Don’t get behind on your income taxes -

You should pay your estimated taxes for 2006 in quarterly - 4/15/06, 6/15/06, 9/15/06, and 1/15/07. Form 1040 ES is the form to use to send in your estimated payments. Estimated tax paid in at each date should be 1/4th your estimate of what your federal income tax and your self employment tax will be for 2006. You can use your actual 2005 tax as a guide if you think 2006 will be similar to 2005. The IRS mailing address is right there on the 1040 ES form.

The main goal is to not owe a big chunk of taxes on 4/15/07 when you file or extend your 2006 taxes. If you underestimated for 2006, you will have to come up with the rest of the 2006 tax along with some interest and penalty. Note that when April 15 th 2007 arrives, you not only may still owe tax for 2006 if you underestimated 2006, it will also be time to pay in your 1st estimate for 2007.

You should get in the habit of writing a check on each of the 4 quarterly estimated tax due dates and mail it in. Face it - paying in something is better than paying in nothing at all. You can apply any 2006 overpayment to your first estimate for 2007.

If you don’t pay in the estimates, you don’t get a letter from the IRS – they don’t know if you’re making a taxable income during the year or not. If a tree falls in the forest and no one is there to hear it, did it make any noise? Do it for yourself. Getting your tax return done each April is hard enough. Don’t complicate it with a large tax debt at the same time.

The income tax basics -

Remember, if you are self-employed, you have 2 taxes to calculate – federal income tax and self-employment tax (SE tax). The SE tax can be a real surprise in your first profitable year as an music business entrepreneur. Figure the SE tax at about 15% of your net business income. Your income tax will be a mix of a 10%, 15% and possibly 25% rate on your SE income less your standard (or Schedule A itemized) deduction and personal exemption(s).

Since you have various tax rates at work, it is a challenge to estimate the amount to actually pay in at the quarterly due dates. It’s also hard to know how much your deductions will be in order to arrive at an estimated taxable income. A rule of thumb is to hold back and pay in some %, maybe 5% - 10% of gross income. You definitely can write down what comes in the front door. So, there’s really no excuse for getting behind.

Tips for tour managers

To avoid building up excess road cash, call ahead to next venue to request all or part of the guarantee be in the form of a check. Also, when paying cash per diems to band members and crew, always get them to initial for it. This can be done next to their names on the road sheet.