[Dixielandjazz] I am not a Paid Tax Preparer folks.

TCASHWIGG at aol.com TCASHWIGG at aol.com
Sat Mar 12 10:53:40 PST 2005

I am a Professional Musician/businessman  who stays well informed about 
things that matter, especially when someone is trying to stick their hand in MY 

"There are only a few items the IRS has specifically said increase the chance 
for an audit." You may not be an outright tax cheat, but your return may 
contain a couple of those red flags. Here are five to watch out for. 

Itemized deductions

The IRS is more likely to scrutinize returns with itemized deductions than 
those that take only the standard deduction. The agency keeps a range of 
"normal" deductions for each tax bracket based on the average claim taken. So if you 
are earning $45,000 a year and deduct half of that for mortgage interest -- 
but the average for your tax bracket is around $5,000 -- the taxman may come 
calling. $7,000 on business meals? If the average for your tax bracket is only 
$1,500, watch out.   If you can legitimately claim those deductions, by all 
means take them. But hold on to your receipts. 

Hobby losses

If you are holding down a full-time job but are running a side business, you 
may be targeted for an audit if your pet project posts a loss year after year. 
Schedule C is used to report income or loss from sole proprietorships, but 
some businesses are little more than a cover-up for a loss-producing hobby. "The 
code does not permit you to deduct hobby losses," The gentleman farmer that 
doesn't intend to turn a profit, is an example of a hobbyist. And the IRS 
agrees. Even if that hobby generates a few bucks, it may be in your best interest 
to stay far, far away from Schedule C because the IRS may not be satisfied with 
a modest profit. Schedule C filers are among the highest audit risk group so 
be prepared to justify your claims.   Draft a business plan and enlist expert 
help, if needed. Also, carefully record your business expenses and keep them 
separate from your personal expenditures. The goal is to present yourself as a 
professional, not an amateur.   Especially for Doctors and Lawyers playing a 
little music on the weekends.   These are the guys the IRS is looking for, not 
the poor underpaid starving professional musician trying to compete against 
these guys for legitimate work and earnings.

Due to the low earnings of many professional musicians, the IRS knows full 
well that many of us have to supplement their PROFESSIONAL Musician earnings 
with other Full time Jobs and sometimes two of them.   Remember this if you get 
audited and the auditor tries to classify you as a hobbyist.

Home office deductions

If your place of business is also your residence, be careful with that home 
office deduction. "The room has to be used exclusively for business purposes," 
"You cannot just have a desk in your living room where you have a television 
set."  That can be disproved too if you have a video recorder and playback 
system hooked up to the TV and use it to show live performances of your band to 
prospective clients who visit your office.

Just think about the poor Homeless musician living in his van, let them try 
to disallow his deduction of it as his HOME OFFICE, I would venture to say that 
if he were audited and showed parking tickets deducted as rent he could win, 
provided of course he had receipts to show he had paid them. :))   I bet he is 
the exception to the rule that you can't deduct your dog as a security system 
too, if he can prove the dog lives in the van to protect thieves from 
stealing his instruments.  Sounds crazy, but no more crazy than the idiotic things 
they try to tax.  So if you can justify and prove it claim it and make them earn 
their money by proving that it is not a legal deduction.  Just because they 
say it is not does not always mean it is not.  Stand up and Fight Back damn it. 

Have a tape measure handy because the IRS limits that deduction to the actual 
space your office occupies? So if your office takes up 200 square feet in a 
1,000 square foot apartment, then only 20 percent (200 divided by 1,000) of 
your total housing expenses are eligible for that deduction. Your total housing 
expenses includes any rent or mortgage, insurance, utilities, and maintenance 
associated with the residence.   Some auditors will say that a home office 
deduction cannot result in a loss.   Not true if you establish your home office as 
your principle place of conducting your business.   Their example often is 
that if your business income totals $6,000, but you have $5,000 in business 
expenses and $1,500 in home office costs, that last $500 cannot be deducted from 
your taxes. You can, however, carry that deduction over to the next year 
provided you have sufficient income. 
If you also have another room set up totally for band rehearsals, and or a 
recording studio that you use to produce your work it too is a legitimate 
deduction as part of your "HOME OFFICE"    All of your stereo gear, recording 
equipment, PA System and instruments are depreciable assets.   CDs you purchase, 
sheet music, fake books, copy machines, paper to print your flyers on business 
cards, free CDs sent to radio stations and prospective bookers, agents, sidemen, 
etc., and the postage to mail them are all legitimate deductions.   All 
expenses, incurred in the normal operation of your Music Business.

Now as for income, you also must claim it all, from gigs, Lessons, arranging, 
or whatever, in many cases you will indeed have more expenses than income 

The IRS guy might try to tell you that you can't continue to run this 
business at a deficit, :))
Ask him when was the last time the US Government did not operate it's 
business at a deficit.   Many corporations also deduct enormous amounts for research 
and development for years before they ever even release a product to sell to 
the marketplace.

Many musicians also work for many years writing music and arranging it and 
recording it before they ever release it for sale, keep track of the costs and 
you have legitimate deductions against future sales and income from the "work" 
you are not evading taxes here folks you are avoiding them and deferring them 
until such time as you have actually made a profit to owe them.   This is 
perfectly legal.   You may also defer your income and keep record of it.   It 
works very similar to an IRA.

High income

Not only are your taxes higher, you are chances of being audited are 1 in 20 
if you earn $100,000 or more.   Leaves out most Musicians right ??

Don't believe it look up Musicians under the US Government website.   I think 
Steve Barbone posted that info a while back.

"Higher income earners are more likely to be audited because there is more 
tax money at stake," Tyson said. "The IRS is a business, they have employees and 
they do not have time to let them audit people if they are only going to earn 
$2 worth of tax." 

Earning less money really isn't an option, but high earners should be aware 
that the government is eyeing their returns very carefully. So any temptation 
to tack on another $1,000 to a charitable deduction shouldn't be indulged. 

Bottom line:

Don't try to cheat them by not claiming your income whatever it is, that is 
EVASION of Taxes and what they are looking for more than anything else.   The 
guy driving a Hummer and claiming he only makes $300.00 a month as a musician 
is asking for trouble.   As is the guy who remodels his home in a cheap 
neighborhood to make his house stand out as a mansion amongst shacks while claiming 
he only makes $300. $500. a month.

The first thing they will check is any income taxes withheld from any of your 
earnings that were reported to them, the second is how much money you put 
into your bank accounts and then they will start asking you where you got it and y
ou had better have the right answers.   If you do and you have good records 
you have nothing to fear but fear itself.

Educate yourself, don't take H&R Blocks word for it, Hell they will hire 
anybody to work for them and do what they are told just like Wal Mart or Home 
Depot, Just because they work there does not mean that they know what the Hell 
they are doing, and especially about music business returns.  I have met guys 
>From Burger King and even unemployed musicians working for H&R Block, :))   Buck 
the system, if you do it correctly and honestly you too can win, "You can only 
cheat an Honest man."  Most Politicians are not the most Honest of Men or 

In an effort to reduce Paperwork the IRS says:
Next year's Tax return will look like this.

Line #1   How Much did you Make?

Line #2    Send it to us.

More information about the Dixielandjazz mailing list