Music vs. the IRS

Jim Smith · Post by **Jim Smith** » 27 Jan 2003 9:32 am

I guess this fits here and would be considered "Musical topics not directly related to steel guitar".

I consider myself lucky enough to have returned to college and received my Bachelor's Degree. My day job pays me well enough that I don't need to rely on my music income anymore, but I do worry about layoffs in my industry.

For the last 30+ years I have filed a Schedule C for my music income. Most of my gigs pay cash, but I do have a few that pay by check, and one band I work with once in a while hands out 1099's.

Back in my early years of playing part time, I got laid off from my minimum wage day job. When I went to apply for unemployment and mentioned that I played in a band on weekends, I was told that if I am self-employed I can never be unemployed.

Is this still the case? If so, how do you guys with day jobs handle this? I'd like to hear any and all comments on this issue.[This message was edited by Jim Smith on 27 January 2003 at 10:55 AM.]

Jim Cohen · Post by **Jim Cohen** » 27 Jan 2003 10:52 am

My first suggestion is that you delete your last paragraph.

Jim Smith · Post by **Jim Smith** » 27 Jan 2003 10:56 am

Well, um, okay, I deleted part of it.

Roger Rettig · Post by **Roger Rettig** » 27 Jan 2003 11:27 am

I'm a self-employed musician, and I tried to get 'unemployment' once during a long lay-off. I was told how to proceed with my claim, but, in the end, I found the process so daunting that I abandoned my efforts - it was easier to get some more gigs!

No surprise - I guess the system's designed to put you off....

chas smith R.I.P. · Post by **chas smith R.I.P.** » 27 Jan 2003 1:49 pm

When I went to apply for unemployment and mentioned that I played in a band on weekends, I was told that if I am self-employed I can never be unemployed.

It's generally a good idea not to answer questions that weren't asked or to provide more information than is needed to answer the question. If you are getting 1099s or W-2s on your music income or you're being paid by check, there's a paper trail, if it's cash only, maybe nobody has to talk about it.

Last year I paid more income taxes than General Electric Co.

Jim Smith · Post by **Jim Smith** » 27 Jan 2003 1:56 pm

I was asked if I had any other money coming in when I told them about playing music. I realize that I should have kept my mouth shut then, but I can't very well do that now as long as I'm filing Schedule C's.

Donny Hinson · Post by **Donny Hinson** » 27 Jan 2003 2:15 pm

Are you "deducting" expenses as well? It's really foolish to just claim the money you make, if you're not amortizing your equipment, and claiming other "expenses" (strings, lessons, repairs, etc.), as well. If your music income is less than ten or 15 percent of your total income, most tax people would tell you "don't worry about it". You do have to claim that which you receive 1099's for, though!

Ron Page · Post by **Ron Page** » 27 Jan 2003 2:24 pm

Last year I paid more income taxes than General Electric Co.

And we should take tax advice from you, Chas?

Disclaimer: I'm a GE Employee.

Jim Smith · Post by **Jim Smith** » 27 Jan 2003 2:29 pm

Of course I claim expenses, usually three years of large losses and two years of small profit, to stay within the IRS definition of a business.

I've never heard "don't worry about it" if it's only 10-15% of total income though.

Perhaps what I should do is revert my music from a business back to a hobby. I believe for a hobby I can't claim losses but I'd only have to claim any income that exceeds expenses, and that can be done under miscellaneous income instead of Schedule C. Have any of you done that with any type of a business?[This message was edited by Jim Smith on 27 January 2003 at 02:31 PM.]

autry andress · Post by **autry andress** » 27 Jan 2003 4:32 pm

Hi Jim: I ran your question passed my wife who has a Tax Business & she said all your hobby Income is reported as other income on front page of 1040. Expenses are reported on Sch A & only up to ToTal Hobby Income. The income & expenses are not netted on page 1. Need any other info Call her @972-424-9434.
See ya @ the steel show in Dallas.

chas smith R.I.P. · Post by **chas smith R.I.P.** » 27 Jan 2003 5:01 pm

And we should take tax advice from you, Chas?

Good one, what can I say--chas

George Kimery · Post by **George Kimery** » 27 Jan 2003 6:12 pm

The last band I played in, maybe 8 years ago, quit because of the IRS. It was just a hobby for all of us. If we counted all our expenses and equipment depreciation, we were loosing money. We played Saturday night dances at the local VFW's, Elk's, Moose Clubs, etc. We were having a great time for several years and were being paid cash. At some point, the IRS got involved and made the clubs ask for our social security numbers. No body in our band would give out that information, so they quit booking us. We all strongly felt that the day the IRS gets involved in our hobby, that we were not making a profit at, was the day we would quit. We had no intention of keeping up with all the paperwork or filing forms for what we considered a non-profit hobby. We never played again.

Eric Myers · Post by **Eric Myers** » 27 Jan 2003 6:20 pm

One year when i actually made money in the business and even had a 1099 (woowee) the tax-preparerer just had me list all my musical expenses - equipment I bought, gas mileage to gigs, everything! - and of course it pretty much wiped away any "profit" =) -- PS Is that Total Information Awareness Bureau up and running yet? Why do i feel so creeped out all of a sudden? These are dark times we live in...........

Jim Smith · Post by **Jim Smith** » 27 Jan 2003 6:27 pm

Autry, thanks for the info. However I sold my house last year and probably won't need to file Schedule A after this year. This sounds like legally I am supposed to report my hobby income, but to offset it by reporting my hobby expenses, I would probably be getting less than the standard deduction by using Schedule A.

No wonder everyone hates taxes and the IRS!

autry andress · Post by **autry andress** » 28 Jan 2003 5:55 am

Jim: That's right: No itemized deductions,
you loose expenses. Looks like your stuck with a standard deduction.

Gene Jones · Post by **Gene Jones** » 28 Jan 2003 7:00 am

I have always filed my music income as Business/self employed and deducted my expenses.
However, I didn't play music for most of this year because of family illness and this will be my first time not to receive 1099's.

I'm wondering if I have the option to change my music filing status from business to hobby.....so what determines hobby income for tax purposes? I will continue to file Schedule A irregardless of music income.
Gene[This message was edited by Gene Jones on 28 January 2003 at 07:19 AM.]

Jim Smith · Post by **Jim Smith** » 28 Jan 2003 8:29 am

I'm no expert but I did take the H&R Block tax course about 15 years ago.

The way I understand it is, in order to be considered a business by IRS rules, you must show a profit every two of five years. From that, I assume that a hobby that does show a profit for at least two of every five years, is a business and should be claimed as such.

Gene Jones · Post by **Gene Jones** » 28 Jan 2003 9:31 am

Thanks Jim....I'll present this question and info to my tax-person and see what happens!
Gene

Chris Schlotzhauer · Post by **Chris Schlotzhauer** » 28 Jan 2003 11:50 am

I never understood the "only show a loss for three years" thing. I mean, if I receive and report income, I am entitled to show expences against that income. If it comes out as a loss, so be it. Right?

chas smith R.I.P. · Post by **chas smith R.I.P.** » 28 Jan 2003 12:02 pm

Back to the original problem with the EDD. I was collecting unemployment this last summer and I worked on an installation of a sculpture at a local museum. The museum paid me with a check, so on the bi-weekly unemployment questionaire, where it asked, Did I look for work that week, I checked 'yes' and did I make any money that week, I checked 'yes' also and told them how much and who the check was from.

Well, I got a notice in the mail that there was a problem. It seems, the EDD called the museum to switch the claim over to them and they denied that I was connected to them, so the EDD wants to know who's telling the truth and have I been lying all along.

As an aside, I've worked in the film business for the past 25+years and some of the companies I have worked for have a policy that if you intend to file an unemployment claim against them, they won't hire you.

So the EDD person calls me up for an interview and wants to talk about the discrepancy, and am I self-employed, which is the kiss-of-death for claims. I made a point that, yes, I am actively looking for work and I did the job and I told them about it and I'm not trying to be dishonest.

We established that I'm not self-employed, but I do .....free lance.....and it seems to be ok that you can be a freelancer while you are waiting for a"real" job.

Jim Smith · Post by **Jim Smith** » 28 Jan 2003 12:10 pm

Chris, as I read it, if your business loses money for more than three of five years, the IRS considers it to be a hobby.

This hobby thing sounds like it's treated the same way as gambling. In both you can only claim expenses/losses up to the amount of your income/winnings.

David Pennybaker · Post by **David Pennybaker** » 29 Jan 2003 8:33 pm

Of course I claim expenses, usually three years of large losses and two years of small profit, to stay within the IRS definition of a business

And we wonder why businesses are going belly up.

Chip Fossa · Post by **Chip Fossa** » 29 Jan 2003 9:45 pm

I'm pretty sure the IRS's upgrade computer
inventory program, implemented some 20 to 25 years ago, still hasn't had all the bugs worked out yet. Of course, they want you to believe they are omnipotent and omnipresent. That
they're just around the next bend and behind the next tree. I doubt it.

Jim, if they should so choose to go after you over some 'hobby' versus real business configuration, and overlook all the REAL tax scofflaws, and by now, we all know of whom I speak, well then THEY ARE the gutless dweebs
we've imagined them to be.

Go after the easy prey. But turn the other cheek when it comes to the real crooks.

It makes me laugh (sarcasticly) that all those fat cats, whether in corporations or government, always say how abused the welfare system is and how it needs to be reformed.

Corporate America is the biggest welfare recipient of us all; compared to the crumbs
cast upon the down and out. Give me a break!

Jim, I wouldn't worry much over the IRS.

Your buddy,

Chipper

[This message was edited by CHIP FOSSA on 29 January 2003 at 09:46 PM.]

Chris Forbes · Post by **Chris Forbes** » 30 Jan 2003 3:51 am

Chip, Oh yes they would go after someone for what can be considered petty change. What's weird is they came after me when I was no longer a full time musician. It took a year and a half and way too much money paid to an accountant before they admitted they made a mistake (of course they didn't offer to reimburse me the $800 I had to pay to the accountant to show them their error).

Chip Fossa · Post by **Chip Fossa** » 30 Jan 2003 4:19 am

Sorry for that Chris. Nothing is full proof.
I just think they are undrstaffed in comparison to the population growth, and can't possibly get to everyone.

I think now, the rules have changed, believe it or not, and the burden of proof is on them.

After all, we still are supposed to be innocent until proven guilty, and NOT........guilty until proven innocent.

Chipper[This message was edited by CHIP FOSSA on 30 January 2003 at 04:20 AM.]