Please note, I'm not qualified to give tax advice so please talk to a professional tax adviser if you have any questions about the below. That said, this article is my understanding of an aspect of taxes in the music industry, so may be helpful to you.
As I've mentioned about 100 times before (and for good reason, I want to drum the idea into your head ;), your music career is now your business. And guess what businesses all around the world do? That's right, pay taxes!
Now I'm not going to go into the ins and outs of paying tax. There will be a lot of different people in different countries reading this book, and tax laws and amounts vary from country to country. That said, I do want to let you know how important it is to get properly in line with the tax system in your country (start here in the UK and here in the US).
A lot of self employed musicians don't think they have to worry about taxes. As there are a lot of opportunities to get paid cash in hand or via websites which don't require your tax details, it becomes something which many think is easily avoidable. This is the wrong attitude to have. If you want to turn into a successful musician, you're going to have to get this side of your business sorted.
Think about it, would you go into setting up a retail shop and decide you're going to avoid paying the right amount of tax? No, as you know you have the potential to get fined a lot of money if you're caught. Would you set up any other kind of business without paying tax? No, you wouldn't. So why do it for your music career?
The excuse I often hear is, ” But I'm not making much money from my music yet. ” To be honest, that excuse simply isn't good enough! If money is turning over in your business (whether you're profitable or not) you should get it on the records just to cover your back. After all, the last thing you want is the tax man catching up with you after ‘X' amount of time and fining you a large sum of money. I've seen this happen to people before, and in most cases it drastically hampered their lifestyle at the time.
Even if you aren't making a profit from your music career yet, it's still a good idea to get tax registered so you can get used to the process as soon as possible. The last thing you want to do is start paying tax when you're making good profit, make a mistake along the way, and have the tax men take away more money then they need to. So get the practice starting now.
I wish I could go into this subject more thoroughly, but the tax laws and procedures vary from country to country. With that said, I suggest you go on to search about how tax laws work where you are. Most likely you will have to set up as a sole proprietor or as self employed, so do a search and find out what you need to do.
When it comes to actually earning money in your music career, make sure you hold a certain percentage of any profit you make in a separate bank account which you can use to pay off your taxes when necessary. This will mean you have that money sitting there, and will definitely be able to cover your yearly tax fee when it comes to collection time.
This bank account should not be touched for any other reason no matter what. Even if you feel like you're low on money one month, leave it be. When you work for a company, they automatically take your tax money away each month and you manage to survive without it. Do the same for yourself: take the money away right now, and put it where you won't be tempted to touch it.
While it's not one of the most fun tasks in the music industry, getting taxes sorted is vitally important. So make sure you get it sorted sooner rather then later.