White office shelves with folders and different stationery, clos
Income, Expenses, and Mileage, Oh My! The Musician’s Guide to Reaching Organizational Nirvana In the New Year

Income, Expenses, and Mileage, Oh My! The Musician’s Guide to Reaching Organizational Nirvana In the New Year

White office shelves with folders and different stationery, clos

Well, the “Winter Wonderland” outside has turned into a grayish-blackish-slushy mess and the drug store down the street just swapped out its window display of snowmen and Santas for pink hearts and Hershey’s kisses. Yep, it appears that you’ve survived yet another holiday season and 2015 is officially here!

Now that you’ve recovered from your annual sugar binge and January 1 hangover, it’s time to start making New Year’s resolutions! I’m not talking about the typical resolutions–anyone can resolve to get fit, eat better, or quit smoking. I’m here to address the kind of resolutions that apply to our special breed of self-employed musicians and composers. I’m talking finances, people. It’s time to get real and get organized. Because I know what you all are thinking: This year, I swear I’m going to keep better track of my receipts. I’m totally going to keep a mileage log when I travel to gigs. I’m going to put money aside for taxes. I’m going to organize my income before my 17 different 1099-MISCs come in the mail.

As a Type A, anal-retentive, self-employed cellist, I’m here to help. Hopefully by the end of this little guide, you’ll have the tools you need to get organized to the point that when tax season rolls around, you’ve got a neat and tidy pile of documents to either hand over to your accountant or to help you face those IRS forms on your own. So open up Excel and brace yourself to become a happier, healthier, more on top of it artiste!

Spreadsheet #1: The bacon you bring home, also known as INCOME.

If you’re like me, your professional life can be neatly divided into two categories: a wee smidge of W-2 work, for which your taxes are withheld, and a much larger, more nebulous smattering of “other” work, some of which is reported to the IRS and some that is not. (Helpful tidbit: Even though you think you might be able to get away with only reporting some of your income, doing this is a little sketchy–and by sketchy I mean technically illegal. But look on the bright side: it’s actually in your best interest to report all of the income from both of these categories, because while you might not think you will ever move out of that 200-square foot studio apartment, you might change your mind one day and decide to invest in a chunk of real estate, at which point the more income you can prove you have, the better your chances of appeasing the mortgage gods.) Whenever you deposit a check or receive a direct deposit pay stub, mark it down and file it away.

Income sheet

Most of Sample Sheet A is self-explanatory, but a couple of notes: I like to keep track of both my pre-tax and post-tax income. This way I know exactly how much I’ve made during the year, but I also know how much to set aside (or how much has already been set aside for me) to pay my quarterly taxes. In other words, the pre-tax column is what I earned, but the post-tax column is what I know is in my bank account for real. In the post-tax category, you may have also noticed that some numbers are lighter than others. Any gig that withholds taxes for me gets written in black. The others, written in pink, are just my own arbitrary post-tax estimate (85% of the check). You also might be noticing the other color on this sheet: any non-W-2 income I mark down gets highlighted in yellow. That makes it easier to see all the stuff I have to enter into the ever-confusing self-employment section of Turbo Tax when the time comes.

Are you still with me? If I haven’t scared you away with color-coded spreadsheets yet, then you’ve proven yourself worthy of and ready for…

Spreadsheet #2: So a guy walks into a bar…and calls it a BUSINESS EXPENSE.

Ah, the dreaded RECEIPTS. You know what I’m talking about–even if you are organized enough to save them, chances are you stockpile them in a box and don’t deal with them until April 14 when you have to file an extension on your taxes because going through all the receipts actually took the entire time you allotted yourself to get your taxes done.

As heinous a task as keeping track of all these receipts is, business expenses are your FRIEND. Seriously, they’re like your BFF. The better you keep track of them, the smaller the check you have to send to the IRS. I like to separate my expenses into these five categories:

Travel: Flights to auditions, train fare to gigs, tolls on the interstate, parking fees, etc. The only thing I don’t include here is gas, but we’ll get to that in Spreadsheet #3.

Meals/Entertainment: Any time you eat out with a bunch of colleagues, save that receipt. Also be sure to check out the government’s per diem rate if you go out of town for a gig so you can claim ALL THE MEALS. And as for entertainment, save those ticket stubs every time you go to a friend’s show–you’re networking, so it totally counts as a biz expense.

Repairs/Maintenance: Instrument repairs, private lessons, or anything that you need to repair or maintain!

Supplies: Manuscript paper, reed-making tools, concert clothes, or whatever objects it takes for you to be able to do your job.

Home Office: Application fees, postage, photocopies, or membership dues. Basically anything that involves a computer, printer, or stamp!

You might decide to nix or to add another category–hey, whatever works for you. Just make sure that whatever you include as a business-related expense is actually something you use exclusively for business purposes. Just by existing as self-employed artists, we are basically asking for the IRS to audit us, so tread carefully.

As you can see below in Sample Sheet B, I also like to color-code each category. The pastel color scheme makes opening this spreadsheet reminiscent of going on an Easter egg hunt, but it also serves the slightly-more-helpful purpose of making it easy to group all expenses of a certain color together at the end of the year.

Business Expenses

Even more important than the glorious color-coding of the spreadsheet, however, is to keep your receipts from piling up. Make yourself adhere to a deadline for entering in expenses–it can be once a week, once a month, once you get to ten receipts, or every single time you make a new business-related purchase–but don’t let yourself file those receipts away until they’ve been logged. You know why it’s worth doing it this way? Because once the info is in the spreadsheet, you never have to set eyes on the receipts again–unless you get audited of course, at which point you can dazzle the IRS officer with the beauteous gem that is your Expense Sheet.

Spreadsheet #3: Oh, the places you’ll gig! MILEAGE.

At this point, you’re thinking: “Okay okay, nice colors. But what about the hundreds of dollars I pay at the pump to get to my rehearsals, concerts, lessons, and meetings? Shouldn’t I be saving those receipts too?” Well, you could. But when it comes to doing your taxes, it’s actually simpler to keep track of the miles rather than the gas. In fact, submitting your mileage, more than any of the other expense categories, can make the most difference in saving you some moolah, especially if you’re a super commuter like me. If you’re a transit rider, feel free to bypass this section and create your own system for keeping track of the number of train rides you take for professional purposes each month. For the rest of us gas guzzlers, here goes.

Mileage

This one doesn’t require too much explaining–just add up all the numbers in column two at the end of the year and voila! A nice easy number to impress your friends with: Dude, I drove 21,547 miles this year! If you’re like me and drive most of the time but occasionally take the train, just mark an X in the Mileage column and add the train fare to your Business Expense spreadsheet. Also, a little pro tip: You might think it’s crazy to remember every single place you went every single day. But that’s the beauty of keeping a calendar! If a month goes by without you logging your mileage entries, just flip through the past month on your calendar and retroactively enter in the miles. Easy peasy! Oh, and by the way, if you play gigs or accept work that does give you a travel stipend, don’t add those miles to the spreadsheet–no matter how gung ho you are about data entry, that could look a bit shady if you get audited.

So there you have it: three spreadsheets, three steps towards a more organized you! I won’t pretend to be the first person out there to suggest a method for artists to keep track of their finances. (Though mine is probably the prettiest. Just sayin’.) In Alex Gardner’s piece last year, she recommended this resource for organizing income and expenses. And if you google “musician tax worksheets,” you’ll find a myriad of organizational methods all over the interwebs. My main piece of advice, though, and my #1 suggested New Year’s resolution for every kind of artist, is to stay on top of it throughout the year so that tax season doesn’t have to get in the way of your performing or your composing. We’ve all got way more important things to do in March and April than stare at a pile of receipts. So good luck, Happy New Year, and Happy Organizing!

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12 thoughts on “Income, Expenses, and Mileage, Oh My! The Musician’s Guide to Reaching Organizational Nirvana In the New Year

  1. Milo Fultz

    Just a word about the mileage section: I was told by a tax preparer that I need to keep a full mileage record, including my car’s starting and ending mileage. I don’t know why, but they wouldn’t accept just a list of mileages. I’m in Oregon, so maybe it’s different here?

    Fantastic article, and definitely what every musician needs!

    Reply
    1. Sara Sitzer

      Thanks for bringing that up, Milo. Great question, and one that I, as a musician and not a tax preparer, am not totally qualified to answer. This system is one that has worked for me and one that has seemed appropriate to the tax professionals I have run it by, but your best bet would definitely be to ask an accountant you trust.

      Reply
  2. Carlotta

    Yes, in addition to the number of miles you drove for business in a given year, you also need to know the total number of miles you drove that year, so that you can fill out all the boxes on line 44 of Schedule C: http://www.irs.gov/pub/irs-pdf/f1040sc.pdf. So record your mileage on Jan. 1 and on December 31, in addition to recording the starting and ending mileages for each business-related trip.

    Reply
  3. Amy Comparetto

    Awesome article, I’m bookmarking and I will start a spreadsheet this week. I keep track of all that stuff on a blank sheet of paper and sometimes I’ll look at it a couple months later and have no idea what any of it means. This will help me get my act together!

    Reply
  4. bob

    “Supplies: Manuscript paper, reed-making tools, concert clothes, or whatever objects it takes for you to be able to do your job.”

    I don’t think trying to deduct “concert clothes” is good advice. Say you are required to wear a black shirt and black pants on stage, so you buy yourself a couple of black dress shirts and a pair of black pants. However, even though black pants and a black dress shirt might not be your style, you COULD wear those elsewhere, so NOT DEDUCTIBLE. Unless the clothing is something you absolutely can only wear for a performance and could never be worn on the street, out for dinner, to your cousin’s wedding etc, the IRS will disallow it.

    Reply
    1. Carlotta

      “you COULD wear those elsewhere, so NOT DEDUCTIBLE.”

      It’s not what you COULD do that matters but rather what you DO do. I could make personal use of the office supplies that I buy for my business, but I don’t; therefore, they are deductible. If you buy clothes solely as concert attire, and you wear them only as such, they are deductible. Of course, if you get audited, you might have to prove that you wore them only at concerts, which would undoubtedly be difficult.

      Reply
  5. Sakari

    Another way you can organize your expenses and income as a musician is QuickBooks Self-Employed – I’ve found it quite helpful this year! :) http://fbuy.me/c5Y1H

    I too am a spreadsheet gal, but I won’t complain if there are a few less that I have to do on my own. Using QuickBooks, you can generate similar spreadsheets and a tax summary at the end of the year.

    Reply
  6. Sarah Lockhart

    “It’s not what you COULD do that matters but rather what you DO do. I could make personal use of the office supplies that I buy for my business, but I don’t; therefore, they are deductible.”

    That isn’t applicable for tax purposes. There are a number of types of expenses with more stringent rules regarding deductibility. These are the types of things that are most likely to be personal expenses, and have a history of being “abused”. Think of it as composing a piece in the key of C major. You will want to have a much stronger rationale for doing so than in a more “esoteric” key.

    These expenses are:
    clothing and personal grooming — as bob commented upthread, it has to be something you couldn’t wear normally. A tuxedo would be acceptable. Standard concert blacks, no. Same with make up and professional hair cuts. If you are performing in a theatrical context and have to wear stage make up or dye your hair pink, then those expenses could be deductible. The rules for these things while on tour are slightly different, as certain ones could be travel expenses (the personal grooming), and would be included in a per diem.

    meals and entertainment — just having a meal with your colleagues or band mates doesn’t automatically qualify.

    equipment that is commonly associated with “entertainment”: computers, stereo components, cameras (still and video), and cell phones – to name the most common. As an artist, you will most likely have expenses for these things that are legitimately used for business. However, you will want to be honest at tax time, whether something is used entirely for business (e.g. a stereo in your practice studio) or has a percentage of personal use (e.g. your laptop that you use to compose and edit but also look at cat videos, like your friends’ vacation photos, and email your mother about when you are next coming to visit).

    Also the phrase “home office” has a specific meaning in the tax context. As a tax professional, I would implore people to only categorize things as “home office” that are physically a part of the home office: furniture, internet service, cleaning, sound proofing, etc. Office supplies would be a separate category.

    Reply
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  8. Larry Zep

    I am part of a working band that went on a 7-day Caribbean cruise this past October. We paid (a discounted) $500 each for the cruise and played 3 afternoons while on board. We did not get “paid”…the payment consisted of our discounted cruise cost. Are we entitled to any tax deductions? Thanks.

    Reply

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