Tax problems, what else is new?
The other night while watching ESPN I caught a documentary called "30 for 30 Broke" about the exorbitant spending habits and lack of financial knowledge of professional athletes and thought to myself how this also applies to artists & creative people in general. I was shocked (but then again was I?) to find out that about 70% of professional athletes are broke within three years of retirement from their selected sport. How you ask? Dumb investments (like investing in your cousin Ray Rays barbershop in the middle of nowhere) or buying goofy stuff like gold chains, diamond watches and bracelets that are overpriced. Purchasing multiple cars and homes for themselves, family members and friends. And the pièce de résistance, the always present TAX MAN! It seems like taxes always lays down the final blow on your way down the fiscal ladder. Why do these particular groups of folks have so many problems with TAXES?? One reason is that money comes from different entities and can vary dramatically from year to year so that if you pulled in $1,000,000 one year & then $100,000 the next year while still spending & living like the previous year, well, let’s just say that turns out to be a drastic mistake in judgment. This is called "living beyond ones means" and a lot of times skipping tax payments or just not paying or filing at all will lead to some bad times to say the least. So, after some research and study I'd thought I would share some links with some useful information to help you avoid these common pitfalls that crush our peers quite often! Good Luck & Spend Wisely.
5 Tips for Musicians to Avoid IRS Trouble
5. Always, ALWAYS file a tax return.
It seems so simple, doesn't it? And yet, failure to promptly file a tax return each and every year is at the root of countless musicians' tax troubles. Some wealthy performers (like Marc Anthony) wrongly assume that their accountants will simply "take care" of filing their tax returns. The truth is, only you are responsible for making sure your return is filed promptly and accurately. We get it: Pro musicians don't exactly lead the most stable lives, and if you're living gig to gig, the temptation to skip filing returns at all can be high. That's a mistake that can cost you dearly, however. If you get busted, IRS penalties can equal nearly 50 percent of the original tax burden. Then they apply monthly interest on both the unpaid tax and the penalty. That adds up quickly to a spiraling, Tony Soprano-style debt that you definitely do not want.
4. When the IRS sends you a bill, for God's sake pay it.
If there's one thing the IRS hates, it's a deadbeat. If you know you owe money to the feds, do everything in your power to pay up. The taxman doesn't forget, he doesn't forgive and he never gives up. If the IRS believes a musician is dodging his or her obligation, it can file a lien at the county courthouse -- usually after a few warning letters have failed to get the money. What's a lien, you ask? Basically, it's the government's legal claim against your property when you neglect or fail to pay a tax debt. That means they can seize your house, your car, your gear, your bank accounts and pretty much anything else you've got the keys to in order to recoup what you owe. Typically, the IRS prefers cash and will only seize your stuff as a last resort. That doesn't mean they're shy about it, though -- No less a beloved figure than Willie Nelson lost damn near everything he owned to the IRS in 1991.”
Celebrities are often in debt to the tax man
“Many other entertainers — the famous or once famous — are not so lucky. They may lose their mansions, fancy cars and expensive lifestyles unless they are rescued by a hit that makes them rich again.” USA Today <Full Story>
HOW NOT TO BECOME ANOTHER ARTIST IN TROUBLE WITH THE IRS
Here are a few things you can do to turn your hobby into a business! Read more
- Make sure you are operating like a business.
- Keep good books and accurate records.
- Get business cards.
- Get a business license or separate taxpayer ID number (TIN).
- Incorporate your band. Open a P.O. Box.
- Join Musicians’ organizations and/or unions.
- Copyright your work. Register your songs with a performing rights organization (such as SECAC).
Broke - ESPN Films: 30 for 30 (website)
Film Summary: According to a 2009 Sports Illustrated article, 60 percent of former NBA players are broke within five years of retirement. By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress. Sucked into bad investments, stalked by freeloaders, saddled with medical problems, and naturally prone to showing off, many pro athletes get shocked by harsh economic realities after years of living the high life. Drawing surprisingly vulnerable confessions from retired stars like Keith McCants, Bernie Kosar and Andre Rison, as well as Marvin Miller, the former executive director of the MLB Players Association, this fascinating documentary digs into the psychology of men whose competitive nature can carry them to victory on the field and ruin off it.
Director Billy Corben (The U, Cocaine Cowboys, Limelight) paints a complex picture of the many forces that drain athletes' bank accounts, placing some of the blame on the culture at large while still holding these giants accountable for their own hubris. A story of the dark side of success, "Broke," is an allegory for the financial woes haunting economies and individuals all over the world.
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