FAQs
Why should I hire a tax professional?
There are changes and additions to the tax law every year, and keeping up with all that information is a full time endeavor. It is nearly impossible to navigate the tax code and ensure you are receiving all of the tax benefits you qualify for without the help of a professional. Not only will hiring a tax professional save you time and stress, but it will also ensure that you are not missing out on any opportunities to reduce your tax liability!
TLDR: It saves time, stress, and (in many cases) money!
What are tax credits?
Tax credits directly reduce your tax liability (the amount of tax you owe). Credits can be refundable or nonrefundable. Nonrefundable tax credits will reduce your tax liability to $0, but no further. In contrast, refundable tax credits can reduce your tax liability beyond $0 and result in a tax refund paid out to you by the federal or local government.
TLDR: Tax credits are a direct discount on your tax bill, and sometimes they result in a check for you!
What are deductions and what qualifies?
Deductions reduce your taxable income, which is the amount of your income that is subject to income tax. There are many different types of deductions and various rules surrounding qualifying expenses and income phase-out limits.
Some common deductions include the mortgage interest deduction, the student loan interest deduction, and the deduction for IRA contributions.
Depending on your tax situation, it will be more beneficial to either take the standard deduction or itemize your deductions. While many deductions are only available to you if you choose to itemize, there are a number of "above the line" deductions that will be available to you either way. Your tax preparer can help you determine which option will result in the best outcome given your situation.
TLDR: Deductions are another way to reduce your income tax. There are a lot of them and things can get complicated, so ask a tax professional for help!
Can I be both employed and self employed?
Yes! Many taxpayers will fall into this category. If you receive a W-2 from your employer, you are considered an employee. If you receive a 1099-MISC, the payer of that income classified you as an independent contractor rather than an employee. Therefore, that income is considered self-employment income. It is extremely common for freelance musicians with multiple gigs to receive both types of forms in any given tax year. If you have your own business, such as private teaching, that income is also considered self-employment income.
How can I reduce my tax liability as a freelance musician/artist?
One of the best things you can do is document all expenses related to any gig, teaching endeavor, or performance. A tax professional can help you determine what expenses may be deductible. Make sure to save receipts and keep a log that connects the expense to the specific service you provided.
NOTE: This applies to any type of freelance work!
Another great way to reduce tax liability is by contributing to a retirement account. This is because contributions to a traditional IRA are an "above the line" deduction.