Tax Write-Off: Music Business Tips
TAX WRITE-OFF: MUSIC BUSINESS TIPS
These quick production tips will definitely save you time in the studio and improve your workflow.
So what is a write-off & how does it work? Is it free money I get back like a 9-5 job does??
Write offs are things like services, bills, & really any legit items you need to pay for in order to properly run your business.
At the end of each quarter & year, you will have to figure out how much you made for your business & how much you had to spend to run your business.
Usually you will subtract how much you spent from how much you made & you will owe a percentage of tax of the remaining amount.
What the percentage is totaled is based on your state guidelines & the tax bracket you fall in.
It's not free money you will get back exactly though. It doesn't work quite like tax season with a 9-5 job, because often times when doing work-for-hire & self-employment gigs, taxes, SSI, & Medicare are not being taking out of the money that is put into your methods you accept payment from.
Because of this, you will have to pay taxes directly to the IRS at the end of each quarter. If you were working a 9-5 job, your employer has been handling all of this in the background & you don't have to worry much about it. That's part of the trade off when working for someone else business & brand; you get a certain sense of financial security & everything you owe to the government is taken care of for you for the most part.
Sometimes you may receive cash back though, but that's if you had a bunch of write offs that exceed how much you made. Be careful though. If you set your write off ups so the IRS is giving you money back each year, eventually they will audit you.
The write-offs you have for your business will drastically help lower what you owe each quarter. You may even find some quarters you owe little to nothing.
Let's do some math using general numbers so you have a visual.
Let's say you made $10,000 one quarter & you owe 15% of that to the IRS because of your state guidelines & tax bracket.
Well without the write offs, you now owe $1,500! That can be a lot to dish out!
Now let's say you have the same numbers, but you're also able to write off around $6,000 of expenses for that quarter.
Take the amount you made & subtract what you spent from it.
$10,000 - $6,000 = $4,000
You now have $4,000 left that you will owe taxes on, so you would take 15% from the number $4,000
You would owe $600 instead of $1,500 & that can be a big difference!