Recording - July 2010 - 54

By Todd Gascon and Bruce Kaphan

Chapter 4: THE BUSINESS END—PART 1
There has never been a better time for us independent artists to survive doing what we love to do. But we need to know about the business, and while you can get a bookkeeper to do your day-to-day accounts, you and only you can make the decisions that involve the legal framework for your business. A lawyer can help when needed, but you have to be informed, first and foremost. That’s why we started this column. BK: How did I become so convinced—and keen to share my belief—that a sound knowledge of the music business matters greatly? After years of touring and recording for various artists, I opened my own studio. Then I signed with Hearts of Space Records. Then Hearts of Space sold its catalog and eventually I was able to come into ownership of the album I had made for them, leading to starting my own record label in order to rerelease that title. Last year I began work on the first album for my label that I’ll make from inception to completion for it. I’ve learned an incredible amount from all these experiences. As I’ve prepared to launch my new album, for the first time in my life, I’ve had to oversee every single aspect of what in my previous experience was always done by one record company or another. While developing my own solo career, I’ve also produced and engineered many albums for clients, which taught me even more about taking care of the business end. I’m sure for most of you reading this, as it has been for me, the big challenge isn’t in making music, it’s in following through with all of the mundane details connected with commerce. It will take more time, energy and money than you might imagine, but if you follow the blueprint provided here, you should be well on your way to creating a business that has the potential to succeed. Then the biggest variable is—are you selling something that people will want to buy? A great deal of my awareness of how to do business properly has come from conversations with this series’ co-writer, attorney Todd Gascon, as well as from my tax advisor, Martha Norberg. Like so many other musicians I know, I used to think that paying my state and federal taxes was all I needed to do to be in compliance with the law. WRONG! Let’s start at the top and work our way down. This month we’ll cover the requirements of the federal government, which involves your decision about the type of business entity you want to choose for your activities.
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Federal Requirements According to the Internal Revenue Service website (http://www.irs.gov/newsroom/article/0,,id=105097,00.html): “You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive.” In order to comply with the IRS, at the very least you’ll need to have your own Social Security account (http://www.ssa.gov/pubs/10002.html). It gets more complicated quickly: in order to file a tax return, you’ll need to declare the type of “business entity” you operate; each entity type requires that a specific “schedule” must be filed. Regardless of the business formation you select, you will need to obtain an employer tax identification number (“EIN”) for your business. This will be the number you will use when filing taxes for your business. If you are a sole proprietor, you can use your social security number. However, if you form a partnership, corporation or limited liability company, you will need to obtain an EIN for your business. This can be done by answering a number of questions online at www.irs.gov. Aside from the Federal requirements, you will also need to register your business in the county where your business is located. The registration consists of a one- or two-page fictitious business name statement (sometimes called a “DBA” or Doing Business As). The statement seeks basic information about your business including name, owners and the type of business you’re in. The form is relatively simple and straightforward and can be picked up at your county clerk’s office. We’ll talk more about this document later in the column. Although starting a business can be somewhat daunting, the IRS has a number of free publications that can assist you and are quite helpful. In particular, I would recommend reading the following publications: i. IRS Pub. No. 334 (Tax Guide for Small Business) ii. IRS Pub. No. 538 (Accounting Periods and Methods) iii. IRS Pub. No. 583 (Starting a Business and Keeping Records) Various Business Entities TG: I’ll now provide an explanation of the pros and cons of the various business entities from which to choose. Sole Proprietorship: In a sole proprietorship, a single person (the sole proprietor) owns one hundred percent of the business. The primary

http://www.irs.gov/newsroom/article/0,,id=105097,00.html http://www.ssa.gov/pubs/10002.html http://www.irs.gov

Recording - July 2010

Table of Contents for the Digital Edition of Recording - July 2010