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Dirty-South Blues Harp forum: wail on! >
Question: Paid in Cash vs Check
Question: Paid in Cash vs Check
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Littoral
1679 posts
May 25, 2019
5:38 AM
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Regular gig, club owner starts paying by check instead of cash. Taxes, sure, I9, the whole bit, I get it.
How much difference do you think there is in value?
My duo partner is retired and we're running the checks through him so that will help.
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Cotton
115 posts
May 25, 2019
7:00 AM
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The club owner wants to pay by check so that he can take a business expense deduction on his taxes. The ball is in your court. If you want to be legal, deposit the check and claim as income on your taxes. With this route you can claim business or Hobby business expenses as well. With mileage, equipment other expenses you will probably show a loss. Lots of recordkeeping and paperwork. OR You can just cash the check.
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barbequebob
3587 posts
May 25, 2019
8:23 AM
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From long gigging experience, especially as a bandleader, if it's a check from a reptable corporation like a hotel chain, as an example, that maybe fine, but with most clubowners, my advice is to make the owner cash that check in his drawer and get the cash. Most every bandleader I know has been burned by accepting checks during their careers inclduing yours truly.
Before depositing that check, what I'd advise you to do is get that check cashed ONLY in the bank that the check is drawn on fo0r your own protection.
If you're not using actual printed contracts, the minute the gig gets booked in the future, send the club owner a letter of confirmation that states every minute detail of what was agreed upon and make sure that you write in it clearly that under no circumstances that you will ever accept a check for payment unless it is cashed in the club's drawer that very night. Prior to the gig, have three copies of the letter, with one being sent to the club owner, one kept at home for your business records, and another to take with you on the night of the gig.
Per US tax laws, all music venues are supposed to issue the artists a 1099MISC form who gets paid $600 or more per year and for you as a musician, you're supposed to claim YOUR portion of that income on your taxes and the IRS has 3 years to get you if you don't and most states from about 7-10 years and if you're issued this form and you don;t claim it on your taxes, you WILL pay penalties anbd interest on it that will accrue DAILY. I have plenty of horror stories of musicians who were, business wise, not too smart and got hammered jsut by the IRS alone because of it.
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Sincerely,
Barbeque Bob Maglinte
Boston, MA
http://www.barbequebob.com
CD available at http://www.cdbaby.com/cd/bbmaglinte
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jbone
2930 posts
May 25, 2019
1:05 PM
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If we can cash that check at the bar, we do. If not we have to run to the bank it's drawn on the next day and get that GREEN.
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Music and travel destroy prejudice.
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The Iceman
3856 posts
May 25, 2019
3:48 PM
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If bandleader gets paid by check, he is responsible for all that income unless he has the proper info on the band members to whom he disperses the funds once check is cashed.
I used to be a top 40 band leader, and one time, one of the hotels or restaurant chains that cut me checks made its way through the IRS to the point that they came after me for all that money.
Luckily, I had pretty good books on band expenses and salaries, so I was able to just declare my own personal income and let the other band members fend for themselves as the IRS made its way down the money trail...
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The Iceman
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Littoral
1680 posts
May 26, 2019
6:18 AM
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So how much is it costing us to get paid by check vs cash? Percent?
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dougharps
1951 posts
May 26, 2019
8:38 AM
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Cash vs. check has NO difference in cost to you outside of the hassle if you can't cash the check at the venue and have to go to the bank, or if the venue owner writes a bad check.
That is if you follow tax law and report income earned by making music.
The difference in your income cash vs check only is an issue if you choose to engage in tax evasion by not reporting income. If you take the cash under the table and get away with it, you certainly will take home more cash that is not taxed.
If you don't get away with tax evasion you may face severe penalties.
I was given a heads up by a band member who is an attorney and began reporting income from music from the very start. I was made aware of local musicians who had been caught fudging music income and of the severe financial consequences to them.
I structure my music performance income as a sole proprietor business, track mileage to gigs and rehearsals, and keep records of equipment and repair costs in order to write off what is allowed.
Doing the taxes is a hassle and I do have to use more expensive tax software. I could call playing music a hobby and report the earnings as additional income, but then there are no write offs for mileage and performance equipment, and I would pay a lot more tax on that gross income without the deductions. [EDIT: see below, some hobby deductions ARE possible] If you have a day job that puts your additional income in a higher bracket, the write offs really are important.
I am certain that some musicians get away with not reporting or perhaps under reporting their music income. However, if you are regularly performing music for money, I believe it is best to do it on the up-and-up. If you perform a few times a year for money, it is unlikely to be an issue, but that is still a gamble.
Are your gigs advertised? Do the venues you play have to report their finances to the IRS? Is there a public record that you are playing for money? Do other musicians with whom you perform report their income and you don't?
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Doug S.
Last Edited by dougharps on May 28, 2019 7:05 AM
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SuperBee
5981 posts
May 26, 2019
4:18 PM
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That’s very interesting.
In this country (Australia) if the income was from a hobby you would not include it in your tax return.
The question of whether it’s a hobby or a business is one of fact, however. It’s not a hobby merely because you say it is.
Essentially the thrust of the law is that if you aren’t making a profit, don’t have a prospect of profit, aren’t conducting the activities in a businesslike way with the intention of generating a profit, you are a hobbyist and the tax office is not going to allow you to deduct your associated expenses against your income. But they will not treat the income from the activity as assessable income. If they include the income, they have to allow the deductions. That’s how it works.
I don’t know how your IRS is funded or where it sees priorities, but here there is constant pressure on resources and audit activity is very targeted with use of data to identify risk and priority given mainly on risk to revenue. Small time musicians are relatively unlikely to attract attention unless they annoy someone else in the industry who puts in a complaint
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dougharps
1952 posts
May 26, 2019
4:43 PM
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A brief clarification and disclaimer. First, I am not a tax expert. At the time I started reporting income I could not find information about how to deduct expenses with music performance as a hobby.
At the time I started earning my understanding was that you with a hobby you could not deduct expenses, but still had to report the income. Also, if you were a business and you took a loss repeatedly you would lose business status and be classified as a hobby.
Since I began as a business I have continued as such and let the tax software and IRS publications guide me.
I just looked up a little more info about deducting hobby expenses vs. business expenses, and apparently there are ways to deduct expenses up to the limit of your hobby income. [EDIT: I cut some out here] I don't know the limits on hobby expense deductions such as whether you can deduct travel expenses.
https://www.irs.gov/newsroom/hobby-or-business-irs-offers-tips-to-decide
Regarding the OP, you still have to report hobby income to the IRS, according to this information, though apparently you can deduct some expenses.
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EDIT: It appears that in order to deduct hobby expenses when you have hobby income you have to itemize ALL your personal deductions on your income tax return and not take a standard deduction.
With a sole proprietor business you deduct your business expenses directly from your gross business income and then enter your net business income (or loss) into your overall income on your return.
But I am not an accountant or tax attorney, this is just a layman's opinion.
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Doug S.
Last Edited by dougharps on May 26, 2019 8:13 PM
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The Iceman
3858 posts
May 27, 2019
6:50 AM
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I took a few seminars years ago in the Cayman Islands from a guy that hates the IRS and wanted to educate folks on the most efficient way to pay them as little as possible legally - his advice in regards to any hobby that includes cash flowing is to make that hobby into a business - simple registering as an LLC and proceed to deduct all expenses involved.
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The Iceman
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Littoral
1681 posts
May 27, 2019
8:16 AM
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Crazy thing I'm slowly learning more and more from corresponding on forums and life in general: we really don't understand each other very well. I take as much responsibility for it as possible with rewinding what I wrote and wondering how I could have addressed it differently. In this case I was trying to figure out how how much of a pay cut we would get from getting paid by check when previously we were getting paid in cash. Knowing the obvious points regarding taxes I added: "Taxes, sure, I9, the whole bit, I get it." So the responses, however well intended, have been about accounting and paying taxes. Of course. I assume we all try to keep as much of our income as possible. My current strategy, which I added, is that my duo partner is retired and we're running the checks through him. He won't be in nearly the same tax bracket as me.
I think our cut in take home pay (check vs. cash) is about 20%. That's a lot of money and I expect to ask for it when we negotiate next time. Unless some of the experienced people around here learn me otherwise. Happy to listen. Thanks.
Last Edited by Littoral on May 27, 2019 8:25 AM
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The Iceman
3859 posts
May 27, 2019
8:51 AM
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IMO, there should be no difference in pay if you accept a check or if you accept cash...when has this become a negotiation for less money??
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The Iceman
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Littoral
1682 posts
May 27, 2019
10:27 AM
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"...when has this become a negotiation for less money??"
When cash, under the table, isn't taxed and the check is taxed.
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The Iceman
3860 posts
May 27, 2019
11:40 AM
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yes, but the amount you are paid by the venue should not change based on cash vs checks....at least, that's how I handled the venue as the band leader.
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The Iceman
Last Edited by The Iceman on May 27, 2019 11:41 AM
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barbequebob
3588 posts
May 28, 2019
8:47 AM
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One thing that I should mention in regards to accepting payment by check is that if this is in a venue that you've been playing at for some time and they've been paying you with cash and then suddenly they want to pay by check, red flags should be going off because in a number of cases, this is a sign that the venue may have significant cash flow problems and may be close to either going bankrupt or shutting down and more than a few really unscrupulous owners have done this and have those checks bouncing like a basketball.
You all need to remember this about playing music that at the same time, it is both an art form as well as a business and regardless if you're a bandleader or a sideman, it's vitally important to learn the business side of things or prepare to get burned constantly.
For tax info, what I suggest is that you don't EVER go to places like H&R Block or Jackson Hewitt, which are for the everyday stuff, but to a reputable certified public accountant that specializes in the entertainment industry because they will always be better informed than any of those people and even tho they try to help, they can actually cost you mor emoney in the end.
As a band and an individual musician, as a business, you're essentially an outside contractor and that is why you get hit with the 1099MISC forms and that means you're entirely responsible for the taxes on your income.
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Sincerely,
Barbeque Bob Maglinte
Boston, MA
http://www.barbequebob.com
CD available at http://www.cdbaby.com/cd/bbmaglinte
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The Iceman
3861 posts
May 28, 2019
9:08 AM
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In regards to what Bob says above (and if you have a concern), one can always check on validity of check written by calling bank upon which check is drawn and asking them over the phone if there are sufficient funds to cash - if so, head to THAT bank to cash it ASAP....so, sometimes meeting Club Owner the next morning to pick up check works best, as you can call bank immediately for a reply -
however, you may want to be out of ear shot from Club Owner while doing so.....
DISCLAIMER - I have done this in the distant past (1980's/90's), so do not know if banks will still allow this, what with all the new security concerns everywhere.....
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The Iceman
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