HomeWhy I Don't Worry When I Get a Letter from the IRS

jmednikow's picture

The IRS thinks I make money singing a cappella.  After I stopped laughing at how ridiculous that was, I realized that it was a serious letter that I had to respond to. 

It is true that DeltaCappella had earned thousands of dollars in concert fees during 2008.  On my tax return, I dutifully reported these earnings and then listed expenses—primarily equipment rental and advertising—that more than offset the income.  The letter from the IRS demanded that I produce documentation for these expenses, or they were going to restate my income and tax liability.  (“Innocent until proven guilty” doesn't apply to the IRS.)

I have just now finished faxing the documentation for them to review, and I have no doubt that the case will be closed soon, because I was careful to dot every “i” and cross every “t” when I started DeltaCappella a few years ago.

I happen to be coming at a cappella from a different direction from most readers of this blog, and I hope that this perspective can help some of you avoid future pitfalls.

I was involved in collegiate a cappella before the explosion of groups in the 1990s and 2000s.  When I graduated in 1986, I moved to New York, got a job on Wall Street for a few years, went back to business school and eventually ended up building my career in Memphis, where I'm from.  It wasn't until 2006 that I had a mild midlife crisis and decided to start singing a cappella again.  By that time, I had accumulated some assets, and also the knowledge that if I had assets, then I would be the one sued if something was done wrong.

Few a cappella groups actually make money, but even if you don't, you may be called on by the IRS, to prove it.  Or if you make money, you might have to prove you didn't make more than you reported.  Or perhaps you'll hear from the lawyers for some recording artist whose song you covered and put on your CD.

It's really quite easy to avoid any troubles with these situations.  Pay all royalties and licensing fees as required, declare all income, and keep detailed records.  If you do these things on the front end, it's easy and it's cheap.  If you don't, it could cost you thousands of dollars to get out of trouble.

Simply searching the CASA website and reading carefully will provide you with all the information to do the following:

• If you record a song written by someone else, pay the mechanical licensing fee through harryfox.com.
• If you produce your own concert, as opposed to being hired by someone else, visit the ASCAP and BMI sites and pay royalties to the songwriters.
• Keep track of what you get paid and report the income when you do your taxes.
• Pay for all expenses with a check and keep copies of invoices.

When you're in college, you are usually covered by umbrella policies owned by your university, and you can often get by with the excuse that a transgression was committed “for educational purposes.”  But once you're in the real world, you don't have these safety nets. 

When you're just starting out and have no assets, these things don't seem that important, but they are.  If you don't do them, there is a chance that you'll fly under the radar and never be caught or questioned.  But what's the point of taking the chance?  It's easy to do right on the front end.

During a five minute break between writing this sentence and the last sentence, I logged in to harryfox.com and paid the royalty for the 2,000 copies of the new DeltaCappella Christmas album.  It was fast and painless.

About the author:
Jay Mednikow runs his family’s 100-year-old jewelry business in Memphis.  He sang with the Harvard Din & Tonics while in college and with the Duke Pitchforks while in business school.  Then he took a 17-year break from a cappella, because in 1990, there were very few avenues available to continue singing a cappella music after school.  But in 2007, Jay’s desire to do it again led him to found DeltaCappella, a twelve-man contemporary a cappella group that was a charter member of the Contemporary A Cappella League (CAL).  He has become an avid proponent of post-collegiate a cappella music.  Jay’s wife and three children, thankfully, support him in his musical endeavors. DeltaCappella are the winners of the 2010 Stone Awards for Most Outstanding Recording Artist/Group.

Comments

YES. THIS.

YES. THIS.

--Dave Brown

now: Mouth Off host | ICCA & CARA Judge

then: CASA president, CASAcademy director, CASA Bd of Directors | BYU Vocal Point | Noteworthy co-foun

Recording Income

For this record-keeping to work, do you have your a cappella group set up as a legal entity somehow, with its own bank account, its own taxes?  Or is income handled by individuals.  That is, would checks from a gig be made payable to "DeltaCappella" or "Jay Mednikow" (or whoever the group treasurer is)?

Steve Ryan Sympathetic Vibrations 2004-2007 • Taal Tadka 2007-2008 Breakdown (Sound Engineer) 2007-current

Legal Entity

I set up DeltaCappella as an LLC in the aftermath of this experience, so everything is kept completely separate at this point.  

It wasn't difficult to provide the documentation that the IRS needed, and the issue that caused me to write this blog post in the first place is long since resolved, but it never would have arisen had DeltaCappella been its own legal entity in the first place.

So, in the past, I had an account under the name DeltaCappella / Jay Mednikow, so I could deposit checks in either name, but now there is a DeltaCappella LLC checking account, and it will pay its own taxes.  If it ever makes money, which is not likely, and which is not my goal.  I just want to sing and enjoy the cameraderie of the a cappella group.

 

Jay

Jay A. Mednikow Harvard Din & Tonics 1985-86 Duke Pitchforks 1989-90 DeltaCappella, 2007- http://www.deltacappella.com http://www.mednikow.com (my day job)

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