This week’s Backline Support includes a step by step guide to registering an LLC and getting Employer Identification Number (EIN), as well as a refresher on the reasons to incorporate as an artist or band.
Reasons to Incorporate
Incorporating as a business is a necessary step for musicians to take fairly early during their career. Most artists incorporate as an LLC (limited liability company). There are other entity types but the LLC is typically the most simple and least expensive.
There are several reasons why incorporating is important:
Doing so clearly establishes the artist or band as a legal entity, and therefore absolves them of personal responsibility to the business’ debts.
For example, let’s say a band doesn’t pay their tour bus company $10,000. The bus company can sue the band (aka their LLC) for the unpaid amount, but cannot go after the members personal assets (cars, homes, etc).
Tax benefits. You can write-off a huge list of items as a musician. The exact phrasing from the IRS is: “To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.”
An important note here is that these items have to be purchased through your LLC’s business account to be eligible for income tax deduction. So make sure you are making all purchases and payments through your LLC.
Some common examples of items you can deduct are:
Clothes that you wear on stage
Netflix/Hulu/etc. (You can say this is research - you might work on a soundtrack one day)
Day of show food
Booking fees for recording studios
Rent for classroom or teaching space
Utility costs for your workspace
Costs associated with building a home studio
The costs associated with registering for a business license
Fees associated with maintaining your website, like domain registration and monthly hosting
Membership fees to professional associations
Professional services necessary for your business, such as lawyers' fees and tax preparation costs
Instruments or equipment used in making, recording or performing music
Promoting via social media, tv, print, etc.
You CAN’T write off:
Trips to the grocery store
Other personal expenses like personal clothing and entertainment unrelated to the business
For all the expenses you plan to deduct, you’ll need documentation in the form of bills or receipts. Save all of your receipts.
To set up an LLC, you can use the “Click here to start filing.” button at the bottom of this page.