Paying taxes can be quite taxing for entertainers as well as other entertainment professions. Most working musicians are considered “self-employed” in regard to filing their taxes. In a legal and taxpaying sense this means that your “business” as a musician and you as an individual taxpayer are one and the same. You may be earning money from several different sources (solo gigs, session work, teaching, recording, songwriting, merchandise, etc.), so it’s important to know how to keep track of everything and which tax forms you’re required to file
The IRS gives an extra warning to taxpayers who work in the gig economy. If you have income outside of wages and salary–Schedule C self-employment income, capital gains, interest and dividends–you need to pay estimated taxes in quarterly installments. (You don’t have to make estimated payments if your tax due—after subtracting withholding and credits–is less than $1,000).
Typically taxpayers who pay estimates use what’s known as the “prior year safe harbor.” That means they pay in 100% of the prior year’s tax as estimates (or 110% if their adjusted gross income was above $150,000). Using the 100%/110% prior year safe harbor is easy but in some case it means you’re overpaying. The alternative rule–to avoid penalties for underpaying estimated tax payments—is to pay in 90% of your current year estimated tax.