Listen up weekend warriors, because this month’s column is for you. This is for the guys and gals all around the country who make their living working the daily 9:00-to-5:00 grind, and then when the weekend comes, you’re out rocking the neighborhood tavern for the masses. Maybe you’re playing Skynyrd covers while the local girls dance on stage, or possibly you’re in an original band selling copies of your indie CD after the show — or perhaps you do both. Either way, at the end of the night, you get paid. Most likely, the money isn’t too much, maybe cash or maybe in a check, but ultimately you’ve gotten paid for your services. Now comes the part where I ruin some of your fun — are you going to pay taxes on that money?
I asked the question because I already know the answer. I know many, many local bands and local club owners, and the simple fact is most bands are paid in cash at the end of the night, and most bands just split up the money and then never claim it as income. This is a huge mistake. Failure to report your income to the Internal Revenue Service is criminal offense, punishable by fines and/or prison time.
Section 61 of the Internal Revenue code defines income as “all income from whatever source derived, including … compensation for services.” This definition is pretty cut-and-dried, and in more simple terms, defines income as “more than before.” If at the end of the night you have more money in your pocket than you had when you walked in, then you have earned income. It doesn’t matter if you only played Joe’s Pub for $500, it is still income. Over the course of a year, the money you make adds up, and may result in a relatively substantial sum. A lot of local bands do quite well for themselves, but they may be in a world of hurt if they don’t think they have to report the money they make.
Now there is an exception for “de minimus” income. De minimus is income that is so insubstantial that the I.R.S. doesn’t require you to report it. An example of this would be if you worked for a company and they bought you a meal to thank you for working late. The value of the meal (say $20) is additional payment for your services as an employee, and in theory you should have to claim the value of the meal as income. However, the I.R.S. doesn’t bother with this amount, since it is too small to really matter. Conversely, if your band makes such a small amount of money that it wouldn’t matter to the Federal Government, maybe you can use this as a defense — but this is far from a slam dunk argument, and I don’t think you should rely upon it.
Bottom line is we live in a country where ignorance is not bliss. You can’t simply claim that you didn’t know you had to pay. Remember, they finally put Al Capone in prison for failure to pay taxes, along with Richard Hatch from Survivor, and Crazy Cabbie (as fans of Howard Stern know). Learn from the mistakes of others, so that you don’t make them yourself.
[ Ed note: This article is not intended as legal advice. If you have specific legal concerns, I recommend that you personally contact an attorney.]