I want you to owe $50,000 in tax!

Yeah I know it sounds crazy when your tax preparer says something like that to you. Too many tax preparers want to show you a big refund at the end of the year so you feel that they performed some kind of “miracle” for you when they produced your tax return. They didn’t. In fact they have paid you a huge disservice.

If you’re working and you get a 3-5 thousand dollar refund every year, you have in every effect given the government a no interest loan. You could have had all that cash in your paycheck and been investing it in simple things that make even more money for you. It is not until you have enough money (assets) producing income sufficient to pay all of your expenses that you will be able to retire.

Successful people pay tax. Let me say it the way my Dad has always told me. “Your not making any money if you’re not paying tax” – Donald R. Heck. I quote that guy a lot, but he is dead on right in this case.

If you look at it, when you build tax strategies simply to avoid or reduce your taxable income to zero, what have you built? Sure you have to spend money to make money, but what are you really spending it on. In the case of musicians this appears when they go out and buy a new guitar and amp every year so they don’t have to pay any tax on their music income. That’s great! Good for you. Now you have a guitar and amp to eat when you retire.

A different strategy would be to take that 2000 dollars and throw it into a traditional or roth IRA. You still generate a possible tax credit, or deduction depending on several factors, but now you have an investment that will help you retire.

I believe too many tax preparers simply throw numbers into a computer and work their little “miracle” for you. Hand you a bill, and they forget about you and your financial life completely as soon as you walk out the door.

If you are a musician, please visit my website at http://bradheck.com to learn more about the financial life of a musician or songwriter. If you’re not, the same strategies apply.

Next year, I do hope you cut a $50,000 check to the government, cause that will mean you have made some money.

Stop paying rent!

If you don’t own a house, buy one. Right now. Stop reading this, get on the MLS and find a house. I can think of no better time really to get into your own home, and until you do, you are just buying one for someone else. Why are you still reading this? Get on the MLS!

There is a 10% tax credit for the purchase of a first home in 09. You can even take the credit on your 08 taxes if you need the cash faster instead of waiting for your 09 tax return to be completed. The credit is worth up to $8000.

Combine that credit with record low prices for real estate in most parts of the country and I feel like screaming to my renting clients…BUY A HOUSE!

Now we all have dreams of the big house, perfect yard and all the trimmings. That’s not what I am talking about here. In fact I have been disappointed in the design of homes post 1960’s. What ever happened to the 3 bedroom rambler or the two bedroom bungalow? Sensible housing that people can afford to live in. Don’t over buy, but buy.

Build that small recording studio in that house while you are at it. Again there are tax deductible expenses on studio gear and build outs that have never before been available at such high volume. These tax breaks are designed to get America spending money, investing in themselves, and building a solid economy again. Guess what, YOU are America. That’s right, buy the house, and the studio and get your business going on your own piece of the rock.

Recession is when your neighbor looses his job……

Depression is when you loose yours. Times are getting tougher out there, and just today I was informed that 3 of my friends have lost their jobs. I am actually very thankful to be running my own business but the fact is, I have never known a different way of life. There have been many times through the years when I thought the guy with the day job really had it made. Just go to work, do the gig, and grab that paycheck every Friday. Boy that would have felt good at certain times. This isn’t one of them.

Entertainers are naturally businessmen whether they choose to be or not. We are in control of our destiny. It’s impossible to loose a job if you don’t have one.

This is no time to be lazy though. Smaller combos seem to be taking a larger market share of the club work here in Minneapolis. Duos and trios simply playing songs and making people laugh and forget their problems for a few hours. Most large corporations do not have the ability to move quickly in response to market trends. It takes months of board meetings, consultations, and death by committee to make a single policy change. Musicians rarely if ever suffer from these types of crippling decision making processes.

If you have a job, give the company your very best. There might be someone who wants that job just a little more than you do, and has more talent! Make prudent choices with your money and keep a positive attitude. In economic downturns, historically, entertainment has done well in contrast to other business sectors.

This remains the greatest nation in the world. Be proud to be American. Innovate, rejoice, and produce the finest products and services in the world. That’s what we do!

Farting in a Van

I was recently in Los Angeles meeting with a notable music business attorney. As we chewed on our turkey sandwiches down at the coffee shop, the conversation turned to what our clients are going through. He is a big proponent of electronic entertainment and social networking. His vision of the entertainment industry toward 2015 was exciting to listen to. The fact is, the acts that are selling the most product are on tour, but there are a few, such as the young man from Minnesota who has sold in excess of 1.5 million downloads on itunes this year that hold the world in the palm of their hands (for now). Major labels are beating this kids doors down, but to what end?

Will a major label deal help this guy or hurt him? That is really something to consider in this new record company environment. The fact is, most artists are far better off financially to stay completely independent of any label. I am seeing more and more “label deals” that are actually promotion deals. In these cases, the artist already has the record produced and manufactured. The label simply has a logo on the product but does not own the masters. This alone gives the artist so much more control when it comes to sync licensing and other issues. The “label” exacts a commission on the sales rather than paying down a re-coupable account. The label is acting as the radio promotions, marketing, and digital distribution company. No trucks on the highway carrying CDs to WhateverMart, no creative controls taken from the artist, no painfully small mechanical royalties that the artist never actually sees.

Take matters into your own hands. Get those songs recorded as best you can, and get them up for sale on the internet. Make an online presence for your act and start “branding” that product right now. Get a myspace page, do twitter, facebook, itunes, and find more and more places to promote your act. The audience is here on the internet so be innovative in your approach.

There is still no way around it however, and touring is going to be a part of your life as your career blossoms. As the attorney and I decided, we would like to make sure when you are done farting in the tour van to get your pay, sometime in your financial future you will be able to fart on your way to the mailbox instead. This only comes from building intellectual properties and managing them properly.

If you are an act that is near the end of a recording agreement term with a label, sit down and pencil things out and see if you really want to make another record for them. It’s more work to be on your own. It can be scary but it CAN be done. Feel free to call us for help with the math at 651-428-1040. We are always happy to help artists understand and monetize recording agreements.

The Dreaded 1099 Misc Process

Each year in a panic bandleaders contact us to learn what is needed to process the required 1099 Misc forms to the band members. We have a fairly straight forward worksheet that you can use to get us the information we need to make the process painless.

The best way to gather vital information is at the very start of the arrangement with your sideman, bandmember, soundman or whoever you have just contracted with. Before actually doing the work and more importantly PAYING the contractor, you should get him or her to fill out a W-9 form to keep on file for tax time.

This is also the perfect time to get the contractors insurance info if needed or present a company policy. The simple one page form I used when operating a touring band stated that all member were responsible for their own taxes and insurance, outlined the sobriety policies, dress code, and other simple rules of involvement. This form along with the completed W-9 stayed back at the office for the tax and legal work if any came up during the tour.

FAQ

If I paid a band member or subcontractor less than $600 do I have to send a 1099?

No, however, you should have the person fill out a W-9 form and keep it in your files anyway. In an examination, the IRS can disallow subcontract labor deductions to parties that made less than $600 if you do not have the proper information about that person. It is good practice to always have a contractor fill out a W-9 before you pay that person.

I rented space for my business but paid less than $600. Do I still need to send a 1099 to the landlord?

No, but again, get a W-9 form filled out for the next year. Also be very aware that if your small business rents part of your home for business use, you must file a 1099 Misc from the business to yourself. The same rules apply to rental of equipment, practice space, etc.

My bass player quit in the middle of the tour last year and I can’t find him to send a form. What now?

This is the NUMBER 1 reason you should ALWAYS have a W-9 filled before handing anyone money for services.

It is good practice for a touring band leader to also have the musicians sign a band policy and emergency contact form to help you locate that persons relatives in the event of something going wrong. The policy should clearly state that the musician is responsible for all his own taxes and insurances at a bare minimum. Contact your business attorney if you need help writing one up.

My band/business is a partnership and we all took money each month. Do we issue a 1099?

No, payments made from a partnership which you are an owner reports income on Form K-1 instead.

I am still confused and want to discuss these issues, do you provide consultation?

Yes just call 651-428-1040 or email us and we will be happy to help you with your situation. There is no fee for the initial call up to 20 minutes.