If you’re an active musician who enjoys payment in any way, you’ll probably have to do taxes eventually. Unless you’re giving all of your music and merchandise for free, you may have already missed an important amount of work that could get you in trouble with the government. That’s normal — musicians don’t always think about it, happy their art is finally making back more than what they’re putting in. But eventually, it needs to be addressed.
See, when you have a band, in a lot of ways you are running your own small business. You are selling a product, no matter how much integrity you have in putting it together. And where there’s a profit, there’s taxes to be done and records to be kept. If you don’t get this taken care of, it could ruin your band/music later.
The first thing to address in terms your professional finances is record-keeping, or bookkeeping. This is necessary for taxes and professional records and not something to get behind on. Now, tours can go differently — for as much downtime you may have during a drive, you may have a full schedule. But even when you find yourself busy with the press, long drives, and touristy things, you need to make time for it. Keeping track of your miles is a good plan as well, as they are able to be written off.
Now, in the past this was as simple as keeping all of your receipts from gas stations and keeping notebooks of how much merch was sold and what your payout was. In 2018, these things can still be helpful, but they’re going to be digitized anyway. Companies everywhere are switching to paperless records, and the rest of the world will probably follow suit.
Many bands have taken environmental stances and rejecting receipts may be a chance to participate in that. For this, I’d recommend using something like Quickbooks Self-Employed if you can, which can connect your band bank account and credit card to the software. If you’re not at the point of having an artist bank account or credit card yet, or using this software, make sure you keep good books, even if this means keeping your paper receipts for a bit.
When Professional Help Is Needed
There may come a point where financial advice or the help of an accountant may be necessary. Now, it’s important in this case to differentiate between an accountant and a bookkeeper. Where bookkeeping is purely record-keeping, Ohio University’s website explained that accountants are “qualified to provide their employers with these same services, but they also influence companies by offering more in-depth, actionable advice regarding their finances.”
So when might you need an accountant? Well, an accountant typically might come in to help you work out a budget and figure out where to spend your money next. They also work as investigators in cases of financial fraud. Essentially, you need an accountant when your finances are too big for you to handle or you’re in need of help choosing your next moves. The key thing an accountant does is help you “manage” your finances, which can include bookkeeping but goes much further. In the case of a musician, it could be important when deciding how much to spend on a tour or a record, reviewing your spending after a tour, and planning which labels to go with for your next release.
As Going Concern pointed out a few years ago, a large number of accountants really don’t trust others in their profession. Citing a resource from CareersInAudit.com, they quoted a survey that showed a significant percentage of accountants believe that up to a quarter of their peers have acted unethically. So how do we impressionable musicians keep our guard up? How do we look out for sketchy accountants and financial professionals?
First of all, tax preparers need to have Preparer Tax Identification Numbers (you will commonly see this referred to as “PTIN” in accounting articles online) before you trust them. This is the only way to know if they are legit.
Self-proclaimed “idiot accountant” Gene Marks wrote in Entrepreneur to warn against those, like him, who are qualified to be accountants but should not be in the business. Ultimately, his piece comes down to whether or not the person in question seems to be actively working for you — whether or not they’re responding to you, if they’re offering proactive advice and reaching out on their own terms, and seem to want you to succeed.
Inc.com also pointed out that you should check a person’s references. If you ask, they should be able to provide you with credibility from work with other people involved in artist and musician communities — at the very least, entertainment. It doesn’t hurt to ask some of your peers as well who they might recommend — going to the reference first, that is. If these things seem to check out, chances are that you’ve found yourself a pretty trustworthy financial confidant!
Have you ever had to use an accountant in terms of your music? Feel free to share your experience with me on Twitter @Robolitious.