A guide to tax and accounting for DJs
If you want to know all about tax and accounting for DJs, then you've come to the right place. This guide could also work for many small businesses, including record labels.
Hiring an accountant could be worthwhile for DJs to do. It's possible to do accounting or bookkeeping yourself to save money. It could be worthwhile to do bookkeeping, and then send the information off to an accountant.
To do basic bookkeeping, you just have to keep all invoices and receipts associated with your DJ business.
Receipts could be from music stores, or equipment stores.
You need to record any goods or services that you buy that you primarily use in your DJ business. These things are called your expenses. Keeping a record of them allows you to write them off.
Expenses could be track and equipment purchases, online backup services, and travel costs going to and from gigs. You can usually write off a percentage of your internet, too.
Writing off expenses allows you to deduct the amount from your taxable income. For more details see the "Taxes" section of this article.
You cannot write off major asset purchases. You'd write off a portion of the cost through depreciation. I have covered depreciation in the "Profit and loss statement" below.
Please note: If you're not making money from DJing, you cannot write off expenses.
You'll also need to record any revenue that you get from DJing income from gigs, merchandise, track sales, YouTube monetization.
Businesses generally use a cash book to record transactions. You may also use a spreadsheet. See our "Cash book" section below for more details.
You would also keep track of any assets and liabilities that you have.
Assets are what the business owns. They could be laptops and/or DJ equipment.
Mobile DJs would probably have more assets such as lights, speakers and a vehicle to transport equipment.
Liabilities are what the business owes to others. This could include loans or credit card debt.
The most critical part of accounting is doing taxes. Hiring an accountant is the simplest way of doing your taxes.
I will cover income tax here, but will give information on sales tax in another section.
You only pay income tax on your profit. To calculate your profit you take your revenue and deduct your expenses.
This means if your income is $2,000 and your expenses are $1,000, then your taxes will be a percentage of the $1,000 figure. If your tax rate is 35%, then your taxes will be $350.
The above example doesn't include sales tax.
If you don't make a profit, then you don't have income tax to pay. Normally you'll note the loss and can use it to deduct from your income next year. This is called carrying a loss forward in accounting.
Accountants would normally use a profit and loss flow statement to work out your profit. There's a section on accounting statements later in this article.
There's two other ways to get your tax information. Every time you do a transaction related to your business you would note it down in a spreadsheet.
If you don't use cash, and you use a bank account, then you'd just add up the credits and deduct the debits. This formula will give you your taxable income. If you use cash, then you'd just make a record of cash transactions and include them in your total.
Not every business needs to be registered for sales tax, but if you are here's how to handle sales taxes.
If you're selling something for $100 and sales taxes are 15%, you'll charge the person $115 and put aside the $15 for sales taxes.
In many cases international orders are excluded from sale taxes. You'll have to find out if this situation applies to you.
You can use a cash book to create a record of cash transactions.
Three types of cash books exists.
You have the basic one column cash book. This would record basic information such as the date of the transaction, the particulars, the folio number and the amount.
The "Particulars" would be a short description of the transaction. You can either use the label "Particulars" or "Description" for this.
The folio number would be an unique number or code. You can just use a number going up by one (1, 2, 3 etc) for each transaction. You may want to shorten the folio number label to "F/N"
So now you have the basic group of information: "Date", "Particulars": and "Amount"". A normal cash book would have two groups of this information beside each other. The left group would be for credits and the right group would be for debits.
The two column cash book just adds a "Bank" column to both sets of information. You'll also change the "Amount" column to say "Cash".
If a transaction affects the cash balance, then you'll put the amount in the "Cash" column. If a transaction affects the bank balance you'll enter the amount in the "Bank" column.
The three column version is the same as the two column version, but it adds a "Discount" column for the information sets. If your businesses receives a discount on a transaction, or give a discount to the people purchasing from you, then you'll enter the amount of the discount in the "Discount" column.
Alternatively you can separate the two sets of information if you prefer. You'd just have one set of information for each of the two journals.
Payments from people/companies/organizations would be recorded in a "Cash Receipts Journal". Payments from people/companies/organizations would be recorded in a "Cash Disbursement Journal".
Depending on your state, you may not need to prepare accounting statements if your gross revenue isn't significant. Sometimes it depends on gross expenses, too.
Gross is just the accounting term for total.
Profit and loss statement
This statement has two headers for the amounts this year and last year. Before entering the amounts you'd put the item name.
The items are split up into sections.
The first section is "Revenues".
Another section of the "Revenues" is "Cost of goods sold", this could also be called "Cost Of Revenues".
Since DJing is a service business for most people let's go with "Cost Of Revenues". In a profit and loss statement travel expenses could be filled under "Cost Of Revenues". Previously we've called them expenses, but for the purpose of this statement they're filed under "Cost of Revenues"
Travel expenses and venue/equipment/talent hire that relate to a specific gig could be filed under "Cost Of Revenues".
The second section called "Expenses" This is split up between "Operating expenses" and "Non-operating expenses".
There's a third and final section.
The "Operating profit" is the gross revenue minus gross expenses.
The next line would be "Depreciation". If you have equipment, then you can write off a percentage of the equipment costs.
The "Profit before tax" would be the "Operating profit" plus "Depreciation".
You would then put "Tax" and the percentage amount beside it in brackets. For example if the tax rate was 25% you would put "Tax (25%)". In the amounts you'd enter the figure that you have to pay to the government.
The final line is labeled "Net revenue". This would deduct "Tax" from the "Profit before tax".
You'd probably want to consult an accountant to work out depreciation as different formulas are used for different. Here are two common formulas:
Straight line depreciation
You'll have to work out the salvagable value of the item. This is the price you'll sell the item at when it's no longer useful. You'll also need to work out when you're going to sell the item.
You'll take the difference between the original value and salvagable value, then work out how many months you've had it.
With the information you have above, you can create your formula. (Purchased Value - Salvagable Value) / (Total months you'll have it / current months you've had it)
Diminishing Value Depreciation
This reduces the value of the asset by a set percentage each year.
If the percentage is 30%, then a $10,000 asset will depreciate by $3,000 in the first year. You'd then record $7,000 as the new tax value of the asset, and then depreciate the new tax value by 30% in the second year.
This statement assesses the current assets and liabilities of the business. See the bookkeeping section above for definitions of these things.
You'll start with "Assets". "Assets (current)" are things like "Cash" and "Accounts receivable". Additionally you could have "Inventory" as current assets if you have CDs or merchandise that you'll sell eventually.
Accounts receivable would be the total amount your business is owed by others. Entities that owe you money could be ticketing services and music distribution services. You may be owed commissions/money from merchandise sales.
"Assets (fixed)" would be a summary of your physical assets such as equipment.
You don't have to list every physical asset. You can create categories for similar assets, examples include "DJ equipment", "Vehicle" and "Computers".
You may have "Other assets". You may list things like "Musical works" and "Goodwill" under them. You'd probably want to speak to an accountant before listing them.
Now it's time for "Liabilities and Owners Equity".
Liabilities are split up between "Current Liabilities" and "Long-term Liabilities".
Invoices/bills would be filled under "Accounts Payable". Accounts payable is a current liability. Credit card debt could be a current liability.
"Long-term liabilities" could be loans. Most DJ businesses wouldn't have any.
You'll add up the liabilities in a column called "Total liabilities"
"Owners Equity" has two items.
"Current stock" is what the owner put into the business.
"Retained earnings" is what the owner any income that's owed to the owner.
You will total the two items up in the column "Total Owner's Equity".
If things are done properly, then assets should equal the sum of total liabilities and owner's equity.
Thanks for reading
I hope that this was helpful.