taking out a loan for a few years, write off as much as you can, but just tuck that nugget away for when you start to look at a business or home loan.
2) Stay organized for next year
Although filing taxes for this year is still happening, it's important that you start keeping records for next year to make the process less painful! Go out and get a binder with some dividers and keep a log of your miles, tuck away your expense receipts (including the receipt for buying the binder), and track your income as well. If you do this for every gig this year, next years taxes are going to be a breeze. You don't have to write off everything, but it's a lot easier to choose what to write off than to wish you had kept a receipt for something.
3) Know what you need to charge
Being a full-time musician is tough because so much of the industry is based on verbal agreements and going with the flow. But something that I've found very useful is deciding what you need to charge in order to make a gig possible. It doesn't have to be extravagant, but know your minimum threshold for being asked to play a gig. It might hurt to say no to something that pays $50 when you're hurting for cash, but if it's going to require you to drive your own car and potentially get a flat tire on the way, you'll wind up saving money in the long run.
For the married folks, talk with your spouse and see what that number might look like. It could be playing for free for someone you really want to get connected with, but just know what you're willing to accept in order to sacrifice that time at home with family.
Money conversations can be weird, but for the sake of your future self it's good to start thinking about how to handle it now. Taxes might be daunting, but they don't have to be that way next year. And if you need help, I'm happy to talk through stuff with you (for a fee... wink wink).
If you want more tips about money in the music industry (and 9 other topics), I still have a free eBook that's available! Check it out: http://jesseplaysbass.com/free-ebook/
Thanks for reading!