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Recording Artist Tax Tips
Once you begin recording
and releasing material either on a label or using your own label, the
task of monetizing your investment comes into play. With the
independent revolution firmly underway across the globe, more and more
artists, even large ones are choosing to be their own record label. The
accounting process begins the day you walk into the studio so here are
a few things you should be keeping track of on the expense side. This
list is not all inclusive and we do suggest consulting a music
accountant before recording.
1 Recording Costs
These costs are varied but include tape or the hard drive that you
purchased for the recording, the recording studio rental, engineer
fees, producer fees (if not paid on points), musician fees, mastering
costs and any upfront publishing licenses on the songs themselves. It
is best to start keeping a log of these costs right away when the
process begins.
2 Duplication Costs
If you are pressing cd's then the duplication costs are included
here. Also track artwork costs, photo shoots, and graphic design costs.
The same thing applies for a download only (mp3, cdbaby, itunes, etc)
release of your CD.
3 Promotional Costs
Track the cost of promo posters, graphic design services for web
ads, fees paid to radio promotion companies, long distance calls and
mailing costs to radio programmers, promoters etc. On this subject a
new trend is emerging in the record industry whereby a so called
"label" is releasing the CD while not actually paying for any
production. They are paid a "commission" on CD sales and do not own or
control the sound recording copyright. This is not a label deal, but a
promotion deal so if you are engaged in such an arrangement the
commissions to that label would fall under this category.
Now that we have a great sounding CD its time to
generate some income. As with anything in the music industry, the
accounting is not cut and dried and makes a taxable impact on the
owners of both the sound recording copyright and the song copyright.
Here are a few things to consider on the income side:
1 Free Goods
These are the "givaways" and include the CDs you send to radio, give
away at shows, and any other form of transferring your product to
someone who does not pay for it.
2 Distribution Income
This is income from distribution companies paid to the label or
sound recording copyright owner for sales in stores or internet
channels. Generally the distribution company places your product in a
store and pays you a wholesale price (around 6 dollars) per sale.
3 Sync Fees
Income received from the use of the music in television, video,
movies etc. Each sync deal is different and two copyrights are in play
here. This category should include only the sound recording copyright
owners share of the upfront fee paid for the use of the music.
The issue that our firm faces most often for
recording artists is determining who owns what. Too often artists plow
through the process of recording and releasing material with no decent
accounting in place, multiple "investors", friends donating studio time
or talent, and no formal business structure for the product. In many
cases we prefer to see a separate business entity formed for artists
for the label side of the business. It gets complicated and must be
done before the recording actually happens but it keeps things very
clean for tax and accounting purposes.
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