Get Ready for Tax Season: Year-Round Organization Tips for Musicians
By Ashley Danyew
Taxes can be daunting (especially if you’re self-employed). Setting yourself up for success means setting up systems you can use throughout the year to track your income and expenses, keep organized financial records, pay estimated taxes, and manage write-offs. In this post, you’ll learn seven practical things you can do all year long to help you prepare for tax season. Whether you’re just starting your music career or you’ve been doing this for a while, I hope these strategies help you feel confident and prepared for tax season.
P.S. Need more support? See the free tax resources I link to at the end of this post.
Disclaimer: This content is for educational purposes only and should not be construed as tax
advice. Please seek advice from a tax advisor familiar with your specific situation.
7 Tax Prep Strategies for Musicians: How to Stay Ahead All Year
1. Open a separate tax account.
If you work for a company, school, or organization and receive a W-2 at the end of the year, your employer withholds taxes and sends that to the government on your behalf. As a self-employed musician, you are responsible for taking out money for taxes and making those payments.
That’s why step 1 is to open a dedicated savings account specifically for taxes.
Every time you get paid (or once a month when you tally up your income), subtract a certain percentage for taxes and put it in your tax account until those payments are due.
If you make enough in self-employment or 1099 income to owe $1,000 in taxes at the end of the year, you need to make estimated tax payments. A tax advisor can help you calculate how much to set aside, but a good rule of thumb is 25-30% of your income after expenses.
2. Track your income and expenses monthly.
Bookkeeping is essential to managing your business finances, keeping thorough records, and preparing for tax season. Use a bookkeeping tool or accounting software or create your own using Excel or Google Sheets to help you track all your sources of income and categorize expenses.
Here are six bookkeeping tools I recommend, including one specifically for self-employed musicians.
Make this a monthly or bi-weekly habit—Money Monday or Finance Friday—a time when you record all the money coming into your business, calculate expenses, pay bills, and set money aside for taxes.
3. Save your receipts.
Receipts are evidence of how you spent money in your business. If the IRS ever audits you, you need to be able to prove how you made money and how you spent it.
The only problem? Receipts fade.
Saving a stack of receipts in an envelope on your desk until tax time is not a great strategy because half or more of them may be unreadable by the time you go to add them up.
This is why step 2 above is so important—track your expenses as you go instead of saving them all until the end of the year.
As for long-term storage, digitize your receipts when you get them so you have a copy. This also reduces physical clutter, so win-win!
4. Track your mileage.
Another important record to keep in your business is mileage related to your self-employment work. Use an app like Hurdlr to track this for you or keep a log on your phone or in a notebook you keep in the car.
Write down the starting and ending mileage for every trip you take that’s related to your business: driving to and from the airport for a work trip, driving to and from a student’s house for lessons, driving to and from the music store to pick up sheet music, or new strings. You can deduct a certain amount per mile driven (it changes slightly every year), including tolls and parking fees, so it’s worth keeping track of this throughout the year.
5. Take advantage of business write-offs.
Business write-offs (tax write-offs or business deductions) are things you spend money on that are directly related to your business or self-employment work. The IRS lets you subtract these expenses from your taxable income, which can significantly reduce your tax liability (how much tax you owe the government) and save you money.
What qualifies as a business write-off? Anything that’s necessary to run your business—travel expenses, home office supplies, computer equipment, instrument maintenance, and more—but again, only for your self-employment work.
Here’s an example of how this works:
Let’s say you made $40,000 in self-employment income this year and you spent $8,000 (20%) on business-related expenses. When you file your annual tax return, the government will subtract $8,000 from the $40,000 you earned when calculating your tax bill, so your taxable income will be only $32,000. This saves you roughly 25% on whatever you spend on business expenses (in this case, $2,000!).
If you’re looking for more information on write-offs and how to use them in your business, this post has 23+ business write-offs specifically for musicians. This is especially helpful at the end of the year if you’re looking for ways to invest in your business and lower your tax bill.
6. Contribute to a retirement account and HSA (if eligible).
If you’re self-employed and don’t have access to a retirement plan through an employer, here are three options for creating your own:
First, the Roth IRA: There is an annual limit on how much you can contribute, but the money is already taxed, meaning when you withdraw it later, it’s tax-free.
Second, the Traditional IRA: Like the Roth, this account also has an annual limit on how much you can contribute. You get a tax break now when you invest, but you have to pay taxes later when you withdraw.
Third, the SEP (Simplified Employee Pension): This account has higher contribution limits (up to 25% of your income). Like the Traditional IRA, you get a tax break when you invest in the SEP and pay taxes when you withdraw.
Another savings account worth noting is the HSA (Health Savings Account)—a tax-deductible way to save for medical expenses. Similar to a retirement account, you can set aside several thousand dollars each year (the annual contribution limit changes slightly each year, so check the current annual limit). This is like getting a 25-30% discount on all medical expenses—doctor’s visits, prescriptions, labs/tests, surgeries, contacts/glasses, dental cleanings, etc. Even things like KT tape, Tylenol, and band-aids are eligible for reimbursement.
Again, investing in both of these account types can lower your taxable income and save you money at tax time.
7. Calculate your home office deduction.
If you’re self-employed, you’re eligible to claim a home office deduction. This must be a dedicated space in your home (or apartment)—whether it’s an entire room, half a room, or a desk in the corner.
Simply measure the square footage of your dedicated work area and calculate the percentage of your entire living space. You can deduct that percentage of your utility expenses, repairs, and maintenance costs, plus you can deduct a percentage of your internet. You can also deduct furniture (e.g. desk, chair), office supplies (e.g. printer paper, ink), and necessary equipment (e.g. computer monitor, scanner, printer).
This is a deduction you can claim on your taxes year after year, so it’s worthwhile to figure out the square footage and start taking advantage of these tax savings.
I hope this list provides you with a few new strategies for keeping organized tax records in your business throughout the year. If you’re looking for more guidance and support, I have two free resources to share with you:
Bio:
Ashley Danyew, Ph.D. is the Founder and Editor of Musician & Co., equipping classical musicians with the tools and education they need to be small business owners. She manages a private piano studio of K-12 students and hosts the podcast Field Notes on Music Teaching & Learning .
Instagram: @ashleydanyew
Website: www.musicianandcompany.com