For fans, news of an upcoming tour featuring a favorite artist prompts celebration. For musicians, a tour can and should be just as exciting – but it is also much more complicated.
While touring offers many benefits, going on the road also requires a higher level of organization than does performing locally. Sound financial management before, during and after your tour will ensure you know where your money is coming from and where it is going. Whether you, the musician, take care of your own recordkeeping or work with someone else, such as a road manager, you should still take time to understand the basics of how your tour’s finances work.
The most basic building block of financial management, in any field, is budgeting. For a tour, one of the most important factors in developing a budget is to make sure you take into account the many expenses of touring, including those that are not obvious.
One of the best ways to accurately imagine kayaking key west your expenses is to walk yourself through how much you expect to spend per person, per day. For example, if you fly instead of drive, you will probably need to check baggage. Depending on your airline, fees can add up quickly, especially if you are transporting large instruments or audio equipment. It may make sense to see if you can rent gear more cheaply on the road or if you can ship certain items in advance.
Mapping out your tour also allows you to direct the most cost-effective route, if you have control of where you go. First, look at any gig dates that are inflexible, such as a major music festival. Then decide which cities you can hit en route to your main obligation. Consider playing smaller cities if the savings in accessibility and travel costs support the lower expected revenue.
Assuming the tour is your decision, it is wise to sit down and project the income you expect to earn as accurately as possible and compare it to your projected expenses before you book a single venue. Consider multiple revenue streams, such as ticket sales, merchandising and special appearances. This is not to say that you have to be sure you will end up in the black before you decide to tour. Even if you are barely breaking even or anticipate a minor loss, the tour may be worthwhile as a marketing tool to invest in your future growth.
If you are going to tour abroad, do not forget to factor in visa fees, as well as passport fees if you don’t already have an up-to-date passport. Be aware that getting a visa for countries that require it can take a long time, and you could be stuck paying fees to expedite the process if you don’t begin early enough. A country’s embassy website should provide information about the time, cost and paperwork involved in securing the appropriate visa.
Before you hit the road, it is also essential that you understand what insurance you have and what insurance you need. If you own your own equipment, it will usually be covered by your homeowners or renters insurance. For those who list themselves as professional musicians on their tax returns, or if you have a particularly valuable item where having a claim denied would be a disaster, you have an additional option: personal floater coverage. While a little more expensive, the coverage is more comprehensive, and reputable insurers will rarely deny valid claims under such policies.
Your most valuable asset, as a performer, is your own talent and skill. Disability insurance is designed to replace your current income if you become unable to work; for performing artists, it is a particularly wise choice. My colleague ReKeithen Miller wrote an article providing an overview. Given the amount of travel involved in touring, it is also important to have solid health insurance with decent coverage beyond your geographical area. Depending on your situation, you may also want to consider general liability insurance, event insurance or life insurance.
Many touring musicians are self-employed. Depending on the sort of tour you have planned, you may want to consider structuring your music as a business, both to limit liability and reap tax benefits. If you are only playing small venues, this may not be necessary, but as venue and audience sizes grow, you become susceptible to greater risks. If an audience member is seriously injured at your show, for example, you may face a lawsuit. For many musicians, it may make most sense to structure the business as two independent entities – one for touring and one for everything else – in order to protect non-tour assets and income.
There are several ways to set up your tour as a business. You could set it up as a sole proprietorship or a partnership, both of which are relatively simple and inexpensive to structure, but offer less protection from liability. You could set it up as a corporation, which covers a lot of personal liability, but it can be expensive and involves a lot of additional administrative work.
For most musicians, a good compromise is a limited liability company, or LLC. An LLC relieves the business owner of most personal liability, but the profits pass through to be taxed as the owner’s personal income, as they would in a sole proprietorship. If you add general liability insurance, the business’ assets are also protected from personal injury or property claims. While an LLC is simpler to set up than a corporation, it may make sense to consult a professional in order to make sure your LLC is legally sound and functions the way you want it to, since peace of mind is one of the main reasons to structure your business this way in the first place.
When you’re on the road, you will most certainly have a lot on your mind, from artistic concerns to wondering how much sleep you will be able to get on a tour bus. It can be easy to let recordkeeping slide, but resist the temptation. Your music is a business – and that means, in most cases, you are allowed to deduct business expenses on your taxes. In order to deduct expenses, you need to keep track of them.
In addition to making after-tour tax work easier, recordkeeping will help you stick to the budget you created before the tour began. Keep a notebook or record everything on a reliable computer or mobile app, and make backups. Save all your physical receipts in a box or file. You should also log any miles you drive on the tour. A spreadsheet is a simple but effective way to keep track.
Although many musicians, especially in small or medium-sized acts, handle this sort of recordkeeping themselves, it can be a lot to manage while you are also trying to perform and deal with the inevitable complications of travel. That’s why it’s common to hire a road manager or, for larger acts, a tour manager.
A road manager is one of many people who you may hire to help make your tour run smoothly. Some people may be local and come with a venue, such as sound board operators or promoters. Generally, they work for the venue, not for you. But people who travel with you, including road managers, roadies and production staff are different. You should be sure you understand who is responsible for paying them – is it your management? Is it you? Is it the label, if you have one? If you are directly responsible for any of the help you hire, make sure you understand what type of worker they are and that you know your legal responsibilities. (See my colleague Melinda Kibler’s article on the differences between employees and independent contractors for more.)
Some acts have a dedicated person who handles merchandise sales on tour. For a small act, this might be the manager or something band members handle themselves after a show. You may owe the venue a small cut, but otherwise sales flow straight back to the band. If your act is a bit larger, a dedicated employee may handle setting up and selling the tour merchandise, but the principle is largely the same; you paid for the merch, so the profit flows straight back to you. For large tours and artists, record labels and merchandising companies will be interested in taking the merch duties off your plate. They handle designing, producing and selling the items, and then pay you a percentage of the proceeds.
For many venues, regardless of whether you or a merchandising company handles your sales, you will need to pay a hall fee in order to sell your items there. Such fees are usually a percentage of the sales on site. If a merch company handles your sales, they will pay the hall fees, but the percentage the venue gets is still negotiated by your booking agent or manager when they arrange the show.
If you are selling merch yourself, you will need a seller’s permit, allowing you to collect sales tax on your transactions. However, if you are only selling in large, professional venues, those venues will usually have a permit that allows visiting artists to sell their merchandise legally. Be sure to check the status of such permits before you start selling merch, not after.
Once your tour is over, it will be time to retrieve those records you spent time keeping on the road. While most expenses likely qualify as a deduction, some could be limited or require special reporting. It may be wise to work with a tax accountant, who can help you navigate deductibility for your expenses.
Musicians who are employees will receive W-2 tax forms from their employers reporting income. Employee-musicians can only deduct business expenses to the extent they exceed 2 percent of their annual gross income (less certain adjustments). However, keeping track of your expenses will allow you or your tax preparer to determine whether this is the case. If, like most musicians on tour, you are self-employed, the rules are a little different. You can deduct all your business expenses from the first dollar. (Note, however, that qualified meals and entertainment expenses are only 50 percent deductible.) You may also need to deal with state and international income taxes.