April, DJ Chase B told Billboard, is “always weird.” Like athletes, DJs and other touring musicians making money in numerous states each year are responsible for filing multiple state tax returns. Since the majority of artists don’t make as much money as top professional athletes, they can risk falling behind if they’re not careful to pay quarterly taxes based on earnings estimates — otherwise, they can rack up unpaid bills and penalties. “That’s probably the biggest lesson I learned,” says the Houston DJ and producer who has worked with Travis Scott, Ty Dolla $ign, Don Tolliver and others.
Related
“It’s not fun,” adds Jamie Cheek, owner and business manager at Nashville-based FBMM, which represents artists and songwriters. “If you’re big enough, and it’s big enough money, you’ll file a tax return in every state. You’ve got to watch it if you’re touring.”
According to the New York Times, early in the year, athletes, umpires, coaches and broadcasters receive a separate W-2 whenever they make money in any state. For some artists who receive income from top promoters such as Live Nation or AEG, the process is similar — although it gets complicated in circumstances where promoters pay advances in one year and the actual tour doesn’t take place until the following year.
Many smaller artists who perform at clubs are considered self-employed gig workers and often receive 1099s, as opposed to W-2s like those on tours promoted by Live Nation or AEG, or an athlete playing for a major league sports team, such as the Boston Red Sox.
“A touring band thinks, ‘Hey, I live in Nevada or Florida, I don’t pay any income tax,’” says Wendy On, managing partner for Fineman West & Co., a business-management firm whose roster includes Aerosmith’s Steven Tyler, producer J.R. Rotem and Maroon 5’s Sam Farrar. “Well, every state wants a piece of their pie.”
Income from sales, streaming and songwriting royalties are more straightforward — generally, artists can report from a single state, as opposed to filing multiple state tax returns. The key nuance here, Cheek says, is making sure to report this income as self-employment tax on Schedule C: “Because that’s their primary source of revenue.”
For artists lucky enough to have lucrative publishing catalogs — like those sold in recent years by Bruce Springsteen, Bob Dylan and Stevie Nicks — Cheek advises paying attention to obscure but powerful tax nuances. Royalties received through a record label are similar to making a wage from a company, and taxed federally as ordinary income at roughly 40%. If the same songwriter owns master recordings, and decides to sell them to another company, the revenue is taxed as capital gains — or at 20%. That makes for a big difference.
While it’s tempting for artists to sell as soon as the master recording reverts to them 35 years after signing an initial record deal, per copyright law, business managers note it’s best to wait at least one year before doing so. That allows them to avoid costly short-term capital gains, which can be taxed at 40% of the sale price, as opposed to just 20% for long-term gains. “I’ve seen a deal get 80% done, where nobody thought of that,” Cheek says, “and you’re like, ‘Whoa! You might want to wait 10 months.’”
Wardrobe is often the most common expense artists try to deduct when tax season comes around, Cheek says. Generally, it’s not a wise choice to go on a shopping spree for stage outfits with the intent of deducting the extravagance the following April 15.
“If you wear a black T-shirt and blue jeans on stage, they’re not going to let you deduct that, because you can also wear the same black T-shirt and blue jeans going to the grocery store the next day,” he says. But if an artist were to buy matching black T-shirts and blue jeans for the entire band to wear on stage, then that might qualify for a deduction.
“A client in the entertainment space got audited, and had to prove [to the I.R.S.] why hiring security and flying private planes for their travel is important — because they get swarmed by people,” On says. “I try, if I [am] in front of the auditor, to be able to justify it.”
