A few weeks ago we shared the first four common legal and business mistakes musicians make and how to avoid them. This week we'll share three more. Avoiding these common mistakes can not only make your music business more successful, it can reduce a lot of unnecessary stress and headaches as well. To avoid even more problems and make your music business run more smoothly, do the following...

5. Not Avoiding/Using Work-For-Hire Agreements.

As we discussed in a series of DIY Advisor articles, you need to make sure you understand the implications of work-for-hire agreements -- especially ones you may be asked to sign. These are agreements that turn your intellectual property such as your music and copyright over to the person or business paying you for your services.

In addition, once you work with other creative professionals, such as graphic artists or photographers, it's flipped: you need to use work-for-hire agreements to protect your interests. That way when graphic artists create logos, photographers take photos of your band, or developers create your website or apps, you can use their work as you see fit for your music business. For instance, your graphic artist didn't sign a work-for-hire, the new logo you commissioned would be owned and controlled by the graphic artist, not your business. This could require you to pay the graphic artist a fee every time you used your logo in a new way such as on a t-shirt, the web, or your digital albums, EPS, or singles. This can get expensive and prohibitive. It's better to pay them one fee, get their signature on a work-for-hire agreement, and have total control over the work.

6. Ignoring Tax Implications with Cash.

You've just finished performing a killer live show and the venue has paid you a wad of cash. Now what? There are countless stories of musicians who pop that cash into their pocket and start spending it as if it were just their own spending money. Instead, you should deposit and track that income into your business account. Although it's unlikely the venue gave you a 1099 for the income (a form that's used to record and track income for US tax purposes), you should track it anyway for two reasons.

First, music businesses are often looked at skeptically by the IRS since many music businesses are seen as being a tax-deductible hobby rather than a serious, legitimate business. The way to keep IRS auditors off of your back is to diligently track your income and eventually show a profit. This includes all of the money you make from gigs. Second, purchases you make with the ready cash might be legitimate tax-deductible business expenses and those are easier to track with a company credit card rather than cash.

7. Not Getting Professional Help for Tax-Related Issues.

If you're reading this and you've decided it's time to set up your music business, the first person to talk to shouldn't be a lawyer. Instead, start with an accountant; preferably one with music accounting experience. Accountants can tell you which business entity structure would suit your new business. They'll also tell you how best to organize your finances to get the best tax benefits out of your business. Once you know the strategy behind how to set up your business and the tax implications, then you can work with a lawyer to help you create the actual company. Keep your bookkeeping up to date and keep your accountant handy when you have questions about big purchases.

All seven of these mistakes are common, but you don't need to make them. There's no reason to look back on your music business and wish that you had gotten these right at the beginning. Take the time to get these right today and your future self will thank you.


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Photo credit: Chris & Karen Highland