Got a call right after a forward. Now do I need an LLC?

[ASV]

Hi,

I'm happy to say I got a forward through Taxi a few months ago for a solo piano piece and the tune was signed right away. I'm currently writing music part time and have a day job.
My question is this:
When we get royalties or other income from our musical works is it worth it to establish an LLC and report the income through that "company" or is it best just to report the income in addition to what I make from my job?

Thanks,
Adam

[StanSwin]

Hi Adam,
Even with an LLC your tax reporting would be done as you. The most important thing for you to do is not comingle your business and personal funds. Have separate checking / credit card accounts for all your musical expenses. Deposit all your musical income into that checking account. Never charge personal/household expenses on your business card or use your business checks. That said, what an LLC will do is protect you from losing your house should you get embroiled in a copyright infringement lawsuit or something like that (slim chance). I'm not a CPA, but my accountants specialize in entertainment, and this is the advice they've given me.

[Casey H]

My personal opinion is setting up an LLC, separate bank accounts, etc is a bit overkill early on. It takes a long time to build up to the point where you are earning significant income. The separate credit cards, one for music expenses, is not a bad idea if you want to track expenses for income tax deductions. I don't do that-- I simply go through my year end summaries from the CC companies and see what's related to the music biz.

Remember also that deals don't necessarily mean placements, at least not in the short term. And sometimes it takes years of putting songs in libraries to get your first earnings. The growth, even when things are going well, is slow.

Nothing wrong with setting things up any way your accountant advises. I just want to mention that people should stay well grounded in their expectations and not think a few forwards SUDDENLY means mucho dollars rolling in that require special management.

No negativity intended here. I HOPE you earn a lot of bucks over the coming years and this really DOES become more of an issue...

Best,
Casey

[ChipD]

My personal opinion is setting up an LLC, separate bank accounts, etc is a bit overkill early on.

As an owner of an incorporated business (outside of the music business), I generally agree with this. It costs money to register your LLC, money that you won't recoup for a while. Plus, there are additional requirements that you don't have as a sole proprietor (e.g., a separate tax return). Being a sole proprietor until you make in the high-five figures is generally OK.

I use the word "generally" because an LLC protects you from personal liability. Your personal assets cannot be seized if your LLC is sued. As a sole proprietor, your personal assets are at risk. You just have to weigh the likelihood of being sued for an amount that would result in the seizure of your assets.

You really don't even need separate bank accounts for your business, though it's not a bad idea. However, you do need to keep detailed records of your business-related earnings and expenses as these will need to be reported on Schedule C of your tax return (assuming you're in the US). If you have other earnings (from another job) and your music expenses (including your Taxi membership fee) exceed your earnings in a given year, this "loss" can offset some of the taxes you are liable for paying as a result of your other income.

Even though my "other" business is incorporated, I am operating as a sole proprietor musically until the earnings make the incorporation expenses seem trivial OR until I identify a risk with reasonable probability of occuring that would put my personal assets at stake.

Disclaimer: I am not an attorney nor an accountant, so these are just my opinions and observations and not advice. For free advice on setting up the business aspects of your music career, I'd suggest seeing if there is a Small Business Development Center at a college or university near you. They offer free consultations on such matters and were very helpful to me when starting up my other business 12+ years ago.

[ASV]

This is great advice guys. Thanks for the help.

[rpittelman]

I would agree with the above recommendations about not needing to jump into creating an LLC or any other type of corporate structure at this point. It costs money to do all of those things.

I'm not an accountant but I am in the mortgage business and have been in the banking and finance industries for the past 14 years. I have a pretty good working knowledge of personal tax returns. My wife just started her own business last year and she brought in roughly $15,000 in gross income. We still have her set up as a sole proprietor and I will probably leave her like this for a while, unless her business grows dramatically. I personally brought in roughly a third of what she brought in last year from my music. I keep that as a sole proprietorship as well.

I'm a spreadsheet nerd so I have spreadsheets that I use through out the entire year that we list our income and expenses on as we go. I have it all set up to categorize and add up all the expenses. All I need to do is give the totals of each category to my accountant. It makes it very easy for him and keeps my accounting bill reasonable

Congrats on getting a quick deal from a forward btw. It doesn't always happen that way

- Robbie

[ASV]

Thanks Robbie and good luck to everyone.