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Tuesday, April 18, 2017

Seven Tips for Singer Taxes: An Introduction (033)

Here's a subject we all know and love - taxes!

Taxes for the singer can be extremely tricky. It involves a lot of variables... but I'm here to help! Whether you're still trying to put the final touches on your overdue return, or whether you want to avoid another nightmare next year, this next series of articles are for you!

In this series, I'm going to try to distill fifteen years of doing my own taxes into just seven tips. These are the things I do that help me the most when tax time arrives. For the most part, it'll be singer-oriented, but a lot of this applies to just about anyone who works for themselves. I hope you all find it interesting and helpful!

We have a few terms to cover initially, so the first tip will actually come in the next article.

Let's start with some of the basics: When you earn money as a singer, it is almost always done as an Independent Contractor. Independent Contractors are fundamentally different from being an employee. It's Self-Employment, instead of simple Employment.

Employment usually comes with several benefits, like help paying insurance premiums, contributions towards retirement, paid sick leave, vacation time, and so on.

(These are the stuff dreams are made of, in my opinion.)

When it comes to taxes, the biggest difference is that the employer takes a bit out of each check to pay your taxes for you throughout the year. This includes Federal Tax, Social Security, and Medicare. When an Independent Contractors is paid, none of that has been taken out yet. So you have to pile all that income together on a Schedule C at tax time, and pay taxes according to what's on the form.

Additionally, employers are also usually some sort of business or organization, which pays taxes based on how much it earns as profit, or revenue. When a company earns money, it pays taxes.

Similarly, independent contractors' business has to pay taxes on its revenues. But the person still has to pay his own personal taxes, based on house household's income. That the business and the person are exactly the same is irrelevant.

So a self-employed singer winds up paying about 1.5x more in taxes. Yeah, that's the bad news. It sucks.

There's couple more pieces to get out of the way.

Earning an income as a singer pieces together work from a lot of different sources. Because of that, often a singer winds up being both an employee and an independent contractor at the same time. You might have little side jobs working for a university, an opera chorus, or a church. Sometimes it's a so-called "day-job," that isn't related to music at all.

Whenever you do work as an employee, your employer will send you a W2, usually around the end of January. The W2 is a summary of how much you earned in a year and how much was take out from taxes.

But for everything that a singer earns as an independent contractor, you have to keep track that yourself. You'll sometimes get 1099s, and sometimes not.

That brings us to Tip #1 - which I'll cover in the next article!

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