Many musicians put off organizing the business side of their career until they have to. They may feel overwhelmed and stressed out by the demands of tax authorities and grant application requirements. As entertainment accountants, this is often when we see clients for the first time – when they are in need of organizing their finances and putting together a plan for the future. We see many missed opportunities for saving money as we are compiling years of income and expenses and filing multiple years of tax returns. Our entertainment group works with you to understand the big picture and how to keep more of your earned money.
Here are a few things you should think about once you have decided to make music your business:
Once you have started directing effort and funds toward earning income as a musician, you have a business! If you are going it alone, you are self-employed. If you have formed a band with others and are sharing in the income and expenses, you are in a partnership. Incorporating your business is a step that warrants a conversation with a professional. Having a corporation involves additional compliance and costs, and in many cases the costs outweigh the benefits to an artist at the beginning of their career, and should be in your plan to be done at a later date when you’ve hit a specific financial level or for liability reasons.
Income Tax and GST/HST
Many in the music business don’t take advantage of their business losses when they are getting started. They don’t report all of their expenses because they haven’t realized a profit yet. Business losses can be claimed against other types of income (i.e., your day job) or carried forward so you get the tax benefit when you are making money down the road. As an artist, you have many types of expenses that are unique to your industry. A professional specializing in the music industry can help you determine what expenses you should be keeping track of.
You are required to register for GST/HST when you hit $30,000 in gross (before expenses) sales (business income). Your gross income includes royalties and advances, so you can hit the threshold without being aware. Once you are registered, you have to collect GST/HST on taxable revenue, and for a touring artist you must collect the tax at the rate in force in the province where you are performing. The benefit to being registered is that you no longer have to pay GST/HST on business expenses. The amount you have collected is reduced by the GST/HST that you have paid throughout the reporting period, and the difference is either due to CRA or refunded to you.
Cash Planning and Budgeting
Touring is expensive and fraught with unforeseen expenses like vehicle and gear repairs, weather-related problems and a myriad of other unplanned possibilities. Recording costs can also get away from you if you’re not careful. Planning a tour or an album (including a contingency amount) should include a budget, and is a valuable exercise that will help you to stay financially focused.
Spreadsheets, cash recording templates and receipt apps will help you stay organized, on track and able to see where you are financially at a glance. We provide our clients with template worksheets to reconcile tour road cash, settlements, grant funding and many others.