Erica Harkins remembers sitting down with her dad to work on taxes the year she got her first paid theater roles.
Optimistically, Harkins, a senior musical theater major at Texas Christian University, and her father expected the process to take about half an hour based on previous years when she had worked part time at Starbucks and a dance studio. But instead of only working with W-2s, the pair had to sift through 1099s for each production she was in.
“It was definitely a shock to see that like end number at the end of all of this process pop up,” Harkins said.
Unlike her previous jobs, these roles didn’t withhold taxes from her paycheck, so she was responsible for paying the IRS as an independent contractor.
Fortunately, Harkins has scholarships that cover the bulk of her tuition, which meant she had been able to save most of her checks after paying for groceries and other personal expenses.
But some artists aren’t as lucky.
Jessica Humphrey, a theater instructor at TCU’s College of Fine Arts, remembers learning the hard way while working in New York.
“I have been in the position where I have forgotten. And I get to tax season and I owe all this money that I don’t have any more because I spent it on rent,” Humphrey recalled.
Now she advises students to set up a separate bank account for their taxes and to send money there as soon as they get a paycheck. It’s one of many practical lessons she teaches in a course called “Professional Seminar” where students also create professional websites and practice negotiating pay.
Students typically take the course fall term of their junior year after they’ve taken other courses in their major that are focused on honing their craft.
“Basically, it just puts you in the mindset that this isn’t just fun. This isn’t just acting. This isn’t just dancing. The class itself really helps you to think of it like a business,” Humphrey said.
To give students a better understanding of how they’ll need to manage their finances after graduation, students receive an assignment where they are required to search for auditions and evaluate the rate of pay.
Humphrey hopes that the exercise will help students better understand what their take home pay actually is for a listed rate of $600 per week.
“If you have an agent, you are paying your agent 10% of that paycheck. If you have a manager, that’s another 15% of your paycheck that’s gone,” Humphrey said. “Then you have to pull out your amount for taxes. So really, when you’re looking at $600 a week, that’s not what you’re making. Building that into your budget ahead of time saves you a lot of headaches and heartache later.”
Keeping an audition log is another piece of advice Humphrey’s students learn to help make their lives, and tax season, a little easier. Not only does it help students better understand their success rate and which casting agents are most likely to give them a callback, but it also acts as a checklist to make sure they’ve counted earnings for every job they took — whether it was a recurring role or a one-off gig.
Rachel Stas understands that bookkeeping can be daunting, but as a certified public accountant who prepares taxes for small businesses and individuals, including many artists, she tries to make the process less scary.
“I try to put them at ease. Your accountant isn’t the one who’s trying to get you in trouble,” Stas said. “We’re here to help.”
For artists who perform in multiple states, she admits taxes can get complicated fast.
Each state has its own threshold for earnings after which a performer would be required to file taxes on income earned in that state; that amount varies across the country. In addition to the state’s local taxes, many states also charge an income tax, which can be a new experience for lifelong Texas residents.
Some musicians will form a limited liability company, or LLC, when they’re trying to shift their hobby into a business.
But, Stas recommends talking with an accountant before taking that step. Otherwise, it can be easy to miss all of the details that go along with that change. For example, if the LLC is for two or more members, that requires a partnership tax return. Those returns are due earlier than individual returns, and missing that deadline can add up fast with a penalty of $210 per partner for every month the return is late.
One thing that can help make tax season easier for touring bands is setting up a bank account for the group and depositing all of their checks there — even if some of that money needs to come out immediately or shortly after to pay for gas or hotel rooms at the next tour stop.
“I’ve yet to find a musician or artist of any type who wants to keep track of their QuickBooks or their bookkeeping month to month. But at least if you have like 12 months of bank statements, your accountant can create it for you or you can do it all in one sitting,” Stas said. “But when it’s like, ‘Oh, I used my personal card. Well, the drummer used his card,’ you’re never going to find all those expenses. It just gets overwhelming.”
Stas recommends Quickbooks for tracking expenses and MileIQ for logging mileage, but she warns against getting over-zealous when trying to take deductions, especially if they are based on estimates.
“I’ve seen people get really aggressive on their mileage, like, ‘Oh yeah, I totally drove 20,000 miles for the band or whatever this year,’” Stas explained. “You need to make sure your car actually went 20,000 miles or over. The IRS has access to your maintenance records. So when you get oil changes and stuff, they can estimate what your mileage is.”
The regulations can be a lot to digest, but Harkins, the TCU senior, feels better equipped to handle tax season this time around.
“I don’t feel concerned. I knew that they were coming. I knew how much to expect at the end of all of this, right. And I do have that money put aside and like a tax account that that’s going to come out of,” she said. “I feel prepared.”
Marcheta Fornoff covers the arts for the Fort Worth Report. Contact her at firstname.lastname@example.org or on Twitter. At the Fort Worth Report, news decisions are made independently of our board members and financial supporters. Read more about our editorial independence policy here.