CHAPTER TWENTY-EIGHT

The Musician’s Business and Taxes

Independent contractor, 1099s, self-employment tax, and the entity question.

The last chapter got you paid. This one is about the fact that the money you just settled isn’t entirely yours — that a working musician is, in the eyes of the law and the tax authorities, a small business, with all the obligations and a few of the advantages that come with that. This is the least glamorous chapter in the book and one of the most important, because the business and tax side is precisely where the dream of making a living from music either becomes sustainable or quietly collapses under a tax bill nobody saw coming. Plenty of talented musicians have been driven out of the working life not by a lack of gigs but by a failure to handle the business behind the gigs.

Before we go a word further, the most important sentence in this chapter: what follows is general information to orient you, not tax or legal advice, and it is no substitute for a qualified professional. Tax law is genuinely complex, it changes, and it applies differently to every individual situation, which means the single most valuable thing you can take from this chapter is not any particular fact but the conviction that you need a good CPA or tax professional, and that hiring one is among the best investments a working musician ever makes. We’ll orient you to the landscape — what the concepts are, what surprises to expect, what questions to ask — so you can have an intelligent conversation with a professional. We will not, and cannot, give you advice specific to your situation. That’s their job, and it’s worth paying for.

With that firmly established, here’s the landscape. You’re an independent contractor, paid without taxes withheld, which has consequences. You’ll owe self-employment tax, which surprises almost everyone the first time. You can deduct legitimate business expenses, which helps, if you keep records. As you grow, the question of forming a business entity may arise. And the room paying you has its own side of this, with forms and obligations of its own. Let’s walk through each, remembering the whole way that the goal here is to make you a smart client of a tax professional, not to turn you into one.

28.1 You Are a Small Business

The foundational shift, and the one most musicians resist, is to genuinely accept that you are running a business. Not metaphorically — actually. The moment you start earning money playing music, the law and the IRS regard you as a self-employed business owner, a sole proprietor by default, whether or not you’ve filed a single piece of paperwork or ever once thought of yourself that way. Your music is your art and your calling, yes; it is also, simultaneously and unavoidably, a business, and the tax authorities care only about the second part. The musicians who thrive over the long haul are the ones who make peace with this early and run the business side as seriously as they pursue the music. The ones who refuse to — who insist they’re “just artists” and can’t be bothered with the money side — tend to get a brutal education eventually, usually in the form of a tax bill.

Being a business, in this default sole-proprietor sense, doesn’t require anything formal at first — no LLC, no fancy structure, nothing filed. If you’re earning money playing and you haven’t set up an entity, you’re a sole proprietor automatically, and your music income and expenses simply flow onto your personal tax return through the appropriate forms. What being a business does require is a change in how you think about the money: that the income is business revenue, not pocket money; that the costs of doing it are business expenses; that taxes will be owed and aren’t being withheld; and that records matter. It’s less a legal transformation than a mental one — seeing the shoebox of cash and receipts as the raw material of a business that has to answer to the tax authorities at year’s end. There’s a wrinkle worth knowing exists, even if its details are a CPA’s to handle: the IRS draws a line between an activity run as a genuine business and one it treats as a hobby, and that line affects how freely you can deduct. A musician losing money year after year — common early on — can have the business claim and its deductions questioned on exactly those grounds. You don’t need to master the test; you do need to know it exists, run your music like the real business it is, and let your professional sort out which side of the line you fall on.

Embracing the business framing isn’t just about staying out of trouble, though it does that; it’s about keeping more of what you earn and building something that lasts. The musician who treats the business seriously sets aside money for taxes and isn’t blindsided in April; tracks expenses and claims the deductions that lower the bill; keeps records that turn tax time from a panic into a routine; and makes informed decisions with a professional’s help. The musician who ignores it overpays, gets surprised, scrambles, and sometimes gets driven out of music entirely by a financial mess that good habits would have prevented. The business side, handled well, is what makes the music sustainable — it isn’t the enemy of the art, it’s the thing that lets you keep making it. So let’s get specific, starting with what being an independent contractor actually means for your money.

28.2 Independent Contractor and the 1099

Many gigging musicians are treated as independent contractors, but status depends on the actual working relationship and degree of control; some performers and house musicians are employees. When you are properly treated as an independent contractor, the room generally pays the agreed amount without payroll withholding: no income tax taken out and no Social Security or Medicare deducted. This is why the settle feels like the whole sum is yours — because all of it is, in hand, in that moment. But that’s an illusion the tax system will correct later: taxes are owed on that income, and because no one withheld them for you, the responsibility to calculate, set aside, and pay them falls entirely on you. The freedom of being your own boss comes bundled with the burden of being your own payroll department.

At year’s end, some of the entities that paid you will send you a Form 1099, a document reporting how much they paid you over the course of the year, with a copy going to the IRS. Rooms and other payers are generally required to issue these for contractors they paid above a threshold the IRS sets — and because the rules and the threshold amounts change, the specific figures are exactly the kind of thing to confirm with current IRS guidance or your CPA rather than to assume from a book. The 1099 isn’t a bill and it isn’t optional paperwork; it’s simply a report, telling you and the IRS what a given payer paid you, so that the two of you can make sure your tax return matches.

Here is the point on this subject that trips up the most musicians and matters the most: you owe tax on all of your music income, whether or not you receive a 1099 for it. The 1099 is a reporting document, not the thing that makes income taxable — the income was taxable the moment you earned it. The cash gig that generated no paperwork, the small room that paid you under the threshold and sent no form, the app payments from a dozen little shows: all of it is taxable income that you are legally obligated to report, 1099 or no 1099. Assuming that “if there’s no 1099, the IRS doesn’t know and I don’t owe” is both false and dangerous, and it’s exactly the kind of thinking that turns into a serious problem down the road. Report all of it. Your CPA will tell you the same thing, with more authority than this book can.

28.3 Self-Employment Tax and Paying as You Go

Now the single biggest surprise in the working musician’s tax life, the one that blindsides nearly everyone the first time: self-employment tax. Here’s the mechanism. Social Security and Medicare are funded by a tax split between employer and employee — when you have a regular job, your employer quietly pays half of yours and you pay the other half through withholding. When you’re self-employed, there is no employer to pay that other half, so you pay both halves yourself. That’s self-employment tax. The headline rate is 15.3%, generally calculated on 92.35% of net self-employment earnings. The Social Security portion is subject to an annual wage cap, all net earnings remain subject to Medicare tax, additional Medicare tax can apply above certain thresholds, and half of the calculated self-employment tax is generally deductible as an adjustment to income. It is separate from the regular federal income tax you may also owe. A musician who budgeted only for income tax, forgetting self-employment tax entirely, can find the real bill is far larger than expected. One clarification for Texas musicians specifically: all of this — income tax and self-employment tax alike — is federal, owed to the IRS. Texas levies no personal income tax, so your income-side burden runs to Washington, not Austin. The Texas Comptroller’s domain is different: sales tax, which the next chapter takes up, and a franchise tax that can come into play for some business entities. Knowing which authority governs which tax saves a lot of needless worry about a state income tax that doesn’t exist here.

The second half of the surprise is timing. Because nothing is being withheld from your gig pay through the year, the tax system doesn’t just wait politely for you to pay it all the following April. The IRS generally expects the self-employed to pay estimated taxes throughout the year — typically in quarterly installments — and failing to pay enough as you go can bring penalties on top of the tax itself. This catches musicians who assumed taxes were a once-a-year event and discover they were supposed to be sending payments in all along. Exactly whether you owe quarterly estimates, and how much, depends on your situation and is a textbook question for your CPA — but the general reality to absorb is pay-as-you-go, not pay-it-all-at-the-end.

The practical defense against both halves of the surprise is simple to state and disciplined to do: set aside money for taxes out of every settle, before you spend a dime of it. A common rule of thumb among self-employed people is to hold back a meaningful percentage of each payment in a separate account earmarked for taxes — the right percentage for you depends on your income, your deductions, and your situation, which is, again, a CPA conversation — so that when the tax comes due, the money is already sitting there. The musicians who do this find tax time uneventful; the money was never really theirs to spend, and they didn’t spend it. The ones who don’t, who treat the full settle as spendable income, are the ones facing a bill in April with nothing set aside to pay it — the most common and most avoidable financial disaster in the working musician’s life. Treat a portion of every payment as the taxman’s, set it aside on the spot, and the surprise loses its teeth.

28.4 Deductions and Recordkeeping

After all that, some good news to balance the ledger: as a business, you get to deduct your business expenses, which reduces the income you’re taxed on. The tax system, for all its burdens on the self-employed, does recognize that running a music business costs money, and it lets you subtract the legitimate, ordinary, and necessary costs of doing business from your taxable income. For a musician, that universe of potential deductions can include things like instruments and gear, strings and supplies and repairs, the mileage or travel costs of getting to gigs, lodging on the road, promotional and marketing expenses, and a portion of a dedicated home studio space — though exactly what qualifies, and how, and to what extent, is genuinely complicated and situation-specific, which is to say it’s a CPA’s domain, not a thing to wing from a list in a book. The principle to carry, though, is that your real business costs can lower your tax, and a musician who ignores deductions entirely is simply overpaying. It’s the rare part of the tax picture that rewards you rather than costing you, and it’s a big reason the recordkeeping that feels like a chore is worth the trouble — the same habit that documents your income also documents the expenses that bring the bill back down. Deductions are the system’s acknowledgment that your gear, your gas, and your strings are the real cost of doing a real business.

Deductions come with a hard precondition, and it’s the same habit this whole part keeps circling back to: recordkeeping. You can only deduct what you can document, which means every string you buy, every mile you drive, every dollar you spend on promo has to be tracked and substantiated — receipts kept, mileage logged, expenses recorded — through the year, as it happens. The deduction you can’t prove is a deduction you effectively don’t have, and worse, sloppy or invented deductions are exactly what turns an audit ugly. The musician who keeps a shoebox of crumpled receipts and tries to reconstruct a year’s expenses the night before taxes are due leaves real money on the table and exposes themselves besides. The one who tracks expenses as a routine — a simple system, kept current — claims everything they’re entitled to and can back all of it up.

Recordkeeping cuts both ways, of course: you track income as carefully as expenses, which is exactly where the settle-record habit from the last chapter pays off. Every settle, written down as you make it, becomes a line in your income records; every receipt, kept as you spend, becomes a line in your expenses; and together they’re the raw material your CPA turns into an accurate, optimized, defensible tax return. The whole system needn’t be fancy — a spreadsheet, an app, a well-organized folder — it just needs to be consistent and current, capturing the money as it moves rather than reconstructing it from memory and guesswork months later. Good records are the foundation everything else rests on: they’re what let you claim your deductions, prove your income, survive an audit, and hand your CPA something they can actually work with. Build the habit, and the entire business side gets dramatically easier. One piece of plain small-business hygiene makes the whole records habit almost automatic: keep a separate bank account for the music. Run your gig income and business expenses through their own account rather than commingling them with your personal money, and your records half-keep themselves — every business transaction in one place, cleanly separated from groceries and rent, easy to hand your CPA and easy to defend. It’s the simplest structural step there is, and most professionals will tell a self-employed person to set it up first.

28.5 The Entity Question and the Room’s Side

As a musician’s career grows, a question tends to surface: should I form a business entity — an LLC, say — rather than just operating as a sole proprietor? It’s a real and reasonable question, and people consider entities for a few reasons: liability protection, the idea of separating personal assets from business risk; potential tax-treatment options that an entity can open up; and a certain professionalism or seriousness the structure can signal. But an entity also adds cost and complexity — filing fees, separate records, more involved taxes — and whether the benefits are worth it, and which kind of entity makes sense if any, depends entirely on your specific situation. This is squarely a decision to make with a CPA and possibly an attorney, not from a book and not from what worked for the guitar player in some other band. The honest answer to “should I form an entity?” is almost always “ask a professional about your particular case” — but it’s a question worth raising with one as you grow.

One note before the owner’s side: everything in this chapter has been about you, the individual musician, as a business. When the business is a band — multiple people splitting income, sharing expenses, making decisions together — a whole additional layer of structure questions opens up, from how the money gets divided to whether the band itself should be a partnership or an entity, and that’s involved enough to get its own chapter later on. For now, the individual picture is the foundation. As for the room’s side: the venue paying you has its own version of all this. The room pays bands as independent contractors, which means it generally needs your tax information up front — typically a W-9 — keeps records of what it pays each act over the year, and issues 1099s to those it paid above the threshold, as the rules require.

A room that handles this side cleanly — collecting W-9s, keeping accurate payment records, issuing correct 1099s on time — is both staying compliant and making its bands’ lives easier, which is one more quiet mark of a professional operation; the room that’s sloppy with it creates headaches for everyone and risk for itself. There’s also a thornier question lurking for owners — whether the musicians they use are properly classified as independent contractors rather than employees, which has real legal and tax stakes and is, like so much here, a consult-a-professional matter. The throughline for both sides is the same one this whole chapter has pressed: the business and tax dimension is unglamorous, genuinely complicated, and absolutely worth handling professionally, because it’s the difference between music as a sustainable living and music as an expensive hobby that ends in a tax mess. Get a good CPA, keep good records, set aside for taxes, and treat your music as the business the IRS already knows it is. There’s one more corner of the money picture with a tax twist all its own, though — the merch table, where you stop being only a performer and become a retailer, which drags in an entirely separate kind of tax. Selling merch, and the sales-tax reality that comes with it, is next.