Tax deductions for your "music business"-?

joey2000

New member
Anyone done this or have more info or experiences? If I have a home studio set up in my house and am trying to sell my recordings, can I tax deduct part of my mortgage/utils (it would seem so based on what I'm seeing)? What about purchases to that end (gear etc)?
 
You'll at least need a DBA, if you don't have that you're out of luck for this tax season (ending 2016). Only purchases/expenses during the tax year apply, so if you get incorporated or a DBA now anything spent in 2017 would count toward next year's return.

I've done this once many years ago for a different business. My friend was a tax prep specialist and helped maximize via 'creative accounting' and I made out fine on that first year. The business tanked by the next tax season. Part of my deductions were shared living space related, similar to what it sounds like you are considering. It's tricky because the rules are specific and yet interpretive. Asking someone like a tax attorney would be ideal.

Since the time I filed with my business the tax code has changed slightly from what I was told, so the rules are more strict in what you can/cannot deduct. You can almost be certain that the things you can deduct will need to be directly related to the business. Directly. If you get audited and cannot prove everything you deducted it's a big deal. Don't cut corners. If the numbers don't work in your favor, don't file. Exaggerating or minimizing will only get you burned, and it's just not worth it for what amounts to a few hundred or thousand dollars.
 
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Tax rules are very different country to country. I declare all earnings from my music and studio and put in a tax return with the deductions. However I do record other peoples projects so you could say I am not really a home studio but a semi-commercial studio and I play paying gigs and do live sound at venues. I also have a separate building with the studio and gear storeroom due to living in an apartment, the advantage is that I can claim the expense of the building, interest, insurance, electric, etc etc. The studio also owns all of my live gear as well, amps, guitars, PA system, etc, which I effectively hire from my own studio to use for $0. (accountant talk).

Regarding if you can claim part of the mortgage, be careful, if you claim some of the house mortgage for business use you may be up for capital gain on part of any profit when the house is sold. However you should be able to claim part of the electric and insurance, etc, of the building without a problem.

You need to talk to an accountant about what you can claim and the effects of claiming, and if you actually qualify to claim regarding if it is a hobby or part time business.

I have been paying tax on my music earnings for the last 40 years, sometimes the deductions work out in my favour sometimes they don't, if you can claim and you run at a loss, they can reduce your day job earnings as well which then makes it worth while.

Alan.
 
Contact a CPA (period). Write-offs are possible and wonderful. Write-offs of your dwelling are entirely different and potentially scary depending on local regulations.
 
Anyone done this or have more info or experiences? If I have a home studio set up in my house and am trying to sell my recordings, can I tax deduct part of my mortgage/utils (it would seem so based on what I'm seeing)? What about purchases to that end (gear etc)?

You don't say where you are (ie: what country) and laws are very different from country to country.

I am in the UK and set up my recording as a business when I started - I also registered for VAT.

Everything that could be put to the business is tax deductable and I gat the VAT back on everything I purchace for the business - though I do have to add VAT to every outgoing invoice.

My accountant advises me what I can put to the business and what I can't.

A percentage of gas and electric bills and the use of a room are OK, for example.

But I certainly would get advice from an accountant - mine prepares my tax returns each year.
 
Yeah, USA. I figured that was assumed since we're the center of the universe. ;)


You have to look at the "Hobby" rules. There has to be a reasonable expectation that you can turn a profit or you can't claim income or deduct expenses.... or something like that.

This will bore you:
https://www.irs.gov/uac/business-or-hobby-answer-has-implications-for-deductions
It didn't bore me, but in classic gov't fashion, it didn't clarify squat either. God I hate gov't. You would think tax laws at least would be specific and clear.

Edit: they point you to this https://www.irs.gov/pub/irs-pdf/p535.pdf which goes on...and on...and...........

Screw it. I doubt I would recoup that much to be worth the 10,000 hours and hair-pulling apparently necessary to figure out what I can and can't deduct.
 
Screw it. I doubt I would recoup that much to be worth the 10,000 hours and hair-pulling apparently necessary to figure out what I can and can't deduct.

That's why most people, like myself, who want to go this route pay someone to figure all this out. If you think just reading the code is aggravating, wait until you have to file all the correct paperwork, etc.

Maybe call a few tax prep places and see what they charge for a small business filing. Since it's done in person with a human being, they guide you through the process/questions. Might not be that expensive going that route, you just need to make sure you have all receipts and pertinent info prepared ahead of time to make the most of their time.
 
Yeah, USA. I figured that was assumed since we're the center of the universe. ;)

LOL. :)

It didn't bore me, but in classic gov't fashion, it didn't clarify squat either. God I hate gov't. You would think tax laws at least would be specific and clear.

I gave the jist of it: There has to be a reasonable expectation that you can turn a profit or you can't claim income or deduct expenses....

You get either 3 yrs or 5 yrs to prove you can make a profit from your hobby to call it a business. If you start out as a legit business and don't make a profit, AND you keep running it as a business for 3 or 5 years, the IRS will consider it a hobby and none of your expenses are deductible.

I can't remember if it's 3 or 5 years.

I'm not a tax professional or anything, but I had the same questions a few years ago and this is what I got from all my reading.

BTW: Off-topic a little, but I use Turbo Tax. It covers most everything you can think of... I have rental property, royalty income and investments. It gets it all done and I always come away with a refund.
 
Nothing will flag you for an IRS audit faster than claiming use of your home for business. Make sure you understand the code (what qualifies as legitimate use is quite detailed and limited), and that the hassle of compliance is worth the effort. Get some professional advice.
 
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