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How to run a record label Tax-Free!




Running a record label tax-free sounds great to everybody. I understand your position. The question is, can your record label run efficiently tax-free when you’re just starting out? Taxes make everyone itchy, so I’m going to be as clear as possible to help you feel less apprehensive about this unavoidable process.


What Are Write-Offs?

Let’s cut to the chase and break down what write-offs are. They are expenses necessary to keep your business running. For an artist, this includes all software and apps to run the business and create music, education and courses, production costs, live show expenses, and labor costs.


How Write-Offs Should Be Interpreted

When spending money, write-offs should be interpreted as the expense minus the tax rate equals the final price. Your tax rate/bracket dictates the discount you get on your purchase, ultimately decreasing your tax bill/liability.


Self-Employment Tax

The self-employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. Self-employment tax applies to net earnings or profit. Unlike payroll taxes, where employers split the bill with employees, self-employed people pay both halves.


U.S. Standard Deduction Status

When you start as a new DIY record label owner, you fall into one of three IRS categories: Single, Head of Household (single parent), or Married Filing Jointly.

Filing Status

2024 Standard Deduction

Single; Married Filing Separately

$14,600

Married Filing Jointly; Surviving Spouse

$29,200

Head of Household

$21,900

Federal Tax

New DIY label owners will be in one of four tax brackets: 10%, 12%, 22%, or 24%.

Tax Rate

Single Filers

Married Filing Jointly

Married Filing Separately

Head of Household

10%

$0 to $11,600

$0 to $23,200

$0 to $11,600

$0 to $16,550

12%

$11,601 to $47,150

$23,201 to $94,300

$11,601 to $47,150

$16,551 to $63,100

22%

$47,151 to $100,525

$94,301 to $201,050

$47,151 to $100,525

$63,101 to $100,500

24%

$100,526 to $191,950

$201,051 to $383,900

$100,526 to $191,950

$100,501 to $191,950

State Tax


Running the Label Tax-Free

Example:

  • $100,000 Gross Income

  • $14,600 Standard Deduction

  • $85,400 Net Taxable Income

  • $13,066.20 Self-Employment Tax (15.3%)

  • $4,688.46 State Tax (GA) (5.49%)

  • $13,841.10 Federal Tax (effective tax rate 16.20%) [Tax Bracket 22%]

  • $53,804.24 Net Profit

  • $31,595.76 Total Taxes


Running the Label Tax-Free

$85,400 in expenses eliminate $31,595.76 in taxes, leaving the business at $0.00.


Is Not Paying Taxes a Good Thing?

99% of the time, NO, when you’re self-employed! You need the net profit to live on. $53,804.24 is your personal salary. You may need it for personal savings and investments. Also, you can’t pay personal bills with the business income.


When Should I Switch to an S-Corp?

S-Corps are all about tax status. Based on our example, making the switch saves you roughly 5% at $100k. However, as your business grows, your living expenses become significantly lower than what the business makes at $200k, and the money starts to increase if you know what to do with it.


Good Expenses for the Record Label to Write Off

Software & apps, websites, subscriptions, studio fees, engineer fees, advertising fees, production fees, artwork, music videos, gear for studio and live shows, business travel expenses, and pretty much everything it takes to produce and promote your products.



Check This Out!

If you're a music creative or executive looking to build your label or publishing company in 60 days or less, with a step-by-step foolproof process, grab the 60-Day Record Label Course and get it done today! You’ll gain the ability to get real funding, avoid contractual pitfalls, and keep the middleman out of your pockets. Click the link below to get started now! If you’re skeptical, grab the free guide, "10 Ways to Increase Your Record Label Profits," which comes with a free split sheet download.


Paying Taxes Below $100,000

Increases your retained profits, giving you available capital to live on and reinvest into the business.


Not Paying Taxes Below $100,000

Causes your business to run at a break-even point or a loss. This could be good or bad depending on your strategy. However, at some point, you will want to turn a profit within five years before the IRS audits your company.


Conclusion

If you were struggling with:

  1. How taxes would play into your record label’s strategy,

You now have the means to execute your plans a lot better.

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