15 ways you destroyed your tax return by filing youself
Doing your taxes by yourself as an indie artist may seem like a great way to save money by not working with a music accountant. However, here are 15 ways we’ve seen independent musicians ruin their tax return after doing it themselves. These tax time screw ups cost real money, in dollars.
#1|| 1099-Misc income was missing
You forgot to include the 1099-MISC you received from a venue, artist, record label, or publishing rights organization. The IRS knows you got the money, and they’ll be contacting you soon, because the person who paid you reported the income.
#2|| You only included income if you received a form
Not all money that comes to you will mean you receive a form for it. If you receive money via PayPal, cash, check, money order, or Bitcoin you still must report that you received it. Regardless of which table you received the money under, it is still a part of your income and should be on your tax return.
#3|| You didn’t send Form 1099 to bandmates, but took a tax deduction
Anyone you pay $600 or more should be rewarded with a Form 1099-MISC. If you don’t send them a 1099-MISC by January 31, the penalty is $30-$100 per form! So, ensure you send those out on time. Taking the deduction without sending the proper forms is a red flag.
#4|| You deducted all of your recording costs
Only half of your recording costs are tax deductible, the year you record. If you deducted all of your recording costs, album art, session musicians, mixing, mastering, and CD duplication, unfortunately you were wrong. This can cause a big issue if not fixed.
#5|| You forgot to include that instrument you bought
If you bought a new guitar, keyboard, microphone, or any other music equipment, but didn’t include that purchase on your return, you’re missing out on tax deductions!
#6|| Car expenses were left off
Whether you take the standard mileage deduction or compute your actual vehicle costs for the year, parking fees and tolls paid can also be deducted on your return. Forgetting these car expenses has you paying higher taxes than necessary.
#7|| Commissions were forgotten
Booking agencies often charge a commission for securing a gig for you. These commissions are tax deductible. If you did not include commissions paid to your booking agent, you’re missing valuable tax deductions.
#8|| You forgot about insurance
Instrument insurance, travel insurance, health insurance, and business insurance are all tax deductible for indie artists. If you filed your tax return on your own and forgot about these items, you’re missing out! There a 7 types of insurance you need for your music business.
#9|| Credit card or loan interest was omitted
If you have business credit card or have taken out a loan for your music business, the interest you’re charged by the bank is tax deductible. That is probably 10% or more of the loan amount so it’s certainly worth deducting.
#10|| Rehearsal space rental wasn’t included
If you and your band rent out a space to rehearse for your upcoming shows or tour, but you didn’t deduct the rent on your return, you sold yourself short.
#11|| You left off meals because you couldn’t find the receipts.
Touring musicians have to eat while on the road. So, it’s expected that you have meal expenses. Without receipts for food you paid for with cash, tax deductions get muddy. That’s why we recommend Receipt-Bank.
#12|| You didn’t track your merchandise
You sell stuff, whether CDs, t-shirts, posters, or stickers. Frequently called “merch” but the tax agents call this inventory. If you don’t know how much you bought, sold, and still have you’re sitting on cash, but also are losing out on valuable tax write-offs.
#13|| Your mileage is inaccurate
As a touring indie artist, you’re driving your own car to and from rehearsal, gigs, and tour shows. You can’t be blamed for not keeping a traditional mileage log, those require paper. But, technology allows the process of keeping your mileage together much easier using Expensify. Keeping accurate mileage, typically means higher tax deductions for your vehicle.
#14|| You deducted “free” shows to non-profits as a charitable deduction
Wrong. Your free show was free, you don’t get to deduct what you would have made if you had charged the charity. The closest real deduction would be the mileage deduction for driving to and from the event at the charity mileage rate.
#15|| Your clothes, hair, and makeup aren’t deductions
If you added personal care items such as clothing and shoes or hair and makeup on your tax return, you took more deductions than you’re allowed. Unless your on stage outfit is a costume, it’s not deductible for tax purposes.
Here’s the deal:
If you’ve tried saving money by using TurboTax or some other DoYourTaxesOnYourOwn.com type website, you probably made mistakes. The problem with these DIY tax softwares are that they don’t ask the right questions specific to you as an artist, so you wind up with the wrong answers. There’s no shame in pinching the pennies to do your own taxes, but make sure you don’t make the 15 mistakes above and ruin your tax return. If you’d rather play it safe, contact us so that you can fix it before it’s too late to receive a refund or more costly in interest and penalties!
So, which of these tax mistakes have you made on your return? It’s okay to admit it, you’re not a tax pro!