Musicians who do not have sufficient knowledge of the ins and outs, and of the dos and don’ts of income taxes will be lost in the maze of information that has to be sorted out during the tax return preparation processes. As an artist receiving talent fees for your musical performances, you may think that you can always ask advice from fellow musicians, or by following the Internet how-to-guides about income tax preparations.
In this article, we do not aim to provide you with technical information that can serve as guidelines when planning to prepare an income tax return on your own. We will point out why now more than ever, it would be wiser for professional music artists to hire a well-rounded tax accountant.
Peace of Mind that an IRS Audit Will Not Find Errors in Your Tax Return
An income tax return is not a small matter to deal with because at any point in time, an IRS auditor may find a tax return erroneous. The taxpayer concerned will then receive a notice to visit the IRS district office handling his or her tax account. The notice will include instructions on what to bring as supporting documents to prove the correctness of the tax return under audit.
In the event that it has been proven erroneous, a musician cannot use ignorance of tax rules as an excuse. That means, he or she will still be required to pay penalties and surcharges attributed to the erroneous tax return.
Some musicians who earn income as professional entertainers may argue that they have had no problem with the returns they filed in previous years. Some others think that the amount withheld as tax on their talent fees, has relieved them of the obligation to file an annual tax return. Such presumptions of course, are not entirely true.
Be in the know that a regular IRS audit can go as far back as three (3) years if a substantial error resulting to under payment of tax was noted. An IRS auditor may even go as far back as six years if it becomes necessary. So unless one is a hundred percent sure that what was reported was all IRS Code compliant, he or she does not have full peace of mind about the correctness of an income tax return.
New IRS Tax Rules Could Result to Refunds Instead of Tax Liabilities
The passing of a new legislation known as the “Tax Cuts and Jobs Act” made some changes to the rules about personal deductions. Even more important is the introduction of the new “Earned Income Tax Credit.”
This tax credit not only makes it possible for taxpayers to reduce the amount of tax that they normally pay. As a matter of fact, they may even get to collect a refund if their earned tax credits exceed the amount of tax due for the year 2019.
According to the IRS, their December filing statistics show that as many as 72% of about 156 million taxpayers who filed early during the month, will be entitled to collect a tax refund. As a musician who devotes more time in honing your craft, or in some cases, touring for gigs and concerts, you are likely behind in knowing about these new tax developments.
Nonetheless, it is worth mentioning that if an IRS audit reveals an overpayment, the auditor-in-charge of the account will still carry out corrective actions. He or she will process the necessary documents that will enable the overpaid taxpayer to claim a refund.
Even before the new Earned Tax Credits, overpayments have always been possible. They happen in cases where a taxpayer failed to include a tax credit that would have reduced the income tax due; and/or a major deduction that would have lowered the taxable income on which the tax payment for the year was based.