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Sidebar: Tax Considerations After A Music Tour

Tax Deductions (Employee-Musicians): If you are not self-employed, you will receive a W-2 from your employer. When you file your income taxes, you should deduct any of your documented business expenses as non-reimbursed employee expenses by filing IRS Form 2106 with your individual income tax return. Make sure to report all qualified expenses paid out-of-pocket, as well as any reimbursements you may have received to help with these expenses, such as per diem allowances. You may qualify for the Performing Artists Tax Deduction if your income does not exceed $16,000 for the year and you meet certain other requirements. This deduction is not subject to the 2-percent-of-income floor.

Tax Deductions (Self-Employed Musicians): If you are self-employed, there is additional compliance to consider. As your own employer, you are required to remit Social Security and Medicare taxes in the form of self-employment taxes. Generally, these are split between the employer and employee, but you must bear both sides’ costs (less some adjustments) as your own boss. You will report income and deduct expenses on Schedule C, Profit (or Loss) from Business, filed along with your Form 1040. An advantage to being self-employed is the ability to open a Simplified Employee Pension, or “SEP,” IRA. This retirement account acts much like a traditional or Roth IRA, but with materially higher contribution limits.

State Taxes: Playing shows across the country will raise multiple state tax issues. Most states require you to pay income taxes for revenues generated within their borders. If you are an employee, your employer should withhold state taxes and report them on your W-2. It will probably not be necessary to file multiple nonresident state returns, as long as your withholding is sufficient. If you are self-employed, the burden is on you to track your state-source income and file the appropriate nonresident state tax returns, ultimately paying income taxes to states in which you don’t reside. Whether you are an employee or employer, you are usually entitled to a tax credit on your resident state tax return for the taxes you pay to nonresident states; this keeps different states from taxing the same income twice.

International Taxes: Musicians touring internationally face a myriad of filing and reporting requirements. More likely than not, a foreign country will require a percentage be withheld from your income and paid to the appropriate taxing authority. Generally, the organization bringing you into the country will handle this, thus satisfying any need to file a foreign tax return. However, the United States taxes its residents on worldwide income, so be sure to report your foreign income when filing your U.S. tax return. To avoid double taxation on this income, file Form 1116 to claim a credit for foreign taxes paid, or check to see if you qualify for the Foreign Earned Income Exclusion.

Client Service Manager Thomas Walsh, who is based in our Atlanta office, is the author of Chapter 8, “Education Funding,” in our firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55.

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