Should I Pay Taxes on Band Earnings?
Are you a musician? Is your group having issues? Ask Fan Landers! Critic Jessica Hopper has played in and managed bands, toured internationally, booked shows, produced records, worked as a publicist and is the author of The Girls' Guide to Rocking, a how-to for teen ladies. She is here to help you stop doing it wrong. Send your problems to her -- confidentiality is assured, unless you want to use your drama as a ticket to Internet microfame.
My daughter is in a teen band. Ages are 15, 15, 15, 17. They had their first paying gig and we are expecting more. For the gig, a payment by check went to one of the parents who then dispersed the funds. This caused concern about how to report taxes, etc. We have been getting advice to start an LLC. I'm concerned that we are over complicating this as we don't expect money to start rolling in, but they could generate perhaps $1000 to $3000 in payments in 2014 (my wild guess). We expect this band to exist for 2-3 more years, who knows.
Any thoughts to get us started? My hope would be a simple way to be able to accept payments by check, hopefully put any profit back into the band (recording, videos, travel, etc..)
Props to you for taking an active interest and also facilitating your daughter's rock dreams. I think first things first you need to meet with the band and the other band-parents and address this as a group, just get a few opinions, talk about options that need to be investigated, gauge commitment levels for involvement. Do not let it dissolve into committee-grade dithering--it's really just to get everyone in the loop, see who might be able to step up and deal with a few things. Talk about what the girls would like to do with the band--make merch? They need to be paying for gas and reasonably related transport/expenses (parking, tolls); that should be figured out so they can anticipate that for each show. A shared spreadsheet/Google cal operation might be useful. It's boring but it's good practice and will lessen some of the headache when the dollars start flying in.
Since none of my bands ever cut me in for more than $20 bucks, I asked my husband, Matthew Hale Clark, an attorney who helps bands with their LLCs and tax issues. He said that while the check-to-the-parent money is something that the parent is going to have to claim, most likely the band is not even going to make enough to merit taxation. "If any of the kids net more than $400 per year in earned income from self-employment, they will have to file with the IRS," he says. "Setting up an LLC is definitely a big kid move, and it wouldn't generate any additional tax liabilities, but it might not be worth the administrative overhead. It costs $500 to file for an LLC in Illinois, for example, and that's not including attorney fees and the inevitable accounting fees that will come up each year that the LLC and each of its' members must file taxes. LLC or not, the band can still squirrel away income for recording or merchandise without becoming a proper business entity. They probably can't open a bank account without a recognized business entity, but a DBA account can be opened by a parent without creating any tax problems for that parent."
I'm going to also suggest you set up this DBA/passbook savings ASAP and then make a Mint.com account for it so that everyone (parents and band members) can peak in on $341 they have earned, for the sake of transparency. That way, if you are not getting paid in cash, you can have the check go to where it belongs. Don't let it burn a hole in your pocket--save up a few hundred bucks before you start talking about making 4-color totes or what have you.
I also posed your question to financial planner Leslie Ransom, who in her previous rock n' roll life was at Touch n' Go for many years and understands the baby-band slog, and she had an additional suggestion: If the girls do end up making a bit of reportable scratch, they/you should be diligent about keeping tabs on related expenses that they could deduct later. "Each band member can track their individual expenses such as gas/travel to gigs, equipment, and the like. They will each need to keep receipts for anything they plan to report as an expense," says Ransom.
That said, chances are that this might be jumping the gun a little, though it's good to be prudent now--but then again, you never know--your daughter could be in the Haim of tomorrow.
Congrats on raising such a cool kid,