Tax time is around the corner, and if you go on tour or work out of town, there are things you need to know. As someone who has been preparing taxes for musicians for over 20 years, I would like to cover some basics about touring and taxes.
This can get very technical quickly, but you need the details in order to handle this complicated area.
Musicians on tour often get a daily reimbursement, also called a “per diem.” If you’re on tour and had to pay some travel and meal expenses that were more than your per diems, you can deduct the amount you spent that was over the per diems you received.
Generally you can deduct the amount of money that you weren’t reimbursed for. So if you were given $25 as a per diem and you spent $35, the additional $10 you spent can be deducted.
Sometimes an employer will include your per diems or reimbursements as wages in box 1 of your Form W-2, or as nonemployee compensation on Form 1099-MISC. In either of these cases you will be able to deduct all of your travel and meal expenses on your tax return.
For business travel to be deductible, the trip must be away from home and the general area where you work or conduct business. You must be away substantially longer than an ordinary day’s work, and long enough to require sleep or rest to complete your work. The amount of sleep required must be long enough to need lodging; a short nap or minimal rest isn’t enough to satisfy the IRS rest requirement or overnight rule.
The travel must be primarily for business and your trip must be entirely business or job related. Also, the job must be a temporary assignment lasting one year or less.
Most tours will fit into these guidelines.
If you don’t fit these parameters or are unsure, speak with your tax advisor or preparer to find out what you might be able to deduct.
How to report reimbursements
You need to report on your tax return all reimbursements you received for travel expenses you are deducting.
If you were an employee, per diems and reimbursements may be listed in box 12 of your W-2 with code letter L. However, most tour producers and theatrical employers don’t do this. Nonetheless, reimbursements for travel expenses for which you are taking a deduction must still be listed on your tax return.
So keep a record or pay stubs that show the amount of salary, and a separate amount for per diem or reimbursements paid.
You will also need to know how much of the per diem was for meals and how much for lodging.
Employees (those with a Form W-2) should use Form 2106, “Employee Business Expenses,” to deduct travel, meals and business entertainment, and also report any reimbursements for these.
The reimbursement amount is then subtracted from travel and meal expenses being deducted. If your travel expenses are more than the reimbursement, you have a further tax deduction.
For independent contractors or self-employed individuals who have travel deductions, reimbursements are counted as income on Schedule C. You can then deduct travel and meal expenses in Part II of Schedule C.
Meals and business entertainment
Always list and deduct meals and business entertainment separately from all other expenses. Never combine your meals with other travel expenses. In addition, only 50 percent of meals and business entertainment not reimbursed are allowed as a deductible business expense.
Employees should use Form 2106 to figure the 50 percent limit. Independent contractors should see instructions for Schedule C (line 24b), and the 24b worksheet.
To deduct meals while out of town for business, you can use the actual receipts you kept or use a federal “Meals and Incidental Expenses” rate, also called the standard meal allowance. This rate is listed in IRS Publication 1542. See irs.gov or gsa.gov.
Caution: there is also a federal per diem allowance for lodging which is only for employers to use. You can’t deduct a lodging per diem amount instead of receipts. For lodging expenses, use actual receipts you’ve kept.
Nonunion tours may provide lodging and give you a small meal per diem of perhaps only $20 to $30 a day. In this case, it may be worth it to report on your tax return the total amount of meal per diem received and then list the federal meal allowance allowed. You will end up able to deduct 50 percent of the amount the federal meal allowance is over the $20 to $30 a day you were paid. On a long tour, this could add up.
The federal meal allowance is based on what city you were in. The lowest amount is currently $46 a day and can be as much as $71 a day in larger cities.
Employees should use Form 2106 lines 6 to 10 and independent contractors should see Schedule C, Part I along with Part II line 24b and the 24b worksheet.
Other travel expenses
Here are some other deductibles to consider:
Transportation between home and business destination by airplane, train, bus or car. If you travel by ship there are additional rules and limits; see IRS Publication 463 or speak to your tax advisor.
Local transportation, including taxis, auto rental, car mileage or public transit. You may include travel to and from the airport or station and hotel and between the hotel and theatre, work location or meeting place.
Lodging. Remember, you need receipts to deduct lodging. Lodging must be for business purposes, and you must fit into the IRS rest requirement or overnight rule as discussed above.
Shipping and baggage fees.
Business calls on your phone and other business communication such as faxes, e-mail, texts, etc.
Laundry and dry cleaning.
Other expenses which are ordinary and necessary for business, such as computer rental fees or remote Internet access.
Taxes in two states
What if you paid taxes to another state besides your resident state?
Many tours withhold state and local income taxes for states where you worked but don’t live. Income earned in another state and the taxes withheld on it should be reported on a Form W-2.
Sometimes there is a separate “state only” W-2 for other state’s income and taxes withheld or the information is reported on your main W-2. There is a state tax credit available on your resident state tax return so you won’t be double-taxed for income earned out of state.
First you need to prepare a nonresident tax return for the other state to figure out how much the other state’s tax is. Then you can figure your credit for taxes paid to another state.
New York residents use Form IT-112-R, “New York State Resident Credit.” New Jersey residents use state Schedule A. Connecticut residents use Schedule 2.
With these forms you can subtract part or all of the taxes you paid to another state from your resident state taxes. This way you won’t have to pay two state taxes on the same income.
I have tried to discuss the main highlights, concerns and pitfalls of working out of town. I haven’t addressed all the variables, which can get complex and cumbersome.
If you do this on your own, be sure to get the IRS publications as well as the tax forms with instructions I’ve referred to.
Also get IRS Publication 17, “Your Federal Income Tax,” which is a general guide to taxes for individuals. Finally, make sure you check out www.irs.gov.
Michael Chapin has been preparing taxes and consulting for musicians and performing artists for over 20 years. He is active in the arts and also an amateur musician who sings in a choir. For more information, see www.TaxesForPerformers.com.