*I am not an attorney or tax advisor, and this post is intended solely as an anecdote about my band’s experiences and refers to laws and regulations as they existed at the time of our incorporation. This is not intended to provide tax advice, and you should always consult with a licensed tax professional and/or attorney before making any tax or legal decisions.
Well it’s tax time again and depending on your situation you either dread or look forward to it. If you have a band, your finances can get even messier; how do you split up money earned and who fronts the cost of gas or equipment? Plus, if you really want to be straight with the IRS someone has to claim the band’s income, and can you deduct any of your expenses? I am by no means a tax professional and can’t make suggestions about how to file, I just wanted to share my own personal experience with what has been a good decision my band made concerning our collective musical endeavors.
When as a band it became time to make some big decisions involving money and liability, ie., buying a van and touring the country. We did what every band does, we incorporated as an S-Corp. Now this may seem like a totally lame move not in keeping with the indie rock lifestyle, but it really has made it a lot easier to keep track of how much money we have spent as a band and how much we make from playing shows and selling records. As defined by the IRS: Electing to be treated as an S corporation allows income to flow through the corporation without being taxed until it is claimed as income by the shareholders. In addition, most expenses incurred in operating as a business can be deducted against any income the company takes in. Now this did involve quite a bit of prep work, first we applied for a federal Employer Identification Number (EIN) and paid several State and Federal filing fees. Within a couple months our documents had been approved and we were officially a corporation. We designated our office location, which as a domestic corporation can be a house or apartment, and we wrote our company by laws and elected our executives. Finally, we filed one more form electing to be treated as a coveted S-Corp thereby allowing us to “pass-through” income and expenses of the corporation.
As a corporation we could in theory issue stock certificates to raise capital however we decided very early on for simplicity that shares in the Band/Company would be divided evenly among active members only, effectively making the company a closed employee owned corporation. That said, as an S-Corp all our profits or losses are divided equally to the band members/shareholders. In this way if the band makes a lot of money no one person has to claim it all as income, and conversely if the band loses money we can all get a little reduction in our personal taxes.
Now this of course does involve perhaps more due diligence than the average band or musician is willing to endure. We have to keep track of our sales and pay quarterly NY State Sales tax, we have to save receipts and file both a federal and state return every year, and we are required to have at least one shareholder meeting a year and record minutes of our corporate meetings.
The IRS defines several different business entities such as sole proprietors, partnerships, and LLCs in detail on their website www.irs.gov. If you think it might be beneficial to you or your band to formally incorporate you should consult an attorney or tax professional. After four years as a corporation and almost ten as a band I am confident that incorporating was a good decision for us.
Dan Pardee
Of Sgt. Dunbar and the Hobo Banned
