Episode 35

Tax Tips for the Working Musician with Farrell Parker (Part 2)

We are excited to deliver on our promise of providing some insight into the mysteries of taxes and we are uber excited to have our Guest Farrell Parker with us to demystify some of the most common tax questions we musicians have. Today we discuss everything from the biggest mistakes to how best to protect yourself.

0:00:01.7 S1: Welcome to the show that explores the methods and strategies on block on the financial side of your music business with over 40 years combined experience. Here are your host, Chris Webb and Dave tank. Welcome to musicians tip jar, we talk about musicians and money were the only thing better than one of edge here in solid loop grows is illegal tax loophole, your host, grace. We have joined by my co-host in the solid groove around here that never depreciate Dave Damon. I don't know what to say when you have these nice intro about me, you know, it just makes me feel good, warm on Fort insight. Thanks, but you depreciate it on you when I say nice things. Also good, I think you've been hanging out with me too much as the humor is wearing off and wearing thin, today, his quote comes from most musicians accountants... You wanna deduct what best quote yet, not many people love doing their taxes, but we are lucky to have an artist that does, as we finish our conversation with actor and accountant feral Parker, today we focus on understanding 1099s as well as great tricks to help you know how much to save for your taxes each month, right after this...

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0:02:49.4 S1: We'll connect you to other related articles and keep you up on the finance side of your music business, if you are a working professional musician or you plan to be, the first step to tax is getting a handle on your books. So much of the core focus here at musicians tip jar is to reduce the stresses of money so that we have more head space to be free to create, as we often say around here, we have to treat music as a business, and that means you must document your income, to gather all those 1099s out of your Dugas and scrape together all those papers that you've turned into little expense notes, we hope you get as much out of this as we did. Can we talk about W9 and people that we might hire for work throughout the year? Yes, so what is a typical amount that you would request a W9.

0:03:43.4 S2: If you are hiring people, the most common thing that I see is either filmmakers hiring crew and cast on a contract basis, or if you have a band and near the band leader and you're hiring people for gigs and paying them out, if you pay them more than 600 or more in the calendar year, you need to issue a 1099, and if you don't, the IRS asks that question directly, have you issued all the tea is you need to... On the Schedule C, and if you haven't and you haven't filed an information return along with those 1099, they will charge you... I think it's like 50 per person. Could be more than that. So you have to issue a 1099 if you pay someone 600 or more in the calendar year, you can issue 1099s for anyone that you pay if you want, when someone... When you issue someone at 10-99, and that means that information is going to the IRS as well as to the person you paid, you can deduct expenses for paying someone, even if you don't issue a 1099 for someone who makes less than 600. But the rule is that you have to issue one if you pay them 60 or more, and the role for people who receive 1089s, a lot of people seem to think that they don't have to report income that was less than 600.

0:05:04.5 S2: And that would be incorrect.

0:05:06.4 S1: One of the problems that I faced during that audit was that there were a number of people that did not get paid 600 or more, and they never thought of even getting the 9 because I wasn't going to request a 1099, but then I had to show that those people were real. Which never even crossed my mind. So then I had to go back a year or two and ask them for this information, so it was more work than I think it should have been only because now I ask people, right, when we start working together for W-9 and then report it when it's above 600, but I have that material there just in case, load emergency.

0:05:49.2 S2: I think it's an excellent idea if...

0:05:50.9 S1: Well, thank you. That means a lot coming from you. You're welcome. So where would somebody get a 1099 form for some people that have never had to... Have never actually sent one...

0:06:02.0 S2: That's a great question. You can order them from the IRS, you can order paper copies, and there are a lot of online services that will do this filing for you. I don't do a lot of that. Honestly, days might have more information about where he gets his 1099s, when I do do it, it's just ordering paper copies from the IRS, and you can order those and information returns, but I'm sure there are ways that are simpler to do it online. It's just not really something that I get involved with.

0:06:32.0 S1: Neither do I. I just said, There's Taser it. And how much I pay them for the year to the person doing my taxes and say, Can you please help me with this? And then they charge me 14 per person, which Chris would look down on. Because I probably could have just wait 'cause I could have done that, I could have just got paper, took care of it myself and I... You gotta pay for the paper too, don't you... You don't start those for free.

0:06:57.3 S2: You don't... You do get those for free... Yeah, and also do might be a waste of your time, you might have better things to do with your time, and it's better to outsource that, it's not... I don't think it's always bad to hire someone to handle these things for you, I just think people shouldn't have to...

0:07:13.4 S1: So I saw this thing about the performance arts tax credit, and I just thought I'd ask about it. I'm not sure if there's some people here that that actually might be a new piece of information that it might actually help save them some money.

0:07:25.8 S2: Sure, probably not. On, there is something called a Qualified performing artist, and a qualified performing artist is someone who can deduct expenses as an employee, as someone who receive W2 performing artists, you need to be employee, an employee, you need to have received at least 2 2s from employers in your field, your expenses need to be at least 10% of your gross income, and your gross income can't exceed 16000 before deducting expenses. This was established in the EDS primarily for unionized artists. You can see how 16000 income limit means that very few people qualify for this, because how many people do you know that can live on 16000 gross a year?

0:08:15.4 S1: Would have been here.

0:08:17.6 S2: Exactly, this is a great example, in my opinion, how our current tax legislation is anti-union, because this is some way that primarily benefited union members, and a bill was introduced last year, I think in 2021 to increase this income limit to 100000, but I don't think that it went anywhere. So yeah, very few people qualify for this...

0:08:39.7 S1: Yeah, that's kind of what I thought when I read it, but it's just guests a fancy name. I thought, Oh, this could help. And you read into it and you're like, Boy, this isn't gonna apply to anybody, in fact, I feel all for anybody that it does apply to

0:08:52.6 S2: A lot of older actors, like New York City union actors were using... That have used this in the past. And think that it's still a thing. There was also a number of changes in 2018, the Tax Cuts and Jobs Act, which is partly why I started my business in that year, because there were so many changes that would be a good time to hop on and learn fresh, and that really eliminated all employee expenses, except for certain members of the military, you used to be able to dust moving expenses, you can't deduct moving expenses anymore. And those were all part of that 2018 tax legislation.

0:09:36.9 S1: Can I ask you some things? And you tell me whether or not I can write it off. I mean, you are at least tell me if musicians generally can write it off. Yes. How about haircuts? Your committee first.

0:09:51.1 S2: Okay, can I just give you the rules? Here's the rules, this is way better than you telling you what you can write off and write, even though that's a fun game, it... It would be so... It would be bad lineal advice. Also, I can't, I'm not giving legal advice. We have to tell the people that, I'm sure you will, but the role for business expenses is that the expense be ordinary and necessary. That's the rule. So ordinary means that other people in your industry are also deducting this as a business expense, and necessary means that it's something that is going towards generating a profit...

0:10:29.2 S1: I mean, look at that face. I mean, he's generating profits all the time, it's a haircut

0:10:36.5 S2: Is... It doesn't really... Like I would say, they don't really like anything about physical appearance to be deducted, and they don't like your gym memberships be deducted, I think that is, but that's not a law that says you can't deduct those things. If you know in your heart of hearts that you would get a haircut even if it didn't impact your business, then you shouldn't deduct it, but if you know that you wouldn't get a hair cut unless you had to look a certain way for your business since you are the product... Then I think if you can justify it, it's absolutely deductible, or you can ask me other individual things now that I've said that role, a Starbucks...

0:11:22.0 S1: When, where? Yeah. Okay, so Starbucks with a fellow musician...

0:11:28.3 S2: Yeah, if you're talking about music, if you're doing business over a meal, it's always deductible, and

0:11:34.9 S1: Chris, you've had some meetings with me while getting your hair cut, maybe maybe that's happened, as it has happened, and I couldn't believe it was actually happening.

0:11:46.0 S2: I would say that doesn't make your hair cut more deductible...

0:11:49.4 S1: What about drinks? During your performance?

0:11:52.3 S2: Aren't they usually free?

0:11:54.9 S1: Well, I mean is to say they're not...

0:11:58.5 S2: That's a good question. Do you think that's ordinary and do you think those drinks are part of... You're doing business, I think that's an interpretation of the law for you to decide... Nice answer. They don't like it to be extravagant. Now, what qualifies as extravagant, it's like any other law. Right. So what does extravagant mean? We don't know, it depends on precedence and all those things.

0:12:24.3 S1: What about going to Mexico to write some songs with some other musicians...

0:12:28.5 S2: Yeah, if you're taking a travel retreat to do the work, absolutely.

0:12:32.6 S1: Check that off. And may there and part of it. We're doing that in May, so... You got any other day? I have more, but I know what the answers are only gonna be now, taking my fun away already, what is the average percentage recommended to set aside each month for Texas?

0:12:51.7 S2: Oh, good question. First, I wanna say that if you go see a show, it's absolutely deductible if you're a musician, a lot of people don't think that they can deduct a play if they're an actor, but you can absolutely do that. Another thing that's fun is Spotify subscriptions, any of those streaming subscriptions, I learn a lot of musicals for auditions on Spotify, so I'll deduct 50% of my Spotify subscriptions, so those are fun ones that people did that seem obvious to me, but sometimes people are like, Oh, no shit percentage that you need to set aside as a self-employed person, a very safe number is 25%, self-employment tax is 153%, and you pay that on top of income tax, which starts at 10%. Now, nobody pays that much. Very, very few people, because you're gonna deduct expenses, there's about 100 lines on the 1040, I think it's actually more like 80, but lines on the 10-40, and each one of those affect your actual tax rate. What I suggest people do is look at their last year's tax return, figure out what their actual tax rate was, so what was the total...

0:14:03.1 S2: My total tax liability and my total self-employed income do a little long division, get your actual tax rate and set that aside for the following year, that's what I recommend because everyone's number is gonna be so different.

0:14:18.9 S1: Yeah, that's the best answer I've ever got, honestly. And I love that because everyone can actually use the forecast tool to actually look at that exact number, because it is really frustrating if you're saving 25%, if it's way over what you're gonna need to say, right, you feel so... Cheated, just to reiterate, you don't use any apps for any of your personal organization with this stuff, now.

0:14:51.8 S2: I do not... I'm sure there are some that would be helpful, your tool honestly sounds particularly helpful, enter in conjunction with these things, in terms of filing taxes, you can always use IRS re-file that if your income is under 73000, they'll do... You can use a guided form, so it's more along the lines of TurboTax where they're asking you questions instead of you having to just fill out the form line by line, so I would say that using that for actually doing your tax return or... I think to get your refund is also available if your income is under 54000, but those are income-based, I just get frustrated with... I'm like, I want things to be such a certain way, and I get frustrated with like, this is kind of off topic, but I need a CRM, a customer... What is a Customer Relationship Management system for my number of clients, but I was so worried that it's not gonna be exactly what I need, I'm gonna have to do more work that I just use Excel and make it harder on myself. Probably a very analog.

0:16:00.8 S1: It's just sort of control thing too, isn't it? To know that you're doing it, right? Yes, if people wanna see more about hardest tax prep, what's the best way for them to reach you and to read about you...

0:16:15.2 S2: My website is a good resource, I guess, artist tax prep dot com, and sometimes I have workshops, I have one coming up, but I don't know the date yet, but... Yes, so artist tax prep dot com, has that self-employment tracking tool that I talked about a little bit more about me as well, including potential upcoming workshops. My actor website is Paro. Know what is Parker dot com as?

0:16:39.3 S1: That's what I was looking for. Parakeet.

0:16:43.9 S2: Still fun stuff on there. Yeah, it's insane. It's still insane right now, I can't even believe that I did one show last year, I mean, I know there are a lot of stuff, but even a lot of my friends now have had so many Omicron shows postponed, and it's partly that I don't wanna deal with I don't even wanna deal with that.

0:17:02.1 S1: Right? We both just had covid, we bought is that

0:17:06.7 S2: I had a lot like two weeks ago.

0:17:08.7 S1: So we were all going through it the exact... Over Christmas and the ears, it's all that work that goes into prepping a show, and before you know that someone has it and then csos cancel it.

0:17:20.7 S2: Oh yeah, and I even had an offer, but it was no guaranteed work, it was just like, Are you available for this non-guaranteed work, as I said.

0:17:33.9 S1: I available for me, be working. Can I ask... Actually, that brings up another question. I know a lot of listeners took advantage of the unemployment during the last couple of years, maybe sometimes, or a lot of the time. Is there things that they should be concerned about with claiming that

0:17:57.1 S2: It is fully taxable for 2021, they let us take 100800 tax-free in 2020, but they have not changed that for 2021, and since tax season has already started, I'd love to say they won't change it again, but they made so many changes during tax season last year, so yes, that is gonna be taxed at least at 10%, and it depends on your state, whether it's taxable in your state, but always just whenever you can get taxes withheld, you should get taxes withheld another thing just that I suggest people do is when a lot of people have mixed income, so you might have a teaching gig where you might get paid on a W-2, when you fill out a new employment form, you can have extra money just withheld from that paycheck, and that's another way to just have some of that self-employment tax taken care of, you can just add a dollar amount, and that's another way you can base that on your last year's tax it, because I think we didn't talk about estimated taxes and

0:19:05.6 S1: Not the good time too.

0:19:06.9 S2: What not? Yeah, so you have to pay smart. Yes, you're compelled to pay estimated taxes, if you have a tax liability of a text do of 1000 or more at the end of the year, the way they compel you is charging you interest, and if you have a W-2 job there withholding those taxes throughout the year, but they want their money in real time, so the requirement is, if you owe over 100, you have to pay estimate text

0:19:40.8 S1: And you're saying you do quarterly... Get on that.

0:19:45.4 S2: Yes, I pay my taxes every month just because it's easier for me, so more frequently I just pay an amount at the end of every month in the form of estimate taxes. It's very easy to do, you don't have to fill out any forms. You can just do it online. And it's very simple and quick, so for me, it just makes it... Just for my tracking, I do it, it doesn't matter if you pay more frequently, and so instead of setting that aside, like we were talking about, you can just pay those so that you don't have them sitting around in your bank account, but yeah, that's... The estimated rule, I think the big thing people think is that there's a lot of paperwork they have to do around estimated taxes, and there's not...

0:20:28.4 S1: I never heard of that before. A lot of times people ask, are we contributing to social security or not? When we do in these taxes, especially when you take a loss, is there any info or insight that you can give... 'cause some people are like, I know I shouldn't depend on them, and I appreciate I shouldn't depend on them as part of your retirement, 'cause they may not be there, but are we going to have any social security or owed to us based on our taxes as self-employed musicians.

0:20:57.1 S2: I do know that if you're contributing to self-employment tax, then you are contributing to yourself to social security, but I don't know about amounts and how that works out.

0:21:08.5 S1: Obviously, when I had 2 jobs, that contribution was much higher.

0:21:13.5 S2: I wanna say that the biggest thing you can do to help yourself as a self-blade artist is track your shit and track it in real time, because if you eat at the end of year, you're gonna underestimate because you're afraid of the IRS. So that is why I just... My blanket suggestion is, get on top of tracking, get in the habit of doing it. Once you're in the habit... It is not that horrible.

0:21:40.1 S1: It's funny 'cause I just heard groans from hundreds of musicians just now... That is not what I can do. I don't do that ever. They're always learning the song right the night before, right now they're gonna be tracking this stuff, so... I agree with you, and I love this because I think a lot of people just need to take a little more seriously too. They put it off out of sight, out of mind. And I think that that's something we're really good at, and I think that getting rid of the fear, which is what I think that you're doing for us, is the first step and just getting on top of it because it's just... When you don't feel so overwhelmed or intimidated by it, I feel like it's a lot easier to approach, so... Thank you for sure. Well, thank you so much for spending some time with us and giving us all these insights, Dave and I can't wait to go over all the highlights here in just a few minutes, so we hope to have you back on the show again sometime soon. Thanks guys. Well, and there you have it, even all the way down to for as number one recommendation, if you'll justify now on my rules and guidelines for 1099, it was nice to have someone support me like that.

0:22:53.7 S1: Yeah, right. I love that you also brought up the rights for haircuts, because I know how much not only work you do while getting your hair cut, I mean, you always got a nice tight fade. Cristi didn't say I necessarily, right off my hair cut, I was just asking the question. Dani think there is a difference between a regular haircut and if you're going to a video shoot and you need a hair cut before that, you know that becomes part of... That one is a water. Right, and I think her determination of asking that question of, Is this something that I'm going to use and I wouldn't do otherwise, is a good way to go through your questions about your own... Right offs, although it is a pretty fun game to play, I had more, but again, after she gave me the rule, I was like, Oh no, I know the answer to all of this, and there's a lot of people... I think that we're lucky enough, I guess, is maybe one way to say this, to receive unemployment benefits during the pandemic, which hopefully we are clearing out of right now for good, but it is a confusing thing to know how to combine those tax information of your unemployment that you collected with anything that you actually made...

0:24:13.5 S1: Yeah, especially when you're doing those estimated tax strategies that she talked about, it was a great way for us to figure out how much we should be saving per month, that is such a loaded question for so many people when they're trying to do their monthly budget... Yeah, and it seems like it's better to save more than less, you know you're having... But you know, I often see it where we end up... People save way too much, it's actually the over-conservative approach, and you feel better about it because in the end of the year, you still get your money back, but wouldn't it be nice is to have that money each month and not have to stress about whether or not you're saving enough just by figuring out what last year's average was up or have that extra money in a high yield savings account or even investments, so it's working for you. Yeah, all of this is just about becoming more intentional with these things and having more strategies to make your money go farther and do more for you. So one thing we wanna repeat though, of course, in our dos and don'ts is to don't take our word for all this, of course, we are not legal experts or tax advisors, you should definitely discuss these issues with your professional tax advisor, so...

0:25:25.8 S1: Or one action step for this week is Get out your last year's taxes and calculate your actual tax percentage that you paid last year, use that number so that you can make the best decision on how much you should be saving per month this year, and then enter that number into your musicians tipped to our forecasting tool and boom, you probably just got a raise, most likely, we know that your time is valuable and we appreciate you spending this time with us and being a part of this community, it is our hope that you feel that sense of community here at muses tip jar, and that you help us spread the word and make it stronger. If you wanna get a hold of us, Dave has got a slew of ways to do that, connect with us on musicians, tip-jar, dotcom, or send us an email musicians, Tiamat, also, we have that number still going, 970-680-1323, call us and leave us a message tell us something you learned, share something with our audience or just call Invent. We also take messages, people just crying after tax season, 'cause that can sometimes happen if you don't follow for rules, so you go to out there at artists, tax prep dot com.

0:26:40.8 S1: Also for Parker dot com, and I will leave for Instagram and Facebook up on the show notes as well. So does our phone number spell out Dave's tips, you know, just the tip, Christus TiVo. We pay for that. Not a quarter. As always, thank you for joining us and remember, there is already enough for everyone, you just need to know how to get it until next time on behalf of Dave Taman myself, Chris Webb, please stay. Stay healthy to take care of each other. I've got 1099 problems, but taxes ain't one of them. This the musicians tiptoe, nothing on this show should be considered specific personal or professional advice, please consult appropriate tax, legal, business or financial preparing for individualized advice, individual songs not guaranteed and oldest case strategies have the potential property as the Oscar of musicians, John was the exclusive cheeses soha