Because you’re in the music business, you could come under some Internal Revenue Service scrutiny. Of course, this might never happen, but you should be prepared if there are questions asked regarding your income tax return or how you run your business. Here are a few things the Internal Revenue Service might be curious to know.
What type of business entity have you formed for your involvement in these ventures?
Are you self-employed?
How do you receive payment for your services?
What are your sources of income?
Who keeps your tax records?
What contractual agreements do you have?
Do you have copies of your contracts?
What are your expenses?
Can you document your expenses?
Have you ever been audited?
What assets do you own through your business?
Do you have a business manager? Who is he or she?
Do you have an agent? Who is he or she?
Do you have an accountant? Who is he or she?
Have you ever received or provided any payoffs to maintain a position in the music industry?
Have you ever been paid in cash? What did you do with the cash?
Explain you roles in the music industry. For example, are you a songwriter, performer, studio musician, producer, engineer, recording artist, etc?
There are a lot of potential questions to which you might need to supply answers. Don’t let it worry you. If you are running things like a legitimate businessperson, these are all questions to which you will have readily available, suitable answers.
It all starts with keeping good, accurate records. Now that you have made music your business, just remember to track everything you do pertaining to that business. Keep a record of every expense that you encounter and every dime you make, and everything will be all right. There is no problem with you filing and taking tax credits, exemptions, and deductions to which you are legitimately entitled. Just be sure that you have documentation to back up all of your earnings and deductions claims
In the music business, especially with performers who do nightclub and entertainment gigs, there is a lot of opportunity for cash receipts. When you operate a business with opportunity for such cash payments, it makes the Internal Revenue Service somewhat curious. Do not be afraid to provide and document cash as one of your payment types. In fact, when you are in this business, the Internal Revenue Service might become more curious if you claim no cash payments received than if you do.