File Under: Understanding Your Legal Rights, Building Your Music Business

Getting legal help is one of the more expensive and difficult things to get when you initially start up your music business. As a result, many musicians avoid getting legal assistance and unfortunately make some common mistakes. Legal issues can continue to get worse the longer you let them go. Fortunately, you can avoid these basic mistakes, so, we've listed out the top ones below so you can take more control of your music career. 

Below are the first four mistakes to avoid (next week we'll tackle the last three):

1. Not Having A Band Agreement.

As covered in The DIY Advisor blog article "One Thing Every Band Should Do When Starting Out", if you're working with other musicians, you need to have a clear understanding and agreement as to who owns what and what role each of you have. This means documenting in writing what the rules are.

For instance, band agreements usually cover who owns the masters, the band name, the trademarks, the song and recording copyrights, how profits and losses will be divided up, how disputes are handled, and even what happens if it doesn't work out and you need to break up the band. We've laid out a short checklist of items you should cover in your band agreement if you need to put one together. These agreements can be informal such as an email agreement if you want to get started without an attorney.

2. Mixing Personal and Business Expenses.

Once you have a music business, don't mix personal and business expenses! First, to do a good job keeping up with your accounting you should separate your personal finances from the money you make and spend for your business. The even bigger risk is that merging them together can be an IRS red flag and audit risk. When you start a business, it needs to be treated as a separate entity. There are limitations as to what you can use business money for. Plus, if you don't keep things separate, you likely will end up in a situation where you don't take the legitimate tax write-offs you're eligible for, causing you to spend more money than you should.

The good news is you can avoid falling into this mistake by opening a bank account for your business (with separate checking and credit card accounts). You should never use business funds for personal expenses. And, you should keep separate and accurate accounting records.

3. Not Tracking And Taking Deductions For Your Business Expenses (And Missing Out On Tax Savings).

Once you have a music business, you should take deductions for every legitimate business expense you spend money on: your gear and software, your rehearsal and recording space, your car/van's fuel costs the hotels you use for your tour, and even your guitar strings. If you've done step number two above, this will be much easier: you'll have a separate credit card and bank account to keep track of the expenses. After that, make sure to track your expenses and save and scan your business receipts. If you have doubts about what you should be writing-off, consult an accountant for an hour or two on how best to track and arrange your business finances so you can take advantage of all of the business tax write-offs that you are due.

4. Not Protecting Your Intellectual Property.

Considering everything you own in each song you write, and the royalties you can make off of it, you should make sure that it gets protected and registered. The EM article Master Class: Song Release Checklist can help with this process. Registering Trademarks can also be important for your logo, name, and mascot; however, it usually makes sense to wait until they've shown that they are generating income and have value first. Make sure to cover all of this intellectual property in your band agreement as we discuss above.

If keeping up with these registrations and expenses sounds overwhelming, remember that you can get a team behind you to help with this. Next week we’ll share the last three mistakes to avoid in part two of this series.


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Photo credit: Chris & Karen Highland