(I am not a tax professional, and this post should not be interpreted to contain professional tax advice. Ultimately, the IRS website should be your tax resource, as legislation changes and anything you read elsewhere may be out of date.)
If you have ever played in a band that is not a registered business, somewhere along the line a venue has probably asked you who checks should be made out to, and whose contact information should appear on the 1099 form issued by the venue. If the band is not registered, this will usually generate a frustrating conversation between band members, until one members graciously steps forward to accept this responsibility.
But when does a venue really need to give a band a 1099 form? If the band is not registered, is there any way to avoid having a band member provide their personal tax information to the venue for the entire band? How and under what circumstances the IRS’s magic number of $600 (see the 1099-MISC form instructions at IRS.gov) comes into play depends on if the band is being paid as a business (as a registered LLC, for example), or if the band members are being paid individually by the venue (as though a group of individually paid musicians came together to perform on the venue’s stage, instead of a hired band).
Let’s look at how the two scenarios are different:
If the venue is paying the band as a legal entity, (for example, if the band is registered as an LLC), and the total to be paid by the venue is $600 or more within the calendar year, the venue is required by the IRS to file a 1099 form for the band. If the total amount paid for the year will be less than $600, the venue is not required to to file a 1099 form.
However, if the band is not a registered business, and the band was paid cash which was divided evenly among the members, each member is being effectively being treated as an individual musician paid by the venue. For this case, the $600 limit still applies. For each individual member earning $600 or more for the year, the venue must file a 1099 form for that individual. However, for each earning less than $600 for the tax year, the IRS does not require the venue to file a 1099 form. As in our previous example, no matter the income, the individual members must still file their income with the IRS.
The takeaway here is this: The next time you are playing a gig, and the venue wants to know how to pay the band — ask yourself if the total paid to your band throughout the year will equate to $600 or more per member. If you know that your band’s total yearly income from a venue will be less than that (a one-time gig, for example), it may be more convenient for all parties to treat pay for each member individually, and avoid 1099 forms all together. (This assumes the venue is willing to do this.)
Whether treated as a legal entity or individual musicians, even if the venue has not filed a 1099 form, any income earned by the band or musicians must still be reported to the IRS. Ultimately, your goal when reporting your income the IRS is to maximize your tax return. For this reason, it is to your benefit that you keep a detailed list of your expenses as a musician. This tax resource for artists has a handy list of deductions for musicians, as well as expense checklists, income worksheets, and expense worksheets which can help you stay organized through the year.
But beware — From the IRS’ perspective, whether they see you as a hobbyist or a business will depend on how many consecutive years you have made profit:
The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year
If you are unable to convince to the IRS that you are a working musician, you may not be able to file your deductions.