- You are going to find others out there calling themselves music business managers. Many are not CPA’s and don’t even have an accounting degree, so they’re charging prices all over the place. Many have only done a handful of tax returns and may have never even prepared a state return, or advised you to file a return in certain states you tour through. You will be well served by going with a business manager who has gone to bat for their bands in enough IRS audits to know which areas of your business you should really be paying attention to, and who knows to tell you what and what not to watch out for.
Hiring a business manager without adequate staff and with little experience in music business issues and federal and state taxation may end up costing you much more than you may think you’re saving. Is it worth the risk to find out what they haven’t been doing for you when it’s too late?
Before you jump off and hand over your business to the first guy that quotes you $500 a month, consider working closely with a more experienced business manager during your growth years so they’ll already be familiar with your music, your audience, and your business style, so that when you do hit $30 – $40k per month and need someone fast, you’ll already have someone that you know and trust.
Bottom line: go with a business manager who is a CPA. One who has current and past music business clients whom you know and can check references with. One who can guide you and your tour manager during the year to keep records that are adequate to hand over for an accurate tax return. Then you won’t be losing sleep worrying that the 3-year IRS statute of limitations seems like a really long time. A good CPA business manager should be able to painlessly guide you through the tax year and affordably prepare your state and federal taxes at years end.
Our team is always ready to answer your questions and get you in the right direction. Give us a call or stop in for a visit. Follow me on FB – LayneLauritzenCPA and on twitter, austinmusiccpa, to stay up to date on music and tax news.
- For those of you who have skipped a few years of filing your individual federal income tax returns, the present is always the best time to take care of them. Now, while you are gathering last years business records for your 2012 tax return, is a good time to meet with your CPA to ensure that you will receive quicker service and more advice. The goal is to contact the IRS before they contact you. Maybe you’re getting married or divorced or entering into a business partnership, and your partner is asking you to take care of your tax baggage. Or you may be wanting to purchase your first home or re-finance an existing one. But sooner is always less expensive than later for filing those delinquent returns.
After several warning letters for a particular year that you have not filed, the IRS will send out a notice proposing the tax that you owe for that year. The letter gives you an opportunity to either agree with the tax, or file your own return, by a certain deadline. If you don’t respond within that deadline by preparing and filing your return, the IRS sends a letter called a 90 day notice of deficiency giving you one more chance to file your return before it assesses the tax it has computed. After the 90 days, you have to go to tax court to get the tax changed. This is not the scenario you want to be faced with.
The amount of tax computed by the IRS for you is based on income that you have earned that has been reported to them including wages on W-2 forms, contract labor and royalties on 1099-MISC forms, withdrawals from retirement accounts on 1099-R forms, and sales of stock and investment income from brokerage accounts on 1099-B, 1099-DIV and 1099-INT forms. The IRS computes that tax without any deductions for business expenses, cost of investments sold, or personal itemized deductions. Since none of those deductions have been taken by the IRS, the amount of tax they propose is always higher than the tax on a tax return prepared accurately by your CPA. In addition, the 3 year statute of limitations never starts running because the IRS filed it instead of you, so it is open to an IRS audit forever, or until you file it yourself.
A CPA familiar with your business model will know the most cost-effective ways to get these delinquent returns prepared and filed for you to produce the least amount of tax for the lowest cost. You should end up with a tax return that you could support if it were audited by IRS, not a hastily prepared return that ignores obvious information like deposits to your bank accounts, and other information that is easily obtainable by IRS. One way to look at it is that you should include income that is easy for IRS to find out about. For you musical artists, only an experienced CPA that has spent time in the trenches of the music business will know both what to look for, and what not to waste time and your money on, in order to give you the most bang for your buck. It is a stressful situation, but the stress of not knowing what you owe is always more than the stress once you know what the numbers and the taxes are.
So, now’s the time to take care of any delinquent tax returns. Don’t wait until you’re faced with deadlines and penalties. We’re tax professionals and we’re here to help.
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