[Dixielandjazz] Taxes and 1099s

[Charlie Hull]

One of my sidemen was a career IRS auditor, and my system is based on 
his advice and has not been questioned in two audits.

The basic premise is that you aren't in business unless you have a 
business license and evidence of active marketing to solicit business; 
like a business phone listing, website, and/or advertising in a widely 
distributed publication. You also should have a systematic method of 
regularly recording income and payouts; preferably a bookkeeping system. 
All of this indicates that you are seriously in business, as opposed to 
engaging in an income producing hobby.

Persons you pay to perform with you are assumed to be employees and 
subject to payroll tax withholding and reporting, and you are subject to 
carrying workmens compensation insurance and unemployment taxes. The 
exception is when the occasions of performance are irregular and the 
sideperson is willing to be self-employed and contract with you to perform.

I have a signed contract with each of my sidepersons, in which they 
provide their Social Security number and declare themselves to be 
self-employed and responsible for reporting the income received from you 
and paying any related taxes. In other words, a formal, documented 
business relationship establishing a non-employee situation.

Each January I send a letter to each person who performed with me during 
the previous year, listing the dates of performance and amount they were 
paid, and stating that if the total paid during the year exceeded $600, 
they will receive a Form 1099. This further establishes their 
responsibility to report their income.

If you book a lot of steady gigs and the boss doesn't want to make 
separate paychecks for each band member, the onus is on you as the 
leader, and you should get an employer's number and file employer tax 
reports.

Also, if your band grossed more than $600 for one employer, you may 
receive a 1099 for the total amount paid to the band, and you are 
personally responsible for reporting that amount (the IRS gets the 
original 1099 so, like with a W-2, they know you received the money) and 
paying tax on it. If you file a Schedule C you can deduct what you paid 
to your contract performers as Cost of Sales - Non-Employee Labor.

Charlie Hull