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Tax on selling Music & Libraries?

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LichLordMusic
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Tax on selling Music & Libraries? Nov. 6th, 2013 @ 09:38 AM Reply

Hey guys, LichLord here.

I'm fairly worried about if I ever sell an Album or if I develop a software library for commercial use. In the event that I do, would I have to declare and pay Tax and if the answer is yes, what do I do? I've heard stories around the web of people getting nasty surprises from the tax man for certain things after not declaring after a certain while and I'm not sure if there is any point in gaining any profit if it ends up making you worse off later on. I don't know who or where I would find someone to speak to who knows the laws for this.

Any answer would be lovely if someone has an idea of the laws related to it.


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Response to Tax on selling Music & Libraries? Nov. 6th, 2013 @ 09:12 PM Reply

this page can help you out, but you can refer to the image below to see if you qualify for needing to file taxes. odds are, you don't, unless you make your living on it.

Tax on selling Music & Libraries?


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deadlyfishes
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Response to Tax on selling Music & Libraries? Nov. 6th, 2013 @ 10:20 PM Reply

At 11/6/13 09:38 AM, LichLordMusic wrote: Hey guys, LichLord here.

I'm fairly worried about if I ever sell an Album or if I develop a software library for commercial use. In the event that I do, would I have to declare and pay Tax and if the answer is yes, what do I do? I've heard stories around the web of people getting nasty surprises from the tax man for certain things after not declaring after a certain while and I'm not sure if there is any point in gaining any profit if it ends up making you worse off later on. I don't know who or where I would find someone to speak to who knows the laws for this.

Any answer would be lovely if someone has an idea of the laws related to it.

I know if you are in the US, you do.

No matter if it is a performance or composition gig, you must still file your taxes. Yes, I understand that if you are just getting a couple hundred dollars here and there for a playing a gig or maybe doing music for an indie developer will pretty much keep you under the radar from the IRS. It's somewhere around 400$ where you need to keep track of everything...

You are self-employed for self-employment tax purposes if you carry on a trade or business as a sole proprietor, an independent contractor, or a member of a partnership. This income would be reported on Schedule C or C-EZ of Form 1040. It would also be subject to self-employment tax, reportable on Schedule SE, if net earnings are $400 or more.

Here's the form I use:
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

If you earn money online through PayPal and earn 00,000$+ OR sell "200+ items" they will force you to fill out the 1099-K form. You'll know it when you do because PayPal will either send you a letter in the mail, call you or send you an e-mail. (I was notified all three ways >__< )

https://cms.paypal.com/us/cgi-bin/marketingweb?cmd=_render-content&content_ID=marketing_us/IRS6050W

Also, I've learned it's much easier to deal with if you register your business so your business expenses/taxes are separate from your personal ones; Mortgage, insurance, car payments, etc...

Everyone that has an hourly salary based job are also paying the same taxes so don't feel too terrible about it.

My advice:
This stuff can be really frustrating and confusing to some... I would highly consider getting someone with some expertise and/or experience with these things to help you. Before you search Google for finding financial consultants to help you, making money as a sole proprietor or being self employed is more common than you think, I'm sure that there must be someone you know in your family or within your circle of friends who have to deal with self employment tax. Make sure you keep your receipts and keep track of everything you spend money on that is business related, like a new MIDI keyboard or something. Those expenses won't be taxed as it is something you need to do your business.

So yes, your wonderful new orchestral library is tax exempt this fiscal year!

April is a fun month.


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Emid
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Response to Tax on selling Music & Libraries? Nov. 7th, 2013 @ 02:22 AM Reply

And what about UK? Any idea?

Troisnyx
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Response to Tax on selling Music & Libraries? Nov. 7th, 2013 @ 05:04 AM Reply

At 11/7/13 02:22 AM, Emid wrote: And what about UK? Any idea?

If I remember correctly, tax on most goods and services is 20% VAT.

So suppose if you charge £10 on an album but do not include VAT -- then it'll be taken to include VAT. I'm not sure what the equation here is in this case...

@etherealwinds I need help from a fellow law student here.


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Troisnyx
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Response to Tax on selling Music & Libraries? Nov. 7th, 2013 @ 05:09 AM Reply

Guys, I'm speaking in terms of UK law -- I think, apart from VAT, it is subject to Capital Gains Tax.


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Troisnyx
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Response to Tax on selling Music & Libraries? Nov. 7th, 2013 @ 05:17 AM Reply

Pardon the triple post, guys, unless someone else has already broken the chain.
It's Capital Gains Tax if it's part of your assets. I'm glad I said 'I think' earlier, because I might be wrong about the above example. Scoured HMRC in greater detail, and this is what I came up with.

If you're not selling the plugins etc. as part of your habitual employment, or even self-employment, then Capital Gains Tax kicks in.

However, if it is some form of employment, then... Income Tax. You wanna be certain that you fall within the Tax-Free Allowance before you say you don't have any taxes to declare. The rates are on the same page.

As far as taxable and non-taxable income, you may wanna take a look at this list.

I hope this helps...


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LichLordMusic
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Response to Tax on selling Music & Libraries? Nov. 7th, 2013 @ 06:12 AM Reply

Thank you very much so far everyone!

I should of Mentioned I'm in a full-time job earning just above 15K-GBP Yer Year (From the UK here) and I'm already paying Tax and National Insurance on my Income. So from what I am gathering, since selling music or selling a Kontakt Library is not part of my main, current employment, it would fall under Capital Gains and my allowance for that would be £10,900 GBP before I would have to pay tax?


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Troisnyx
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Response to Tax on selling Music & Libraries? Nov. 7th, 2013 @ 06:31 AM Reply

At 11/7/13 06:12 AM, LichLordMusic wrote: So from what I am gathering, since selling music or selling a Kontakt Library is not part of my main, current employment, it would fall under Capital Gains and my allowance for that would be £10,900 GBP before I would have to pay tax?

Let me scour HMRC a bit more, and I'll get back to you on that one......


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Troisnyx
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Response to Tax on selling Music & Libraries? Nov. 7th, 2013 @ 06:38 AM Reply

At 11/7/13 06:31 AM, Troisnyx wrote:
At 11/7/13 06:12 AM, LichLordMusic wrote: So from what I am gathering, since selling music or selling a Kontakt Library is not part of my main, current employment, it would fall under Capital Gains and my allowance for that would be £10,900 GBP before I would have to pay tax?
Let me scour HMRC a bit more, and I'll get back to you on that one......

Now I looked back at the pages for both Income Tax and Capital Gains Tax. There's no suggestion in CGT to say that it includes products you've made.

Since a Kontakt Library is a product you've made, and you're selling this for your own profit if you will, then I THINK (please get a second opinion on this) Income Tax would kick in, because selling the stuff for your own profit suggests 'self-employment'.

Now, I'm not sure whether the limit is separate from the full-time job that you already have, or if it covers both the job and the library sales. And this, I think, is where we need someone who's well-versed BOTH in law and in accounts...


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Troisnyx
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Response to Tax on selling Music & Libraries? Nov. 7th, 2013 @ 06:42 AM Reply

Pardon the triple post once more but @LichLordMusic if in doubt, try contacting the HMRC and ask them whether you're liable to any Income Tax on your part for those libraries, and tell them the average that you make from them etc.


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