Your best approach would be to find a reasonably priced CPA
in your area who has a familiarity with the recording
industry (ask other musicians you know, contact a couple of
CPAs and ask for references, and the such-like). Also, don't
give up any expense that is properly substantiated - all
those little expenses will add up. Provided that you
qualify as a "trade or business" for 2004, you should end up
having a net operating loss that you carry forward to those
years (like 2005) in which you have income from the business
to offset with the original losses.

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<cpabakem01[at]yahoo.com> wrote:
- quote -

Would the recording costs, etc. be some sort of Sec 197
intangible that gets amortized beginning when the first CD
is sold, and the actual cost to physically reproduce the CD
(i.e. the disk, burning the tracks to disk, printing the
cover art) would be capitalized as inventory and expensed
when sold?

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Thanks, Milt. In other words, I ought not to bother with
inventory...if I understand your suggestion. The one
variable I've thought about is that, over time, if I break
even, or even turn a profit, then the cost per CD actually
goes down because I don't have to keep going into the studio
for each new batch of 1000. Do I recalculate once I've
overcome my expenses?

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"Krdjis" <krdjis[at]gmail.com> wrote:

- quote -

First suggesion is to find a professional to help you
through this process. As a start-up company there are
opportunities to make certain elections for tax purposes
that must be made on the first return filed for the
business. You may have already missed the opportunity to do
this as 2004 was the startup year. Second, another reason
why a professional s/b consulted is because as a startup
company, the initial costs to get you set up in business
need to be capitalized and amortized, only expenses after
you are conducting business are currently expensible. You
may or may not have been aware of this and/or know the
difference.

If you were only recording, but not selling CD's in 2004,
you are probably not considered to be "conducting business"
and therefore, it may not be necessary to file an amenede
return. Can't make a determiniation from facts given,
however, all the costs incurred in 2004 are very important
whether you're started to conduct business in '04 or '05.

Re 2005 1099's, let the other artists know you're working
through these issues and a 1099 is coming their way. You've
already missed the 1/31/06 date by which they should have
been sent but at least this way the other artists won't file
their returns early w/o the additional income you'll be
reporting to them.

You don't mention how you maintain your books and records
for this business but suffice it to say the the IRS requires
adequate books and records to be maintained or they have a
lot of latitude in including items in income and disallowing
deductions. A first step in this direction if you have not
already done so is to open a bank account that is used
EXLUSIVELY for business purposes.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"Krdjis" <krdjis[at]gmail.com> wrote

- quote -

Ah, the learning curve between music and taxes.

- quote -

Actually they probably didn't need to send you a 1099 for
consignment CD's, or CD's purchased from you for resale.

The 1099 is issued generally to musicians from the clubs and
other venues, or the promoters and the record labels for
your services (performance).

- quote -

And in many instances you own the "business" and have either
employee musicians are as is often the case, contract
musicians.

- quote -

You have two issues to deal with, the costs to record the CD
and get it through mastering (deductible in the year paid)
and the production costs to burn the retail CD's (an
inventory item, deductible ratably as the CD's are sold.

- quote -

Sounds like a good plan, but you have other music business
expenses, as well as other capital assets that will need to
be depreciated over a number of years. Don't leave thes
behind.

You may need to seek the help of a tax professional for
these years. Preferably someone with experience in the music
industry.

--
Paul Thomas, CPA
paulthomascpapc[at]bellsouth.net

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Krdjis wrote:

- quote -

My opinion is that when you sell the CD you list the expenses
incurred in producing it

Milt Baker CPA

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Maybe someone has a few suggestions that might help me, or
better yet, someone who's been in a similar situation might
be able to give me a quick overview about what steps to
take.

In 2004, I recorded a CD which, when all was said and done,
cost me several thousand dollars to produce. In 2005, when
it came time to file my taxes, I wrongly assumed that since
I hadn't turned a profit, I didn't have anything to report
with regard to my CD sales. I realize now that this was a
particularly ridiculous assumption.

In 2005 I received a check from an organization that sold my
CD's for me and at the end of 2005 I rightly received a
1099-MISC form. So, when I go to file the earnings from
this org, I'm facing a disproportionate amount of taxes
because the IRS doesn't know how much it cost me to make the
CD's that still haven't yielded me any sort of profit
whatsoever (because I didn't include these expenses in my
2004 return). To make matters more complicated, I' owe
percentages of profit that I owe to five other musicians who
all helped pay for the project. (The IRS didn't know they
would consider this a partnership, but after talking to
partnership specialists at the IRS, they seemed to think
not...because I'm the operator of this "business" an no one
else.

Here's my plan:

1) I'm going to fill out a 1040X which will include the
expenses of my CD (a schedule C will have to be attached to
this, I believe). I'll use my 1040 from 2004 to fill out
this 1040X

2) I'm going to list the other recording artists at
subcontrators or commissioned participants...and send them
all 1099-MISC forms for money they've received already.

3) I'm not planning to deduct anything, other than the
expense of producing the CD because, frankly, those
deductions don't amount to much.

4) I'm going to find some paperwork that shows that I
started this "business" in 2004.

5) I've organized all my CD sales, quantity and dollar
amount in a single file.

All that said, if anyone has suggestions, cautions or
considerations to share, please do tell!

Thank You!

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >