How Do Musicians Pay Taxes on Royalties and Income?

Musicians earn income from various sources, including performances, streaming royalties, and merchandise sales. Unlike traditional employees, they must actively manage their tax obligations, as taxes are not automatically withheld. Failing to do so can lead to unexpected liabilities or missed deductions.

Understanding how taxes apply to music-related earnings is essential for staying compliant while maximizing deductions.

Royalties and Taxable Income

Musicians must report royalties as taxable income, but how they are taxed depends on how they are received and the rights involved. Royalties come from licensing agreements, where artists allow their music to be used in exchange for compensation. These payments can come from streaming platforms, album sales, radio airplay, synchronization deals, or mechanical royalties from song reproductions.

For tax purposes, royalties are considered ordinary income. Musicians who receive them directly and actively work in the music business typically report them on Schedule C (Profit or Loss from Business), which allows deductions for related expenses. If royalties are received passively—such as from a one-time sale of rights—they are reported on Schedule E (Supplemental Income and Loss), which does not allow business deductions. Properly categorizing income affects tax liability.

Royalty payments are reported to the IRS using Form 1099-MISC or 1099-NEC, depending on the nature of the income. If a musician earns more than $600 in royalties from a single payer, that entity must issue a 1099 form. Even if the form is not received, all income must still be reported. Some states also impose their own tax requirements on royalty income.

Self-Employment Responsibilities

Independent musicians are classified as self-employed, meaning they must handle their own tax obligations, including self-employment taxes. Unlike employees, who have Social Security and Medicare taxes withheld, self-employed individuals must calculate and pay these taxes themselves. The self-employment tax rate for 2024 is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. If net earnings exceed $200,000 for single filers or $250,000 for married couples filing jointly, an additional 0.9% Medicare surtax applies.

Musicians expecting to owe at least $1,000 in taxes must make estimated quarterly payments—due April 15, June 15, September 15, and January 15 of the following year. Missing these deadlines results in penalties and interest charges.

State and local tax requirements vary. Some states impose additional self-employment taxes, while others have no income tax. Musicians who perform in multiple states may need to file nonresident tax returns if they earn income in those jurisdictions. States like California and New York actively enforce tax laws on income earned within their borders.

Deductions and Expenses

Musicians can lower taxable income by deducting legitimate business expenses. The IRS allows self-employed individuals to write off costs that are “ordinary and necessary” for their profession. Proper tracking of these expenses ensures compliance and maximizes deductions.

Instruments and Equipment

Purchasing and maintaining musical instruments, recording gear, and performance equipment are deductible expenses. These items are considered business assets and can be depreciated over time or deducted in full under Section 179 of the Internal Revenue Code. For 2024, the Section 179 deduction limit is $1.22 million. If an instrument exceeds this limit, it must be depreciated using the Modified Accelerated Cost Recovery System (MACRS).

Repairs and maintenance, such as restringing a guitar or servicing a keyboard, are also deductible. If an instrument is used for both personal and professional purposes, only the business-related portion can be written off. Keeping receipts and usage logs helps substantiate these deductions in case of an audit.

Studio and Production Costs

Recording, mixing, and mastering expenses are deductible. Whether renting a professional studio or setting up a home recording space, musicians can write off costs such as studio fees, producer payments, and sound engineering services. If a home studio is used exclusively for business, a portion of its costs may be deducted under the home office deduction.

Software and digital tools used for music production, such as Pro Tools or Ableton Live, also qualify as deductible expenses. Subscription-based services, including cloud storage or licensing fees for virtual instruments, can be written off. If a musician hires session musicians or background vocalists, payments exceeding $600 per individual in a tax year must be reported on Form 1099-NEC. Keeping contracts and payment records ensures compliance.

Promotional and Touring Expenditures

Marketing and touring costs are deductible, including website hosting, social media advertising, press kits, and music video production. Hiring a publicist or marketing agency is also a deductible expense. Merchandise production, such as T-shirts or vinyl records, qualifies as a business expense if directly related to generating income.

Touring musicians can deduct travel-related expenses, including airfare, hotel stays, and per diem meal costs. The IRS allows a standard meal deduction based on federal per diem rates, which vary by location. For 2024, the standard per diem meal rate for most U.S. cities is $59, with higher rates in major metropolitan areas. Vehicle expenses for touring, such as gas and maintenance, can be deducted using either the standard mileage rate (67 cents per mile for 2024) or actual expenses. Keeping a mileage log and receipts is essential for substantiating these deductions.

Filing Requirements and Deadlines

Musicians must follow specific filing requirements based on their business structure and income sources. Independent artists, songwriters, and producers typically file as sole proprietors, reporting income and expenses on Schedule C of Form 1040. Those operating under an LLC or S corporation face additional filing complexities, including Form 1065 for partnerships or Form 1120-S for S corporations.

State tax obligations vary. Some states require franchise tax filings for LLCs, while others impose gross receipts taxes. Local jurisdictions may mandate business licenses or municipal tax filings, particularly in cities with strong entertainment industries like Los Angeles or Nashville. Keeping track of these obligations ensures compliance and avoids penalties.

International Earnings Considerations

Musicians earning income from international sources must navigate tax rules that vary by country. Whether receiving royalties from overseas streaming services, performing live concerts abroad, or licensing music internationally, tax obligations depend on treaties, withholding requirements, and local tax laws. Many countries impose withholding taxes on royalties paid to foreign artists, meaning a portion of earnings may be deducted before payment is received. The U.S. has tax treaties with numerous countries that can reduce or eliminate these withholding taxes, but claiming treaty benefits requires submitting forms such as IRS Form W-8BEN for individuals or W-8BEN-E for entities.

Foreign tax credits help offset double taxation when income is taxed both internationally and in the U.S. By filing Form 1116, musicians may claim a credit for taxes paid to foreign governments, reducing their U.S. tax liability. However, not all foreign taxes qualify, and limitations apply. Some musicians establish business entities in low-tax jurisdictions to optimize tax efficiency, but this requires careful structuring to comply with IRS regulations, including Controlled Foreign Corporation (CFC) rules under Subpart F, which prevent deferral of certain foreign income.

Recordkeeping Essentials

Maintaining accurate financial records is essential for musicians managing multiple income streams and deductions. The IRS requires self-employed individuals to keep records for at least three years, but longer retention may be necessary for asset depreciation, which must be documented for the entire recovery period plus three additional years.

Receipts, invoices, and contracts should be organized by category, including performance fees, royalties, equipment purchases, and travel expenses. Digital bookkeeping tools like QuickBooks or FreshBooks can help track income and expenses efficiently. Keeping detailed records simplifies tax preparation and provides a clear picture of financial health.