Tax Tips For Music Licensing

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So, you’re starting to make some money from music licensing. Nice!

That means your hard work as an artist is starting to pay off. When it comes to seeing a financial return with your music, there are a few things to keep in mind, we’ll walk you through some pointers and suggestions below..

First and foremost, Marmoset does not withhold anything for taxes in our payments for licensing fees/royalties —  all earnings will be taxed by the government. We advise artists to remember that money made from licensing (or any music-related income) will be taxed separately.

Because of this, we recommend reserving about 15%-20% of the income received  specifically for taxes (tax codes have changed in the last year or so and will probably continue to change, so this percentage is an estimation).

To help manage tax costs, if you have been consistently earning a large sum from licensing (more than $5k-$10k a year) we recommend paying quarterly estimated taxes to avoid paying all taxes at once.

Another important detail to keep in mind is if music is less of a hobby and more of a main source of income, then you can write off many of the related expenses off on your taxes. This includes and is not limited to: musical instruments, part of your rent (if you have a home studio), miles driven for music related jobs, etc.

It might also be beneficial at some point to open a bank account specifically for music related income and expenses. In addition, starting an LLC might be useful for your music business.

Some reasons to start an LLC (costs $100 a year):

  • Work under a different name/don’t have to use your SSN
  • Gives protection to your personal assets in case of a lawsuit
  • Could bring more legitimacy to agency (IRS, etc.) and prove it’s more than a hobby

Keeping all of this information in mind while being prepared when tax time comes will ensure you’re set up for success.

 

Here are some additional resources you can use to learn more about managing taxes as musicians:

Podcast about accounting for musicians

http://killrockstars.com/thefutureofwhat/episode-126-creative-accounting/

IRS page for self employed individuals

https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center

Interview with tax expert by a musician

http://tomtommag.com/2017/03/tips-accountant-best-way-musicians-taxes/

Turbo Tax’s guide to tax deductions for musicians

https://turbotax.intuit.com/tax-tips/self-employment-taxes/the-musicians-guide-to-taxes-top-tax-deductions/L3dFXFokF

IRS form for paying quarterly estimated taxes:

https://www.irs.gov/pub/irs-pdf/f1040es.pdf