Four Common Tax Mistakes (+ How to Avoid Them As a Self-Employed Musician) | Musician & Co. (2024)

It’s tax season—everyone’s favorite time of the year, right?!

You know that taxes can be complicated, especially if you:

• are self-employed

• receive income from multiple sources

• have income from multiple states (especially common if you’re a student)

• run an online business

• have income that’s inconsistent throughout the year

…and the list goes on.

You can certainly hire an accountant to do your taxes for you, but we recommend learning how to do it yourself first. After all, even if you outsource your taxes to a professional, you’re still the one responsible for keeping accurate records, tracking certain numbers in your business, paying estimated taxes, and keeping track of all of your receipts.

The good news is, we’re here to help with that.

In this post, we’re talking about four common tax mistakes and how to avoid them as a self-employed musician and small business owner. You’ll learn several helpful tax strategies including how to set aside and pay estimated tax in your business, keep good tax records throughout the year, and take advantage of strategic tax deductions and business write-offs that can lower your taxable income.

Disclaimer

This content is for educational purposes only and should not be construed as tax advice. Please seek advice from a tax advisor familiar with your specific situation.

Small Business Tax Mistakes (+ What to Do Instead)

Tax Mistake No. 1: Not setting aside tax money every month

This is a big one.

Not saving enough for taxes can cause a serious cash flow problem in your business come tax time (according to Forbes Advisor, 38% of businesses fail because of cash flow problems like this).

If you’re in the U.S. and self-employed, you’re responsible for paying your own income taxes (to the federal government and your state, if your state collects income tax), like how an employer withholds taxes from an employee’s paycheck.

A lot of times, self-employed musicians take any money they make and deposit it into their bank account in full, without thinking about taxes.

Then, when it’s time to file their tax return, they are faced with a steep tax bill that they may not be able to afford.

What to Do Instead →

Create a monthly routine of documenting your income and expenses (see our Bookkeeping Templates for Self-Employed Musicians) and setting aside tax money in a separate savings account (25-30% of your income after expenses is a good rule of thumb).

Or, if it’s easier for you, take 25% out of every income deposit and set it aside for taxes as you go.

Tax Mistake No. 2: Not paying estimated taxes in your business

If you’re self-employed in the U.S. and make enough to owe $1,000 or more in taxes this year (i.e. $3,000-$4,000 in revenue), it’s not enough to set aside tax money and pay your tax bill when you file your return. You need to pay quarterly tax payments.

If you don’t, you could have to pay a fine when you file your return (even if you were prepared to pay everything you owed for the year).

What to Do Instead →

Set up a separate savings account for your tax money.

We talk about this inside our free class, Tax Basics for Musicpreneurs, and share a working formula for calculating this amount in your business, but plan to set aside 25-30% of your self-employment income (after expenses) for estimated taxes.

Each quarter, send your payment to the federal government and your state (if applicable). You can make these payments online:

• Electronic Federal Tax Payment System (EFTPS)

• Your state taxation website

To give you an idea of how I divide this up, I pay 20% of whatever’s in my tax savings account to the federal government and 5% to NYS each quarter.

Again, we walk you through how to calculate this number for yourself and your business and share a few case studies in our free class. Sign up here>>

Tax Mistake No. 3: Not keeping thorough records throughout the year

Bookkeeping—not everyone’s favorite. But it’s an essential part of running a small business and keeping good tax records.

You need to be able to show how much income you made (ideally by client or type of work) and how much you spent (software, website hosting, office supplies, instrument maintenance, materials, professional development costs, business meals, business travel, a percentage of your internet, if you work from home, etc.). And you need to keep all of your receipts.

Also, if you made any tax-deductible donations throughout the year, make sure you have an itemized record of that and receipts.

One other note: It’s important to record and report all self-employment income you make throughout the year, even cash payments. This shows the government that you are a legitimate business and if you apply for a car loan or a mortgage, you have the track record to prove that you’re financially secure and can afford it.

What to Do Instead →

Create a Profit & Loss Statement for your business to track all your income and expenses throughout the year.

Tax Mistake No. 4: Missing out on certain tax deductions

Another problem with not keeping detailed records throughout the year is that you’re probably missing out on some deductions and business write-offs that could lower your tax bill (or give you a bigger refund!).

What to Do Instead →

Take advantage of deductions, tax savings, and business write-offs that will lower your tax liability (how much tax you owe the government).

Business Write-Offs

Learn how business write-offs work and save you money in the long run, plus 23+ strategic tax deductions for self-employed musicians in this post: Year-End Tax Write-Offs for Musicians.

Business Deductions

Here are a few deductions to consider including as a self-employed musician:

• Vehicle Use: Did you use your car for travel related to your self-employment work? If so, you’re eligible to write off care and maintenance expenses, garage fees, etc. (or take the standard deduction, which factors these things in).

• Home Office: Do you have a dedicated space in your home or apartment that’s used only for work? If so, you’re eligible to write off a percentage (based on the square footage of your home office) of expenses related to the care and maintenance of your home (e.g. gutter cleaning, furnace/AC check, snow removal). You can also write off a percentage of your utility bills including internet.

• HSA: A Health Savings Account is a great way to save on health-related expenses. Individuals can contribute up to a certain amount each year tax-free and use the money to pay for doctor’s appointments, procedures, glasses or contact lenses, medications, and eligible health-related purchases (e.g. pain relievers, ace bandage, KT tape).

• SEP: A Simplified Employee Pension is a retirement savings plan for self-employed individuals (or small business owners with a few employees) that allows you to contribute up to 25% of your (or your employee’s) income each year, up to a certain amount. This can be a significant source of retirement income and can help you achieve your savings goals if you’d like to contribute more than the annual Roth IRA limit. For more on retirement accounts, see this post: .

Summary:

In this post, we talked about four common tax mistakes and how to avoid them as a self-employed musician. You learned about helpful tax strategies, setting aside and paying estimated tax in your business, how to keep good tax records throughout the year, and how to take advantage of tax deductions and business write-offs that can lower your taxable income.

I’d love to hear from you:

What questions do you have about doing your own taxes as a sole proprietor?