Establishing your studio work as a business?

[kool98769]

So, i'm assuming many of you here own, or are part of a "business" that is recording....I've got a few questions surrounding the theme.

1. At what point should someone consider going through all the paperwork and getting this done?

2. What are some of the biggest advantages/disadvantages of doing this?

3. Is there a minimum amount of money you are supposed to make in a year legally?

4. Is there a knowledge database somewhere around that gives advice/tips for doing taxes, etc for musicians/studios?

Thanks!

 

[StefTD]

I don't own a studio and if I am right, you're from the USA-right? So that part won't help, too
But I started my own business (marketing consulting/graphic design stuff) in January and one of the most
important things I can tell you, try to calculate as good as you can from the beginning, think of everything
you're going to spend, add everything and than think about it-are you going to earn enough? is it worth it?

These two questions were like the most important part imho, it took me 3 months to be sure if I really want
to do it, at least here in Germany, the best time to be doing all the paperwork is probably before you've done
anything else, but you should already know everything you're going to earn in the first year...

At least in my kind of business, one the biggest advantages: You are able to do what you want, I am the boss,
if I want to take a nap or start working at 2 o'clock in the morning, it's fine-you're just independant.
Biggest disadvantages: you're independant, you are able to do what you want, the chance is pretty big that you
just waste some time, you need to get yourself clients to get money, you have to do lots of paperwork, you have
to pay everything and you're income may vary alot.

If you're good at what you're doing, are sure about, thought some time about the two questions I posted above
and are sure that your business plan is going to work, do it, something that's going to help you alot is if you have
already saved some money, I haven't so I have some hard times right now.
It's hard to find clients from time to time and if you've saved abit it won't hurt you so much and you have to earn
enough to save a bit all the time if you want to go on vacation sometime in the future or just need a break or
whatever.

 

[Brett - K A L I S I A]

Yeah, depends where you live, different countries = different rules.

But my advice though is "think about it twice", really. It's a hard hard business, it's not gonna be easy to get work, and when you'll lose clients because of warrior kids charging peanuts because they have nothing better to do (they don't live on this job), paid for none of their softwares, and declare nothing so pay no tax whatsoever, you'll be pissed a little too.

 

[Lasse Lammert]

Yeah, depends where you live, different countries = different rules.

But my advice though is "think about it twice", really. It's a hard hard business, it's not gonna be easy to get work, and when you'll lose clients because of warrior kids charging peanuts because they have nothing better to do (they don't live on this job), paid for none of their softwares, and declare nothing so pay no tax whatsoever, you'll be pissed a little too.

+1.....make that "a lot" though

 

[Jarkko Mattheiszen]

What Brett said. That was the most important part in me getting another job and putting the AE gig on a hiatus. The amount of last-minute cancellations, tricky financial situations and "sure" gigs that never happened turned it from a passion to a really stressful profession that wasn't paying off properly. It's a really tough time to get your business running in a manner that you can afford noodles and bread after paying your bills. Prepare for a very rough first year or two, both financially and mentally. Also, don't get into a lot of debt from the beginning.

Anyway, having operated my business for some years, I'll try my best to answer your questions.

1. The very moment you want to consider offering your services publicly. Don't be a part of ruining the business further by claiming you're a pro without paying taxes for your work.

2. Advantages: You'll be legit. It makes you stand out from the metric fuck-ton of warez kiddies. Disadvantages: Depending on where you live, you'll never see most of the money you make. Over 50% of my business earnings go to VAT, taxes, business insurance and such. Also, prepare to get an accountant unless you want to take the route I took and do it all yourself.

3. That's a strange question. I can't answer it, and the only motive I can think of for asking it is trying to fuck over the tax system. Don't do it.

4. Yeah, you're looking at it right now!

 

[AboutBlank]

Atleast in germany we have point 3, kinda.
It means that you are "purchase tax free".

 

[StefTD]

yeah, and like I said, I don't live in the USA, so I have no clue, but if you get yourself a financial consultant who has
a clue about what he's doing you maybe able to safe a fuckton of money, at least over here, there are lots of ways
almost nobody knows to safe money.
As a start up for example, you're able to get some money from the state if you have a good business plan that shows
that everything there is reasonable and that there's a chance that your business is going to be sucessfull (not in making
millions, but that you're able to make a decent living).
For me, that means something like, if they accept my business plan, I am going to get something like 400€ every month
for 6 months, tax free and there's a chance that I could get this kind of money for a whole year, that would be almost
5000€ from the state for free.

 

[colonel kurtz]

the US typically doesn't give out startup loans to small businesses from the government, but you CAN sometimes find venture capital firms which will fund your enterprise if you can show them a solid business model

the chances of getting anyone to bankroll a studio are almost infinitesimal, though, with album sales globally on the decline and large/established studios everywhere shutting their doors

 

[StefTD]

yep, that's one of the reasons why I never start a studio (besides that I suck really hard)
I already thought taht there won't be any loans by the US for startups, but I wasn't sure.

 

[MetalWorks]

Theres really 3 ways you can go about this:

1.) Just do it and not give a shit about reporting the money you make and hope you dont get caught. In that case, definitely dont advertise your business as a service competing with other businesses that are legally established. If people are happy with what you do then word of mouth will spread and keep you busy. You can have a site to demo your work.

2.) Do everything you want to do to establish your studio or services and when it comes time to filing your taxes, just file your recording earnings under your personal social security number. Its easy to do on places like HRBlock.com come tax season. This way you can also claim purchases as business expenses. Just save your receipts for everything you claim for up to 7 years incase of any audits. Pretty typical. Basically any plugin, mic, amp, guitar, computer, cable, etc can be claimed as a business expense and give you a tax credit. Just be sure to log your income so you can file that you earned $XXX from band XXXXXXX.

You will definitely want to figure out how much money you would need to consider putting away for taxes otherwise you will end up with a tax bill due that you may not be prepaired for.

3. Go through the full process of getting a business license, trade marking a name, and establishing yourself as a professional business and file taxes under that business ID. The business license stuff is really easy permitting that you are in an area that complies with city codes and ordnance. Take consideration whether you will be doing it in your home/residential area or comercial zone. You may have CC&Rs etc that prohibit any business out of your house period. Then the City may not issue you a license if you are in a Residential Zone. So option 2 could be your only option if you arent prepaired to pay a hefty rental fee for a small warehouse or office.


I would say go for #2 to start and as you grow start thinking about #3.

There are plenty of people doing #1 making $4000 a month blowing it on beer and weed sleeping in their studio space etc. If you dont take anything seriously or responsibly its bound to catch up with you in the end.

Just do what you are capable of and make the most of it until you can expand.

 

[Brett - K A L I S I A]

$4000 a month?!!

 

[MetalWorks]

$4000 a month?!!

$25 per hour, 8 hours a day, 5 days a week, 4 weeks a month.

I know a few studios that are centered in a Rehearsal Warehouse. They rent out either one large room for $300 or 2 rooms for about $600 per month. Theres about 60 bands practicing there with a waiting list to get in. The convenience of rolling your gear from your practice room to a studio makes it easy to make money. No need to advertise because you are there and everyone knows it. All the bands are going to hear eachothers demos and figure out who did it.

As long as they keep pumping out decent sounding demos they stay fully booked for months.

 

[kool98769]

I think everybody is misunderstanding the intentions here! haha.

I'm not planning on quitting life and trying to make studio life happen. That would be pretty stupid of me (no offense)

I'm just looking more at like, the benefits of paying taxes on my earnings, as a small business would, but then writing purchases off on taxes, as a small business would! I know a few people who do it, but I was wondering if anyone else had a little more information. haha

Why? I'm going to school for business, and something like this would look great on my resume when I graduate.

 

[MetalWorks]

Thats exactly what I do.

I am a Government worker earning my future retirement Mon-Fri and Recording Engineer Sat-Sun.

I dont do the official business license venture because its not required so long as I report my earnings to the IRS. And the Tax Credits are very nice considering there were years I spent $14,000 on recording gear and earned less than that from recording.

I dont have a sign in front of my studio because it is a detached unit on my property in a Residential Zoning that does not permit it nor would the city allow me to run any business that involves making loud music near homes.

Those are just things to consider to even get all that established looking stuff to add to your resume or career profile.

But if you want to run a legal operation that wont get you in trouble with the IRS on the side of your future business career path, those are some of the things to consider.

Its very easy to offer any legitimate service in which you receive financial compensation without needing a business license.

Just pick up the forms from your City Clerks office and see if you could manage to get one under your circumstances. All it will cost you is the filing fees. If you dont ever do anything with that business it wont matter. You have to renew every year or so.

Not sure how else to advise but that should be alot of general information to cover alot of purpose for establishing a business of your studio work.

 

[Jarkko Mattheiszen]

$25 per hour, 8 hours a day, 5 days a week, 4 weeks a month.

Being self-employed in this business requires a LOT of unpaid hours answering e-mails, giving estimates, handling the accounting, dealing with invoices, negotiating, fixing up shit, dealing with the bureaucracy bullshit and so on and so on. If you can keep up a solid 8h/day and 5 days/week work routine (which is hard, since schedules get pushed around, there will be slow periods etc.), you're looking at spending quite a hefty percentage of any off-time working for "free." That's just how self-employment works - at least around these parts.

That being said, I know some people who work 100% under the table and make a decent living out of it. I despise what they do - each and every one of them. Being an audio engineer is not a fucking privilege. It's a job, and when you have a job, you're supposed to pay taxes to a) abide the law b) keep the system running and c) keep the competition fair. None of us are special fucking snowflakes who can take the rules and twist them to our liking.

Quite recently I (like I think quite a lot of you guys) saw a rather well-known and familiar metal AE offering under-the-table mastering publicly on Facebook. I think the words "the IRS fucking sucks" were used. GG, mate, and all the fucking best.

 

[AllanD]

Quite recently I (like I think quite a lot of you guys) saw a rather well-known and familiar metal AE offering under-the-table mastering publicly on Facebook. I think the words "the IRS fucking sucks" were used. GG, mate, and all the fucking best.

Yeah, pretty crappy.

 

[::XeS::]

Yeah "the IRS fucking sucks" is pretty lame but it depens where you live. In Italy you work from january to august to give EVERYTHING in taxes. And you pay schools, you pay medical visits, drugs, every fucking thing....you're suppose to pay everything with the big amount of taxes but practically you pay everything 2 times. It depends guys...

 

[aortizjr]

Well here in the US, it is actually pretty easy until you start having employees or want to become like an LLC or S-Corp which will protect your personal assets if you get sued. But really you are better off just doing a Sole Proprietorship, which really means you run under your name and SSN according to the national IRS. State and City will want you to register for Sales tax, and the city will want you to get a business license and inspection if you open a commercial space.

1. Technically you should have already. In NM it is one form, online and like a $25 fee. Or at least you should be claiming the income on your taxes.

2. The advantage is you are legit and you can deduct all your expenses. For me that gets me way bigger tax returns since I blow A LOT on booze, promotion, gear, etc. Deduct it ALL. Also if you do make profits (or any income at all), after a few years you can claim it as income if you decide to buy a house or car or get a business loan. Those have to be recorded on your taxes.

3. It isn't about how much you make, it is about how much you can claim as a loss. You can make $1, just report it. You want to keep receipts of expenses and give invoices for money made. Easy. The biggest thing here is that you don't want the IRS to consider your business a hobby if you are having epic losses for multiple years. The whole reason behind all of this is to pay less taxes!

My CPA said that in general you want to show a profit 3 out of a 5 year period to keep from getting audited. But even if you do, you just have to show that you are running things like a business, not a hobby. So business cards, good records, at least some paying clients (who pay by check), etc.

4. I looked and looked, didn't find shit. In the US every city has an SBA (Small Business Administration) who will help you with any forms and such for free. I HIGHLY recommend finding a CPA. Mine costs $50 an hour and for one hour I got all the info I needed and all my books in order. Quickbooks is also a lifesaver and is pretty cheap. I use the online one for like $12 a month.

My CPA also convinced me to get a bank account under the business name for additional records, it was free at my bank...actually I got a better interest rate. But she was really cool and gave me a ton of advice on how to run things and everything to keep the IRS off my back and pay less taxes.

Bottom line is that you have to claim income legally. Sure you can run it under the table, but you can't deduct either. And really, let's be honest, most of us are loosing money at this than making money. So deduct all those expenses and get your tax money back from your day job.

Hell man, I deduct mileage, a percentage of my rent (in my home), utilities, internet, repairs, gear, refreshments, meal entertaining, travel, computers, office supplies, CD-R's, and the list goes on and on.

To file my taxes, I just use Turbo tax and punch in the numbers right out of Quickbooks. Took about an hour for the business stuff, 3 for the rest (mortgage, car interest, donations). Easy and I got a hell of a return back.

 

[Jarkko Mattheiszen]

Yeah "the IRS fucking sucks" is pretty lame but it depens where you live. In Italy you work from january to august to give EVERYTHING in taxes. And you pay schools, you pay medical visits, drugs, every fucking thing....you're suppose to pay everything with the big amount of taxes but practically you pay everything 2 times. It depends guys...

That's pretty much true around here as well, but you're kinda looking at it backwards. You're not giving away half of what you're earning, but instead you have to set your rates so they make up for the compulsory payments. That's what employers are paying for their employees (their actual salary isn't what the company has to pay in total), and since we're talking about self-employment, we're the ones who have to take care of that. So in addition to your salary, your rates will have to include the expenses of running a business. Your actual salary is never equal to the company's turnover.

That's exactly why it's impossible to compete (pricing-wise) with the people who aren't legit, and that's exactly what's so fucked up about the whole situation. Even if you're fine with minimum wage, you still have to charge over double the minimum wage to get it, while the shady scoundrels get away without charging even half of what you do.

 

[Brett - K A L I S I A]

That's exactly why it's impossible to compete (pricing-wise) with the people who aren't legit, and that's exactly what's so fucked up about the whole situation. Even if you're fine with minimum wage, you still have to charge over double the minimum wage to get it, while the shady scoundrels get away without charging even half of what you do.

Exactly!