2.1

Self-employment and Taxes

As a musician, you’re essentially running your own business. Whether you’re playing live, teaching, recording, consulting, or licensing your music, the way you structure yourself, your business, or your operations has real consequences on your income, taxes, and overall financial well-being.

Let’s breakdown some essential structures to be aware of, and the practical steps you can take to maximise earnings whilst remaining compliant.

  • Sole Trader

    Most freelance musicians start out as sole traders. It’s the simplest structure, and many of the day-to-day activities you’re already doing (booking gigs, invoicing, and paying taxes) will fall into this category.

    As a sole trader:

    1) You and your business are legally the same entity. This means all income is your personal income.

    2) You’re taxed at your individual income tax rate. There’s no separate tax on the business itself.

    3) You’re responsible for registering for GST if you make over $60,000 annually in income.

    Best For:
    Freelance musicians with low overhead costs, solo performers, and part-time musicians looking to keep things simple.

    Pros:

    1) Easy to set up and manage.

    2) No need for separate bank accounts (though it’s highly recommended to keep things organised).

    3) No additional legal costs for business registration.

    Cons:

    1) You’re personally liable for any business debts or losses.

    2) Taxes are paid on all business income as personal income, so there's limited tax flexibility.

  • Partnership

    If you’re in a band or regularly collaborate with others in business ventures (e.g. running a music teaching school or managing events), a partnership may be an option.

    In a partnership:

    1) You and your partners share profits, losses, and liabilities.

    2) The partnership must file a separate tax return, but income is divided and taxed individually for each partner.

    3) You’ll need to draw up a partnership agreement to outline roles, responsibilities, and how profits are shared.

    Best For:
    Bands, ensembles, or musicians with a long-term collaborative relationship where income is generated collectively.

    Pros:

    1) Shared responsibility, which can help distribute costs and workloads.

    2) Clear division of income and liability based on an agreement.

    Cons:

    1) Each partner is personally liable for the actions and debts of the others.

    2) Disputes can arise without a solid partnership agreement.

  • Company

    As you grow, especially if you're generating significant income, managing a band with overheads, or handling more complex operations, incorporating as a limited liability company might make sense.

    An LLC separates your personal and business finances:

    1) The company is a separate legal entity from you, so your personal assets are protected if things go wrong.

    2) You’re required to file a company tax return, and profits are taxed at the corporate rate (28% in NZ), potentially reducing your overall tax burden compared to personal income tax rates.

    3) You can pay yourself a salary or take dividends from company profits.

    Best For:
    Musicians with larger operations, high earnings, or those looking for liability protection.

    Pros:

    1) Personal asset protection.

    2) Potentially lower tax rates on company profits.

    3) Better long-term planning opportunities for investments and growth.

    Cons:

    1) More paperwork and legal compliance, including annual filings and meeting tax obligations.

    2) Initial costs to set up and manage a company structure.

Navigating Self Employment as a Musician

  • If you're just starting out, you’ll probably be a sole trader—but as you expand your career, consider transitioning to an LLC to protect your personal finances and reduce tax burdens. Evaluate your growth potential before locking in a structure.

  • Even if you’re a sole trader, it’s a good idea to have a separate bank account for your music income. This makes tracking earnings, expenses, and tax deductions much simpler and will keep you organised for tax season.

  • In New Zealand, once your business (even as a sole trader) earns over $60,000 annually, you need to register for GST. This means charging 15% GST on your invoices and submitting returns to IRD. It may sound like more paperwork, but failing to register can result in penalties.

  • Track every gig, every lesson, every recording session, and every piece of merchandise sold. This is crucial for tax purposes and ensuring you get every deduction you're entitled to. Use a cloud-based accounting tool like Xero, Wave, or even a simple spreadsheet to track income and expenses.

  • As your career progresses, the financial stakes get higher. An accountant who understands the music industry can help you with tax strategies, identify opportunities for deductions, and advise on the right structure for long-term success. It’s an investment that pays off. View professional services in the Music Directory of NZ.

2.2

Taxes for Musicians

Taxes can be daunting for anyone, especially musicians with fluctuating income. The key is to simplify and demystify the process, so musicians can focus on their craft while staying compliant. Here’s what you need to know:

Understanding Income Tax in New Zealand

In New Zealand, income tax is progressive. This means that as your income increases, the percentage of tax you pay on each portion of your income rises, but you don’t pay the higher rate on all of your income—only on the portion that falls into each tax bracket.

You don’t pay one flat rate on your entire income. Instead, each portion of your income is taxed at the corresponding rate for that bracket.

Information sourced from IRD NZ

Here are the updated brackets in 2024:

  • $0 – $15,600: 10.5%

  • $15,601 – $53,500: 17.5%

  • $53,501 – $78,100: 30%

  • $78,101 – $180,000: 33%

  • $180,001+: 39%

Here’s what that means in practice:

  • On your first $15,600 of income, you pay 10.5% tax.

  • For the portion of your income from $15,601 to $53,500, you pay 17.5% tax.

  • From $53,501 to $78,100, you pay 30% tax.

  • If you earn more than $78,100, any income above that up to $180,000 is taxed at 33%.

  • Finally, income over $180,000 is taxed at 39%.

Let’s break it down for an income of $81,000:

  1. $0 to $15,600:
    This portion is taxed at 10.5%:
    $15,600 × 10.5% = $1,638.

  2. $15,601 to $53,500:
    This portion is taxed at 17.5%:
    ($53,500 − $15,600) = $37,900 × 17.5% = $6,632.50.

  3. $53,501 to $78,100:
    This portion is taxed at 30%:
    ($78,100 − $53,500) = $24,600 × 30% = $7,380.

  4. $78,101 to $81,000:
    This portion is taxed at 33%:
    ($81,000 − $78,100) = $2,900 × 33% = $957.

Total tax on $81,000 income = $16,607.50.

So, with an income of $81,000, you would owe $16,607.50 in taxes for the year.

Claiming Tax Deductions: A Breakdown

When you're a musician in business (using one of the structures above), or even juggling both a regular job and performing on the side, it's essential to understand how to reduce your taxable income. Tax deductions are your biggest asset in lowering the amount you owe at the end of the year, especially if your music income pushes you into a higher tax bracket.

What is a Tax Deduction?

A tax deduction lowers your taxable income, reducing the amount of tax you owe. By tracking and claiming the right expenses, you can significantly lower your total taxable income—ultimately decreasing how much tax you pay. Here's how it works:

Step One

How To Claim Deductions As A Musician

For musicians, a range of expenses can be deducted, provided they are directly related to your music work. Here’s a breakdown of common deductible expenses:

Equipment

Anything you buy or maintain for your music career, such as instruments, amplifiers, microphones, or even software for music production. This includes repairs or maintenance.

  • Example: You purchase a new mouthpiece for your saxophone for $45. This is 100% for your music work, so it's deductible.

Travel Costs

If you’re traveling for gigs, rehearsals, or recording sessions, you can claim fuel, public transport, or even accommodation (if you’re staying overnight for a performance).

  • Example: You drive 200 km for a gig. You can calculate the cost based on your car’s mileage, fuel, and any wear and tear on the vehicle.

Studio Time

Renting a studio for rehearsals or recordings is deductible. This may also include any associated costs like hiring engineers, mixing, mastering, or producers.

  • Example: You spend $400 on studio time for recording. That amount is fully deductible.

Promotion

If you spend money on promoting yourself—whether it's paying for a website, designing album art, social media ads, or printing posters—it’s all deductible.

  • Example: You spend $100 on a Facebook ad promoting your latest album release.

Professional Fees

Hiring professionals for legal, financial, or management advice related to your music career is deductible. This includes accountants or lawyers you use to set up contracts or manage royalties.

  • Example: You pay $300 for an accountant to handle your taxes. This is deductible as a professional expense.

Education

Any courses, workshops, or training materials you buy to improve your craft are deductible.

  • Example: You take a $150 online course to learn advanced music production techniques. That’s a deductible expense.

Step Two

Keep Accurate Records

Save Receipts

Every time you purchase something for your music career, keep the receipt. You can scan them or keep them in a digital folder, but make sure to have a record.

Use Accounting Software

Tools like Xero or MYOB make it simple to track income and expenses. You can input each expense, categorise it, and attach the receipt.

Separate Expenses

It's a good idea to have a separate bank account for your music income and expenses. This makes it much easier to track deductible expenses come tax time.

To claim these deductions, you need to keep track of everything you spend for your music business.

Step Three

File Your Deductions

When it comes time to file your taxes, you’ll want to total up all your deductible expenses. Here’s a practical scenario:

Annual Scenario

  • Total annual gig income: $54,000

  • Total deductible expenses: $4,500 (for instruments, travel, studio time)

Your taxable income now becomes $54,000 - $4,500 = $49,500.

This drops you from the 30% tax bracket into the 17.5% bracket, which significantly lowers the amount of tax you owe.

Deductions For Side-gig Musicians

(Non-business)

Even if you're not operating a formal business, performing on the side can still come with tax benefits. While you may not have as many deductible expenses as a full-time musician, there are still valuable deductions you can claim to reduce your taxable income. Here’s how to make the most of your tax return as a side-gig musician.

  • Even if you're employed in a full-time job, if you're earning additional income through gigs, you can claim the costs of filing your tax return.

    • What can you claim?
      If you hire an accountant or tax agent to file your return, any fees paid for their services are deductible. This includes the preparation and submission of both your regular income and any additional earnings from gigs.

    • Why it matters:
      Hiring an accountant ensures you're claiming all eligible deductions, reducing your overall tax liability. The bonus is that the cost of their service becomes a deductible expense, further lowering your taxable income.

    • Example:
      You paid $300 to an accountant to help with your tax return, including reporting your gig income. This $300 fee is deductible under "non-business expenses."

  • Income protection insurance is designed to replace your income if you're unable to work due to illness or injury. If you have such insurance and the payout is taxable, the premiums may be deductible.

    • What can you claim?
      The cost of income protection insurance, often called "loss of earnings" insurance, is deductible if the income you receive from the policy is taxable. Always confirm with your insurance provider whether your policy qualifies for a deduction.

    • Why it matters:
      Gigging musicians, especially those who rely on their physical abilities (vocalists, instrumentalists), are at risk of injury or health issues affecting their work. Having income protection is a smart move, and being able to deduct the premiums helps make it more affordable.

    • Example:
      You pay $500 a year for income protection insurance, and the payout would be taxable if you were to claim. This $500 is deductible under "non-business expenses."

  • If you're using borrowed money to invest in income-generating activities (e.g., buying shares, investing in bonds), the interest on that loan is deductible.

    • What can you claim?
      You can claim the interest on loans taken to make investments that generate taxable income. This includes interest paid on loans used to buy shares or other investments that produce dividends or rental income.

    • Why it matters:
      As a side-gig musician, diversifying your income streams through smart investments can help stabilise your financial future. If you're financing these investments with loans, the interest you pay on those loans is deductible, reducing your tax burden.

    • Example:
      You take out a loan to purchase shares, and over the year, you pay $1,000 in interest. If the shares generate taxable dividends, you can claim that $1,000 as a deduction.

2.3

Understanding Contracts For Musicians

As a musician, you’ll encounter various contracts throughout your career, from recording deals to live performance agreements.

Understanding what these contracts say and what they mean for your rights and income—is essential for avoiding disputes and getting paid fairly. Here’s a breakdown of some common contracts, key clauses to watch for, and tips on negotiating.

Key Agreements

The information provided in this section is for general guidance only and is not a substitute for professional legal or financial advice. Contracts can have long-term financial and legal consequences, so it's always recommended to consult a qualified lawyer or advisor before signing any agreement. While we aim to provide practical insights, each situation is unique, and you should seek personalised advice to ensure your rights and interests are fully protected. Love, NZSC <3

  • Key Clauses to Watch:

    • Payment Terms: Ensure it’s clear whether you’re being paid a flat fee, a percentage of ticket sales, or both. Look for specific payment schedules (deposit, balance after the show) to avoid delays.

    • Cancellation Policy: Understand what happens if the event is canceled. Are you still entitled to some portion of your fee if the show doesn’t happen? What if you need to cancel—what are your obligations?

    • Technical Rider: This part covers what you require on stage (instruments, sound equipment, etc.). Ensure this is clearly outlined and negotiate where necessary so you’re not caught without essential gear.

    Cause & Effect:
    If the cancellation policy is vague, you could lose out on money if a gig falls through. Be sure your needs in the technical rider are met to avoid performance issues.

    Negotiation Tip:
    If a promoter is unwilling to offer an upfront deposit, consider reducing your risk by negotiating more flexible terms (e.g., a higher percentage from ticket sales or guaranteed travel reimbursement).

  • Key Clauses to Watch:

    • Royalties: This determines how much you’ll be paid for streams, album sales, and other uses of your music. Be clear on how royalties are calculated (gross or net income) and how often they will be paid.

    • Ownership of Masters: Who will own the master recordings of your music? This affects your control over the music’s future use.

    • Recoupment: Many recording deals involve "advances" (upfront money), but remember, this is a loan. The label will take any earnings you make to "recoup" what they spent before you start receiving royalties.

    Cause & Effect:
    Without clear royalty and recoupment terms, you could end up seeing little income from your work, even if it’s successful. Ownership of masters affects how much control you have over your music’s future exploitation.

    Negotiation Tip:
    Try negotiating for higher royalties, especially if you're giving up ownership of your masters. If an advance is involved, ask for a detailed breakdown of expenses to avoid overpaying when they recoup costs.

  • Key Clauses to Watch:

    • Publishing Split: This refers to how income from your songs (via sync licensing, performances, etc.) is split between you and the publisher. The standard split is often 50/50, but it can vary.

    • Term & Territory: How long does the publisher control your work, and in what regions? You may want to negotiate a shorter term or limit it to certain territories.

    • Sync Licensing: Pay attention to whether the publisher has exclusive rights to license your music for use in TV shows, films, and commercials, and how much control you retain.

    Cause & Effect:
    If you sign an exclusive deal, the publisher could have full control over where your music is used, potentially in ways you don’t agree with, or you may not make as much money from sync deals if you don't negotiate a fair split.

    Negotiation Tip:
    Ask for the right to approve sync licensing deals before they go through, so you have more say in where your music appears. Also, try to negotiate for a higher publishing split, especially if the publisher isn’t heavily promoting your music.

  • Key Clauses to Watch:

    • Commission Rate: Managers typically earn between 10-20% of your income. Make sure the commission is calculated after business expenses (not before).

    • Scope of Work: Clearly outline what the manager is responsible for (e.g., booking gigs, negotiating deals). If it’s too vague, you could end up doing work you’re paying them to do.

    • Duration & Termination: How long is the contract valid? What happens if the relationship isn’t working? Ensure there’s a clear way for you to exit the agreement.

    Cause & Effect:
    If you’re unclear on the scope, you may end up paying a manager for services they’re not providing or doing more work than expected. Long contract terms without exit clauses can trap you in an unproductive relationship.

    Negotiation Tip:
    Push for a shorter initial term (e.g., 1-2 years) with a renewal option, so you can review the relationship before committing long-term. Make sure you retain the right to audit the manager’s accounts to ensure accurate commissions.

  • Key Clauses to Watch:

    • License Duration: How long is your music being licensed for use? Is it a one-time fee, or will you earn royalties over time?

    • Territory: Ensure the license specifies where your music can be used (domestic vs. international markets).

    • Exclusivity: Make sure the agreement specifies whether the license is exclusive (the licensor has the sole right to use your music) or non-exclusive (others can license it too).

    Cause & Effect:
    Without clarity, you might unknowingly sign away your music rights for long periods or for lower fees than you deserve. Exclusivity can limit your ability to generate additional income from the same work.

    Negotiation Tip:
    Always try to negotiate non-exclusive licenses unless the fee justifies the restriction. Set clear time limits for how long the license lasts.

  • 1. Seek Professional Advice When It Counts: Before signing any contract that could significantly affect your income or career, consult a lawyer who understands the music industry. While smaller, low-stakes agreements might not always require a lawyer, bigger contracts (recording, licensing, management) absolutely do. You’re investing in your long-term protection.

    2. Fully Understand What You’re Agreeing To: Read every clause carefully, even if it takes time. If something is unclear, don’t hesitate to ask questions or request clarification. Contracts are written to protect both parties, but if you don’t understand the terms, you’re vulnerable. It’s better to appear cautious than regret signing something you don’t fully grasp.

    3. Negotiate from a Position of Strength: Don’t be afraid to negotiate—contracts are often presented as a starting point. When proposing changes, frame it as a mutual benefit, highlighting how a fairer deal helps both parties succeed. Example: If you're asked to sign an exclusivity clause, ensure there’s compensation for potential missed opportunities, or negotiate for a shorter exclusivity period.

    4. Protect Your Future Earnings: Make sure that any contract tied to royalties, licensing, or ongoing income streams has clear provisions about how long and under what conditions you’ll get paid. This is especially important for digital platforms where royalties are a major part of your income. Ensure you’re entitled to transparent reporting on how much you’re earning.

    5. Take Your Time: A sense of urgency can be used to pressure you into signing quickly. Always take the time to thoroughly review any agreement. If you're being pressured to sign without proper review, that’s a red flag. A reputable partner will give you the time you need to understand the terms fully.

    6. Balance Immediate and Long-Term Value: It’s easy to get caught up in the allure of big exposure or a high-profile gig, but make sure you’re balancing the risks and rewards. For instance, exclusivity might limit your future opportunities, so assess whether it’s worth the trade-off. Always ask yourself: Will this deal build a long-term relationship, or is it a quick win that could hurt future opportunities?