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DanHoodMusic says

At least 25%... Then anything you don’t use for taxes is just gear money or savings…

MonophobiaStudio
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MonophobiaStudio says

+1 for the 25%. It’s better to have enough and not have to make up the difference if it ends up being more than what we put away. I think 25% will be a safe amount.

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CobaltLeaf says

Do any of you deduct gear, sound libraries, instruments etc. as a business expense? I’m interested because I do help my artists with their taxes and I haven’t done it for “independent contractors” which some of them are…

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jhunger says

25% is probably a good idea. Otherwise it can be a pretty big chunk of change to come up with in the spring :) I don’t specifically put away 25% but most of my earnings I don’t buy gear with goes into savings anyway.

Yes, I deduct gear and software 100% related to music production. There are probably other things I could deduct (e.g. home office space, or part of the electricity bill) but those things get into enough of a gray area that I’ve decided to stick to tangible objects. That way, if the IRS ever comes a-callin’ I’ll have receipts and something to show for it. On the flipside, I may be paying more taxes than I possibly could be.

It’s a two way street, though – if you sell gear that you previously wrote off, I believe this income has to be reported as well. Also, be careful if you have a home computer that you use part time for music production. And… if you go several years writing off 20K in equipment while making 1K in earnings, the IRS may take notice. I’ve heard that the rule of thumb for whether you have a viable business (as opposed to a hobby) is that you’ve made more than you’ve written off 3 out of 5 years.

Also! The rules are different for writing off equipment if you’re claiming income as hobby income. You can still claim hobby expenses, but there are more restrictions.

Again, not a tax professional :) So take anything I say for what it’s worth.

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MonophobiaStudio says

If the gear is directly used to create tracks for AJ then yes, you can take the Depreciation Deduction. You have to decide whether to take the full depreciation upfront or spread it out over the next few years. Keep in mind, however, that you may only deduct the percentage of usage time a specific gear item is used to create music that generates income.

I should also state that I am not a tax professional so do your own research as well. :)

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muscma01 says

I was told passive income from stock music falls under rents and royalties and it’s taxed around 15% because you don’t have to pay self employment, FICA, FUTA, medicaid, or medicare taxes out of it. If you did custom work then it would fall under normal income so it just depends what your going to write off.

It’s good advice to just figure on 25% though. It’s better to have to much saved, then not enough.

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brandonamatias says

Thank you guys for all of this great information!!

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solarsound says

My thoughts, as Joel Hunger said, it is fraud if you do not report, but the IRS can only audit you back to 3 years is my understanding. Let’s say you make $1,200 a year and you are in a 15% tax bracket and you don’t report your taxes from Audiojungle, you would be in debt to the IRS about $180 a year plus probably penalties of about $100. So if you got audited, you would owe close to about $640 to the IRS in the audit. This is a rough estimate of course, but one has to ask the question- Is the IRS really going to come after you for $640? There is not enough people in the IRS to even worry about it. But…...

I think as an author it is important to gauge your income on AJ and realize risk vs reward. If you do start to go past a certain income threshold, it is probably going to be a bad idea to not report your AJ income. If you were making over $2,400 a year on AJ, you might want to consider reporting your income and save yourself a big fine if you did end up getting audited.

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solarsound says

My thoughts, as Joel Hunger said, it is fraud if you do not report, but the IRS can only audit you back to 3 years is my understanding. Let’s say you make $1,200 a year and you are in a 15% tax bracket and you don’t report your taxes from Audiojungle, you would be in debt to the IRS about $180 a year plus probably penalties of about $100. So if you got audited, you would owe close to about $640 to the IRS in the audit. This is a rough estimate of course, but one has to ask the question- Is the IRS really going to come after you for $640? There is not enough people in the IRS to even worry about it. But…... I think as an author it is important to gauge your income on AJ and realize risk vs reward. If you do start to go past a certain income threshold, it is probably going to be a bad idea to not report your AJ income. If you were making over $2,400 a year on AJ, you might want to consider reporting your income and save yourself a big fine if you did end up getting audited.

Sorry to mislead. Apparantly audits can go back farther for under estimating or reporting of income. Take it for what it is worth I guess. Use best judgement.

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jhunger says

I was told passive income from stock music falls under rents and royalties and it’s taxed around 15% because you don’t have to pay self employment, FICA, FUTA, medicaid, or medicare taxes out of it. If you did custom work then it would fall under normal income so it just depends what your going to write off.

I think (or at least my tax software seems to think) that it’s treated like ordinary income, so that if you fall in the 25% or 28% tax bracket it will be taxed at that amount. Now, if you’re a wealthy investor and made 20 million on a trade you did with a mouse click, you’d be taxed at 15% because capital gains aren’t considered ordinary income. Which makes me feel like a sucker for providing actual goods and services! But I should just shut my mouth now because that’s been a bit of a political issue here in the states lately (and the capital gains tax is raising to 20% in 2013 in any case).

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