If you are a freelance musician our NYC CPA firm offers the following tax tips: A sale or exchange of musical compositions or copyrights is eligible for capital gains treatment at the election of the taxpayer. The IRS has issued temporary and proposed regulations that address the timing and procedures to use when making this election.
Copyrighted musical works must be created by your personal effort, or received from the musical works’ creator in a transferred basis transaction, in order to qualify as a capital asset. A sale or exchange of a capital asset is eligible for a reduced capital gains tax rate of zero percent for individuals in the two lowest tax brackets, which is considerably more favorable than the maximum tax rate on ordinary income of 35 percent.
This election is made by reporting the musical composition or copyright transaction as a sale or exchange of a capital asset on Schedule D before your tax return’s due date (including extensions) for the tax year. Although there are time constraints, it is also possible to automatically revoke this election by filing an amended income tax return that does not report the sale or exchange as a capital asset.
Significant tax savings may be within your grasp if you decide to sell an eligible musical composition or copyrighted work. If you would like to discuss this or any other tax issue, please contact our lower Manhattan CPA office at your earliest convenience to arrange an appointment.