Tax Question

[mdeman]

Hi There,

I have a tax question. I recently send an invoice to a publisher for licensed tracks in the UK ( I’m based in the Netherlands). The invoice was paid but my accountant today said he needed the VAT number of the publisher in order to do my taxes. I asked the publisher for the company’s VAT number but it turns out they don’t have one and they claim it’s not necessary for them to have it.

Unfortunately this means I’ll have to pay 21% of my income to taxes which would not be the case if I had their VAT number. Anyone ever encountered the same thing?

[Rhythmscott]

For those of us composers who live in USA, we are responsible for paying tax on all the money we receive from libraries. I’ve never heard of a publisher that pays any taxes for a composer’s portion of sync fees or royalties. All the money we see is taxed as “royalties” as “self-employed” composers meaning we’re the ones responsible.

I would love to hear if anyone else knows of a way we composers can eliminate paying taxes on earned income from library music.

[Music1234]

@Rhythmscott income is income. If a company sends you a 1099 misc for sync fees or royalties paid to you by their company, that 1099 will get filed with the IRS as income paid to you. Therefore you must report that as income earned on your tax return. Every company who pays you money including the PRO’s will (should) send you a 1099.

Idea to reduce the tax burnden for US folks:
Keep an annual log of business expenses such as instrument, software, and computer purchases/ upgrades/ or repairs, travel expenses for music biz purposes, payments to other musicians and singers (session fees), mobile phone, internet service, web hosting services, fees for memberships to music related sites and services, and educational and training expenses, legal fees, accounting fees, postage, and so on etc. I’d think the subscription to MLR (for example) is a business expense tax deduction for all…no?

Royalty, sync fee, and perhaps live performance income – expenses = profit for your business. You are taxed on the profit your business makes in a given year.

If your business loses money and you spend more (on software, computers, instruments, repairs, upgrades, legal fees etc…) than you made, then clearly you will not pay income tax. I’d suggest chatting with an accountant but this is basic info. For the record, I am not a CPA.

[LAwriter]

For the record, I am not a CPA.

Maybe not, but you pretty much nailed it.

Personally, I eat, breathe and sleep music – therefore so much of my income is related – and therefore tax deductible. So much so that I rarely pay heavy taxes. Also, I’m a freaking gear junkie, so there seems to be no end to write-offs. 🙂 I always tell my wife I need that new guitar / compressor / keyboard controller / mic / speaker set / “____fill in the blank____” cause otherwise we’ll be paying more taxes. 🙂 🙂

Again, I’m not a CPA either, but royalty income is not charged SS taxes if I recall. Neither is “rental” income. Being heavily based on those two things as my principle income(s) – royalties and studio “rentals” – has drastically reduced my tax burden over the years. Then again, as I look forward to retiring from this rat race, my SS payout WILL suffer.

Pay the man and sleep easy.

[MichaelL]

I’m not a CPA, but as Music 1234 correctly stated, “Income is income”… the very words used by my Tax Law professor, probably also on the first page of the text book.

Royalty income is a normal form of taxable income that should be reported on your tax return. As a self-employed composer you would pay self-employment tax, Schedule SE (Form 1040)

From the IRS:

Self-employment tax is a tax consisting of Social Security and Medicare taxes primarily for individuals who work for themselves

What reduces our SS retirement benefit is all the deductions that we take in order to lower our tax burden. Essentially, pay now or pay for it later.

In addition to what Music 1234 mentioned, if you have a home studio, look into the rules for home office deductions. https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction

[Michael Nickolas]

If a company sends you a 1099 misc for sync fees or royalties paid to you by their company, that 1099 will get filed with the IRS as income paid to you. Therefore you must report that as income earned on your tax return..

I think it’s important to mention that you must report all income, regardless of if you receive a 1099 or not. For example, companies don’t have to send a 1099 for income of less than $600 (even though they might). It’s also possible income for live shows will never be 1099ed.

[b1nrybl0ke]

I asked the publisher for the company’s VAT number but it turns out they don’t have one and they claim it’s not necessary for them to have it.

Hi mdeman, the UK threshold for VAT registration is £85k although you can register voluntarily below that afaik. So it is possible they don’t have a VAT number.

[seaneman]

Be aware, it’s been mentioned and alluded to here in this thread that companies don’t have to 1099 you if they pay you less than X amount… that is true of ordinary income, but ROYALTY income is treated differently and companies are required by the IRS to issue a 1099 on ANY amount paid in royalties.

[seaneman]

Or 1042 for non-US based recipients.

[Tim-b]

Hi Mdeman,

I’m also based in the Netherlands, you only have to pay income taxes on royalties, not VAT, see these links: https://mediafederatie.nl/veelgestelde-vragen/zijn-uitbetalingen-van-royaltys-belast-met-btw/ and https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/belastingdienst/zakelijk/btw/tarieven_en_vrijstellingen/vrijstellingen/vrijstelling_voor_componisten_schrijvers_cartoonisten_en_journalisten

[Author]

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