For the next few weeks, we’re going to post updated sections from the article “20 Questions for New Artists” by Chris Castle and Amy Mitchell which has been posted various places. This doesn’t constitute legal advice, or any intent to form the attorney-client relationship. (If you miss an installment, try searching this blog for “20 Questions for New Artists”.)
Bank Accounts/Tax Returns/Accountants: A common mistake that bands make is to have all income paid to one band member, which usually results in unnecessarily complex adjustments at tax time not to mention general distrust should disputes arise. This can be particularly vexing if the band wants to “fire” that band member whose got all the bank records–much better to have the band’s income and expenses paid from a neutral source. (We will come to “leaving members” later on.) Even though we will frequently speak of bands, solo artists should keep their business bank account separate,
Check with your bank branch to find out what the bank requires in order to open a bank account in the band’s name or the solo artist’s stage name (usually at least a “doing business as” or “dba” filing with a local government agency of some kind).
The band should find an accountant in your geographical area who is familiar with music issues and band accounting and take a meeting with that accountant (preferably a Certified Public Accountant who will file the band’s tax return). The band’s accountant should be able to advise you on questions such as the tax deductibility of expenses (recording sessions, haircuts, meals and travel, cell phones, etc.); insurance and financial liability issues (not surprisingly, liability issues substantially increase as soon as the band hits the road and starts driving); whether the band should lease or buy that new band van; and how to treat various income streams such as money received from investors, royalty income, merchandise, etc., as well as payment of sales tax, withholding and income tax.
Eventually, the accountant will be responsible for administering the band’s credit card, paying each band member their draw or salary, settling tours, and making sure any roadies or other employees are properly paid under state and federal tax laws.
See Also: Have you Registered with SoundExchange?