Music & taxes - Do you deduct cable tv?

[simonparker]

Wow! I would hope these posters here will let their accountants do the talking should an audit occur Kevin - let's get serious here. Are you really researching the songs on "Desparate Housewifes", or do you just want to get some money back for your cable bill? Let's also look at the flip side, what percentage of Americans get audited, and what would be your exposure should the IRS (and Utah) not allow the cable bill deduction? That's what you really need to ask here. My opinion is based on the facts you've mentioned herein and on the laws available and is not meant as tax advice or legal opinion:From a federal tax standpoint, the issue first needs to be based on whether you're filing as an individual, S Corporation, partnership, etc.Under the assumption that you're filing as an individual running a business, you will have to meet an income test in order to report a loss for your business. Under US Code 26 Section 183(d), you must produce profit in 3 of 5 consective years (at any point). If you do not meet that test, you fall under the hobby regime. As a hobby, you will need to generate income before a single deduction for ANY expense can be made. Therefore, be sure to make enough income from the hobby to allow for you to even put down as an expense, "the cable tv" deduction.But let's assume you clear the hurdle of a hobby. Now you have the power to take deductions beyond any income you produce. However, there are some restictions that you still have to understand. First, you have to know what consititutes a business expense. A business expense is as follows. You may deduct, under section 162 of US Code 26, any ordinary and necessary expenses in carrying on a trade or business. necessary = appropriate and helpful to the taxpayer's businessoridinary = common and accepted in the particular business activity. Hmm. Let's see. Songwriter/musician needs cable tv in order to get an idea of what music the music supervisor will accept for Desparate housewives.The deduction is really not valid - Kevin. Besides, you can watch it on ABC for free. You can visit the website at the library, etc. You don't have to pay for cable to get the idea. And let's also put this in perspective. How much is your cable bill each month? $30? That's $360 or some fraction thereof, that you're trying to deduct. Assuming you pay 40% in taxes with Federal and Utah, you're talking about saving $144 off your tax bill. So the two questions I have for you are - Do you really think the IRS and Utah is going to worry over $144? And how comfortable are you taking an extra $144/yr?

[kevinmathie]

Thanks everyone for weighing in on this! I appreciate it. You've given me a lot to think about.As for the hobby vs. business question, I do fall into the "business" category, having made my living exclusively off music for the past 13 or 14 years -- and, I do show a profit each year, which is great, except when tax season comes around! However, I've always been somewhat conservative in my deductions, with my thinking running along the lines of Simon's post.But, I think I will run this past an accountant, along with some other questions I have. I think I've been shortchanging myself on deductions over the past few years.

[daniel481]

Here's the disclaimer, I'm not a tax professional or accountant, either, but I have to completely disagree with Simon on this, as those are all legitimate expenses to deduct as an independent contractor making a living with music. When you're trying to write music for TV and Film, you have to watch both to know what's popular and current and what supervisors are using. This was even mentioned at the Rally last year. And something like cable might not be much on its own, but add in internet, phones, etc, and it starts to add up. If you use it for your business, it's a business expense. You just have to keep records and be able to justify them and there are a lot of things you can deduct as a composer.Just my two cents,Dan

[mojobone]

I, too disagree with Simon, but folks with a home studio fall under the same rules as those with a home office, there's even a booklet. Income restrictions/hobby rules are of concern, but no law says you must take every possible deduction, which is why I personally buy/own some of my gear; If I buy it, instead of the business, some years the business makes a profit, and if that should happen in three of any five consecutive years, that's probably a coincidence. If you're not sharp with a pencil, seek professional advice, I'll let you know how mine works out next time I get audited.

[simonparker]

I think a few people have misunderstood what I've posted. I'm not suggesting that you cannot deduct certain expenses for business purposes. Just the opposite. All I'm doing is mentioning what the crux of the current US Code states - that business expenses must be ordinary and necessary to be deductible. There have been Supreme Court cases on this issue alone and the interpretation is for sure vague to say the least. If you really want to delve into dry material, I encourage each of you to look some of these cases up. Regardless, mentioning costs for faxes, Internet, and phone bills in the course of business can be, and probably will be, valid deductions. I'm not challanging that per se. What I stated in my previous post is my opinion based on the facts that Kevin had posted at the top of this string and nothing else. With that said, it is up to you to learn and understand the law or seek a professional to help you in these situations. What I'm hearing from the above posts made me a little uncomfortable as if there was a blanket answer to the question posted by Kevin. That's not to say the posters are not business savy - not at all. While the posts do show a good command of business expenses, I just don't feel the posts were spot on in certain situations. That's why I posted my response. Agree or disagree - that's fine - just understand why I posted my response. With regard to Kevin's response today to everyone who posted, I am glad that he's profitable, and I'm glad he's seeking out answers to the questions he needs to ask to be more effective with his tax planning.Having had an array of clients in the past that were musicians/performers/wedding singers, etc. I have seen more than enough ideas as to how to save money on taxes with unsavory deductions. I think it would be wiser for everyone involved to have a broader knowledge base of why the US Treasury promulgated business expenses. I believe that would be more effective than to just come up with an idea to take a date to a movie you want to see, pay for popcorn and sodas, and try to run it through as a business expense under the guise, or at least half-hearted effort, as "research" for what's current music in the Film/TV industry. On the flip side, if one feels this is part of the process of being competitive for TV placements, take that deduction. However, I feel that if challanged on an audit, you will have a much harder time convincing the person on the other side of the table, than I.

[drew]

For 30 years I've kept several business going as well as "real jobs" for 20 of those. Did my own taxes for probably the first 10 years, it got too big for me tho, 25 and 30 pages returns, so I started using a bookkeeping service, not a CPA.The only order I gave them is "Don't let me do anything that throws up a red flag, I don't wanna get audited" They've done a fantastic job for me. Once the IRS takes notice of you, you will be kept under the microscope for a long time (if they found you using questionable deductions).You can write off anything you want but will it hold up in an audit? If not, they're very likely gonna go back 7 years on you to see if you've been making the same mistake the whole time.Random selection may very well get me audited one day, but I think I will do OK, there will be mistakes but probably a little both ways, to my favor and theirs. Hopefully, they won't find where I screwed them. (haha, just kidding IRS guys!)

[mojobone]

Simon's right about this much; you can't deduct every restaurant meal where you talked about My Chemical Romance, in fact I think even legit lunch meetings for business you can deduct only half. You can get the straight skinny from the IRS.gov site and any IRS office.They don't keep all the rules a secret.@Vikki: You can deduct your Hydro? I heard Canada was lenient, but now I'm definitely looking into emigrating.

[hummingbird]

Oct 5, 2008, 12:16pm, mojobone wrote:@Vikki: You can deduct your Hydro? I heard Canada was lenient, but now I'm definitely looking into emigrating. Since I run my business from my home, I can claim a percentage of hydro & basic phone for business usage.

[mojobone]

Canada and USA: two countries divided by a common language. [tips hat to B. C. buds who caught the silly reference]