Come tax time, it can be difficult to know what expenses you’re allowed to claim back, particularly if you work in a creative industry such as music.
To make things a little easier, we got some advice from Fardad Nejati of music industry experts One Accounting, clearing up some of the myths about what you can and can’t deduct when filling out your tax return.
You mean I don’t have to pay for everything?
The good news is that as far as expenses are concerned, anything that’s directly related to you earning income can usually be at least partially claimed.
“The overarching rule here, the actual tax law, says that if it’s connected to you earning income, then you can claim it”, Fardad tells us.
As a musician, there are obvious expenses that you can claim include playing equipment, recording equipment, and travel costs to gigs. But if you work in the wider industry – say as a manager or booking agent – you may likely be able to claim everything from a home office (to some extent), internet and telephone expenses, and so on.
If it feels like you couldn’t have earned income without it… you should be including it in some shape or form
Those are fairly obvious examples, but the list is by no means exhaustive, and Fardad breaks it down simply.
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“If it feels like you couldn’t have earned income without it, chances are it’s at least partially deductible and you should be including it in some shape or form.
“That’s the message I try to give everybody,” he adds. “Realistically, if it feels at all connected to what you can do, you can probably claim at least some of it”.
So, what can’t I claim?
While most things directly linked to you earning income can be claimed, there are always exceptions – for instance, food is usually disallowed unless you’re travelling.
Clothing is also quite hard to justify, unless it’s a costume that you only use for performing – if you wear it in your private day-to-day life, then typically it can’t be claimed.
“I’ve had clients claim shorts because they’re the shorts they wear onstage,” Fardad explains. “If you can demonstrate that you would never wear those shorts unless you were on stage, then you can claim them.”
I’ve had clients claim shorts because they’re the shorts they wear onstage
If it’s anything like a pair of Nike runners, however, you’ll likely have less luck – while you may wear them onstage once or twice, you’ve probably also got them on when you walk to the park, making them ineligible.
For performers, expenses related to auditions are also usually not allowed.
“Auditions illustrate the point quite well,” Fardad adds. “A lot of clients will incur expenses for an audition, but it’s not deductible. Remember what I said about it being linked to income? Auditions are kind of before you earn income – so how can it be connected?”
…I just want to claim what I’m allowed to!
The ATO can impose strict penalties if you get your tax wrong, and one of the ways that can happen is by over-claiming. If you feel unsure about the process, an accountant well-versed in the music biz can help make the process clearer and ensure you get it right – and get what you’re entitled to.
“We don’t sell tax refunds”, Fardad says. “What we sell is getting your tax done quickly and easily, and getting the best outcome you legally can.
Some people, tax makes them anxious and they’re worried about getting it wrong
“Some people, tax makes them anxious and they’re worried about getting it wrong – people like the added benefit of going somewhere knowing that they’re going to be thinking about their situation.”
So, if you’re still unsure about whether that backstage rider is something you can get some money back for, think about whether it’s actually helping you to earn a living.
And if you’re on the fence, maybe give Fardad a call – you might be surprised at just how much you can actually claim back.
This article is the first in a series of articles that looks at accounting issues relevant to musicians and music industry professionals – check out parts two and three for more advice from Fardad and One Accounting., or email him at [email protected]