Conference napalm::commusic_v1

    No replies in ten days...
    
    Do you LIKE paying more tax than you have to ??
    
    Or has this subject been hashed over in previous notes ???
    

    Perhaps nobody is interested in discussing how they deal with the
    IRS regulations in a public forum.
        John Sauter

    Nothing so exotic, it's just that I haven't made any money off my
    equipment.
    

    I'm certainly interested in the topic, but I agree with John; I
    don't think very many people have tried turning their hobby into a
    business yet.  I would be interested if anyone knows what the rules
    are for tax reporting purposes, or at least where to look to find
    them.
    
    -jim

  I have written off my performing equipment in the past, amortized
  over a five year period, off hand I don't know which forms, but
  they are something like reporting income from self employment,
  there are forms which go with these that allow business deductions
  for repairs, consumables (strings etc), magazines, milage, etc.
  A phone call to your local 800 IRS phone number will get you
  the info to get started, they were quite helpful in my case.
  However, I still employed an tax consultant to do this the first
  time....after that I just mirrored his written example, the cost
  of the consultant is also deductable on the next year's taxes.
  A word of caution, if you depreciate you guitar and sell it before
  the depreciation is complete you have to claim the profit
  (profit=cash value above the remaining depreciation) as income
  and pay taxes on that. You also have to earn more than $400 a
  quarter (I think that is the figure) for this to be employment
  rather than a hobby......
  
  this , hopefully, will get you started.....
  
  
  dave

    OK how about this scenario....
    
    You *say* that you make more than $400 a quarter (even if you don't),
    and buy some equipment to more than offset this "income". This amount
    of money that you "lost" could be deducted from your regular income,
    and thereby lower your amount of taxable income.
    
    This is probably illegal, and therefore of course I would never
    *dream* of doing such a thing.  Does this hypothetical situation
    sound like it could work?.....would it be worth it?
    
    Mike D.
    

    
    I would think that you would need some record of activities
    that support the claim to income, just as you keep records
    of things that you claim as deductions. I think the key is
    that you demonstrate that you are trying to produce taxable
    income.
    
    I _think_ that equipment is capital, and must be depreciated
    over time instead of your scenario. Using 5 years and
    straight line, with income requirements of $400/quarter or
    $1600/year...you need $1600 * 5 or $8000 outlay in equip.
    (er, capital.You use your Amiga only for music, right? great. AND???)
     to break even. Of course, there are other deductions.
    
    Am I right on this?

    ron

    No scam, anyone with any hope of making money from their music SHOULD
    be working this way. After checking out every nuance with my
    accountant, I have:
    
    o	set up a complete bookkeeping system, cash receipts book and
    	keeping/categorizing music expenses (i.e. fixed assets vs.
    	supplies)
    
    o	been able to declare a major loss in 1986 and plowed that tax
	refund (indeed against my DEC salary!) back into equipment. 
    	Bad news, 1986 was the last banner year this would work- the
    	accelerated (3-year) depreciation, I mean. Everything subsequent
    	is on the (ahem) 5-year plan.
    
    o	You must have SOME income in each year, no $400 per quarter
    	requirement that I know of... but you MUST show a PROFIT in
    	two of five years ! Easy, do some gigs, don't buy any equipment
    	in those years !
    
    o	I've also registered a DBA name with the state to get a state
    	sales tax # ... I sell cassettes.. even though through stores
    	and distributors I'm not responsible for collecting the tax..
    	Having a DBA (Doing Business As) name looks real good to IRS.
    
    karl�

    
    Oh boy! But is this the same KM as in note .0?
    note .0 said that $400/qtr is required per lawyer (and you *paid*
    him?)
    
    Lest you be the only one, I registered in my town. Ok you guys:

   (draft of introduction letter:)
Dear fellow electronic music enthusiast:

I have started a business called S.C. Music that will be engaging
in electronic music composition, production, and performance.

In addition to the above activities, our engineering staff is
availible for consultation on hardware and software aspects of
sound synthesis, and we will be researching  and developing
computer-based (hardware and software) music engineering tools.

If you have any questions about our extremely reasonable rates and
alternative payment opportunities,contact:

				Ronald J. Ross, Director
				S.C. Music
				1028 Hill Rd. Suite A
				Boxboro Ma. 01719
				(617) 263 1476
    
    ("S.C." ? Why, "Spare Change", of course.) I was a bit worried about the
    $400/qtr, but had some ideas that I was going to interest my fellow
    noters with. But...where did that number come from then?

    I called the local 800 number for IRS forms to get one to apply
    for an Employer ID number (seems that sole-proprietorship tax schedule
    needs it) and they said they will send a package of startup info
    for new small businesses. ok.
    
    But is your "DBA" different than registering in the town? I dont
    think there was a provision for getting a State sales tax number.....
    
    Ron_treprenuer
            

    Yes, looking back at .0, I did say $400/quarter.. gimme a break,
    that was over a year ago ! I think we're mixing metaphors here.
    $400 per quarter is the minimum under which one need not file any
    return. You MAY file a return.. if you indeed bring in less
    in any quarter, it doesn't mean you be disallowed !
    
    regarding DBA: even though Tucson has a city sales tax of 1/2 cent,
    I currently live outside the city limits.. thus the STATE tax number.
    If your city of residence has a sales tax and you're selling some
    durable good (music performances aren't durable - ain't it the truth)
    you'd better get straight with the man.
    
    Also you should make certain your DBA name (sole proprietorship)
    is unique in your state.. check the phone books at your library.
    
    more to come, I'm sure. karl 
   

    
    Now were smokin.....(reference to quick execution of musical phrase)
    
    Ok. How does a typ business aquire assets? It buys them...with
    a bank loan usually, I guess (yes, I *did* go to college)...
    
    {think, think} AH. So as a sole-prop'ship ( lets call it SP for
    ease from now on..) THATs why your personal assets are at risk 
    and why they ARENT as a corporation, I guess...You can pick up
    assets with your personal funds. Afterall, you and the business
    for income and loss purposes roll up together come 1040 time...
    
    But say I have assets already (equip bought in '86). How do I
    (or do I have to) 'transfer' them to the business ......???
    
    There must be some choices here.....scheme, scheme.
    

    You'd have to incorporate your studio and buy the (used) equipment 
    from yourself. It would be difficult to set this up. You'd get lots 
    more scrutiny from IRS. Plus used equipment would be hard to set
    up depreciation on.. 
    
    Look ahead to your next acquisition.. after all, it's the expense
    of furnishing your studio that counteracts your musical income..
    
    But there is slack in the system.. many companies don't make money
    in their first few years.. thus the 'profit in two out of five years'
    rule.

    kmII    

    
    
    Buy them from me....

    
    Nope. I want it allllll....
    
    I'll just set up another business that buys/sells used instruments.
    Buy them from me, and sell them to the other business....
    
    there.
    
    see you in court!
    
    (there must be a way....help!)
    

    Since you are set up as a SP, your personal income and business
    income/loss are considered one thing to Uncle Sam.  It wouldn't
    make sense to sell your current equipment to your business because
    of this due to the offsetting nature of buying and selling taxwise.
    One side of you would be selling thus gaining taxable income, and
    the other side of you would be buying and able to write off the
    equipment.  Net result seems nil.
    
    You would also be crazy to incorporate due to the double taxation 
    that takes place under coorporate rules (the coorporation gets taxed 
    for its income, and then your salary from the coorporation gets taxed.
    
    There must be a way to weigh the present value of the equipment
    that you already own when you set up the business, label it as
    capital, and depreciate it.  No?
    
    Todd.
    

    Is the private sale of a musical instrument actually considered
    income?
    
    Edd

    It is my understanding that the $$ obtained through private sale of 
    anything is considered taxable income, musical instruments inclusive.
    
    Can anyone confirm this?
    
    Todd.

    
    I'm wrong.  It's only considered income if:
    
    	1.  You sell somthing for more than you paid for it if it wasn't
    		depreciated (ie: any household item).
        2.  You sell somthing for more than the depreciated value.
    
    You then pay taxes on the difference.
    
    My accountant friend also tells me that if you start a business
    and you already have some equipment, you can contribute it to the
    business (known as "Contribution of Capital" at the fair market
    value, and then depreciate it from there.
    
    He also tells me that it is important to the IRS that the main reason
    the business exists is to make money.  He also said that it may
    be a flag to the IRS if you force profit two years out of five by
    just reducing expenses.  He says that the burden of proof of intent
    to make money is on the taxpayer, not the IRS.
    
    He recommends keeping records for as much as possible, and have
    a justified reason for all purchases.  The more organized the business
    is, the better it looks like you are trying to make money...
    
    Todd.
    

    
        
    	Uncle Sam *wants* you...

    		to help me make money.

    
        Buy my undepreciated equipment at what I bought it for, and
        sell it back to me undepreciated at the same price so then
        I can depreciate it.
    
        cheers.
             

    
    I've had no problems so far deducting new or used equipment for
    my business. I use 5 year ACRS as it's best for folks starting out.
    You get a small depreciation in the first year, when your deductions
    far outweigh your profits, and big depreciation in the middle and
    end of the period, where you should be making money. This allows
    you to keep more of your profit. Again, you must make some kind
    of profit for 2 out of 5 years or you are subject to having your
    business declared as a hobby, upon which you can make some but not
    all of the business deductions. I go easy on the IRS and don't deduct
    every cent I make, nor do I deduct my 10 year old truck that's used
    for both business and pleasure. This way I keep the loss to a minimum
    to avoid flagging the IRS watchdogs to audit me (one of any business
    persons worst fears).
    
    Good luck,
    CdH