Taxpayer asks:
Hi Tax Girl,
Thanks for taking questions. It’s a really nice thing to do.
I have a trio that performs regularly and this year the venue sent me a W-9. I know it is just for informational purposes in preperaion for a 1099, but should they be sendind one to just me or should the other band members also receive the fom?
They pay us by check, the check is made out to myself in the full amount and I then pay the additional musicians. It looks like they may 1099 me or are setting up to 1099 me for the full amount at tax time. How do I ensure I only pay tax on my 1/3 and how do I or the venue hold the other 2 musicians accountable?
Thanks.
Taxgirl says:
Ideally, the forms W-9 and the forms 1099 would be issued to the trio, and not to you individually.
I am going to assume that the trio is not incorporated and does not have its own taxpayer ID number. I’m also going to assume that you are the member of the trio who typically signs the contracts and manages the money.
So, here’s the scoop. If the form 1099 is issued to you, the IRS is going to be looking for that income on your return. So I’d advise against merely splitting the 1099 among the members of the trio and calling it a day, which is what tends to happen. Under the circumstances as you’ve explained them, I’d include the whole amount on your return and then deduct the amounts paid out to the members of the trio, as if they were subcontractors. If you have good records, you’ll be fine with respect to reporting.
But here’s my big caveat: depending on the amount and how it’s classified (as a hobby or business), reporting the full amount will artificially inflate your gross income, even though your net income may be roughly the same. You could have unintended tax consequences, especially if you live in a state or locality that taxes gross income or if the amounts are significant.
I’ve represented a lot of groups, including musicians, theatre groups, and artist collaborations. And even though I know this “one check to a member” system is something that happens all of the time, it just isn’t ideal. The record-keeping is all on the member with the check (especially since it’s your tax ID number being reported to the IRS) and things can get complicated. Technically, you should be issuing forms 1099 to your band members for their respective share of the pie and you should be keeping the records of what expenses were paid out of the check, etc. Of course, everyone else is just walking away with a check, while you stare at a spreadsheet and try to work out what’s what. It can cause hard feelings, create disputes, and often results in a mess.
So, I have two suggestions for the future, depending on your plans. If this is something that’s always going to be a hobby, be very clear with the payor that you want separate checks for the members of the trio. And fill out three forms W-9. Despite the fact that the payor may initially hem and haw, in today’s Quickbooks/Quicken/Peachtree kind of world, it’s really no more work to issue one check as three. And if it’s a club or other organization issuing the check, they have an accountant who does all of that kind of stuff anyway, so it’s not a real burden: don’t let them convince you otherwise. Now, the record-keeping and reporting requirements become the responsibility of each individual member of the group and not just on you.
Going forward, if your trio is something that’s going to be a real business venture, meaning you hope to do it to earn a living, I’d consider incorporating or at the very least, loosely organizing as a partnership and securing a taxpayer ID number for the group. Then you pay expenses out of the group first, then split the checks. I’d highly recommend that you talk to a tax or entertainment lawyer about whether this makes sense for your group.
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
I know this is an old article, but I have almost the exact same scenario. The only difference for me is that the tax form I was presented with is an I-9. Is this form related in any way to the W-9? We have four band members and receive one check from this venue. Does this mean we should form an LLC and obtain a TID? We just started out and I anticipate we will likely be playing more and more of the size venues/gigs that will be requiring tax information from us. Thanks in advance!