If a person is actively pursuing a career as a musical artist, and not just playing/writing as a hobby, that person is engaged in a trade or business (i.e., the music business). Hence, an artist can use the Internal Revenue Laws of the United States to his or her advantage. This article will discuss the main deductions that an artist can utilize for the purposes of paying taxes.
So long as an artist incurs expenses that are "ordinary and necessary" in pursuit of that artist's career, the expense should be deductible. However, any expense deducted from a tax return must be backed up by documentation. Therefore, it is imperative that an artist keep complete records of any and all expenses paid in pursuit of the artist's career. Usually, the record will be a receipt. Note that the IRS does not consider a cancelled check, by itself, adequate to verify a deduction; a receipt is more official and credible. An account book/file is also recommended to keep track of expenses. The main deductions to be aware of are as follows:
A. Travel. This would include air, bus, taxi or train fares, and any related transportation.
B. Meals and Lodging. These are deductible if related "primarily" to business.
[part 2 next time]
Ben McLane Esq
benmclane.com
Thursday, September 29, 2011
Wednesday, September 21, 2011
Music Business/Law Tips - "Songwriter Agreement" (Part 2)
Statements. Once the song is recorded or printed, the writer is entitled to receive royalty statements at least once every six months. Further, the writer should be allowed to audit the publisher's books to see if royalty calculations were done correctly.
Writer's Credit. The publisher must see to it that the writer receives proper credit on all uses of the song.
Arbitration. In order to avoid large legal fees, it is advisable to include a provision to allow an arbitrator to settle any disputes between the writer and publisher.
Future Uses/Rights. Any use/right not mentioned specifically in the contract should be retained by the writer because it could be a valuable bargaining chip in the future.
Performing Rights Affiliation. The writer must affiliate with either BMI, ASCAP or SESAC and the contract should read that all writer performance royalties must be paid directly to the writer by the performing rights organization; and, if the publisher should be paid these monies in error, the monies must be immediately sent to the writer.
Because of the length of a publishing relationship and rights transferred, the writer should obtain an experienced person to assist with a contract negotiation, preferably an entertainment attorney.
Ben McLane Esq
benmclane.com
Writer's Credit. The publisher must see to it that the writer receives proper credit on all uses of the song.
Arbitration. In order to avoid large legal fees, it is advisable to include a provision to allow an arbitrator to settle any disputes between the writer and publisher.
Future Uses/Rights. Any use/right not mentioned specifically in the contract should be retained by the writer because it could be a valuable bargaining chip in the future.
Performing Rights Affiliation. The writer must affiliate with either BMI, ASCAP or SESAC and the contract should read that all writer performance royalties must be paid directly to the writer by the performing rights organization; and, if the publisher should be paid these monies in error, the monies must be immediately sent to the writer.
Because of the length of a publishing relationship and rights transferred, the writer should obtain an experienced person to assist with a contract negotiation, preferably an entertainment attorney.
Ben McLane Esq
benmclane.com
Monday, September 12, 2011
Music Business/Law Tips - "Songwriter Agreement" (Part 1)
Important decisions a songwriter faces concern which publisher to sign with and what type of contract to sign. Publishing deals are of two basic kinds: the single song contract (generally for one song) and the exclusive songwriter's contract (for all songs written during a period of time). Although these two deals are quite different, they have one thing in common that the writer must be aware of: copyright ownership is transferred to the publisher. Therefore, it will be a long-term deal. This being the case, the writer needs to be certain that he/she is entering into a fair contract. Some basic points that a songwriter's contract include are the following:
Reversion Clause. There should be a provision that if the publisher does not secure a commercial release within a specified time (i.e., one year), the songwriter can terminate the deal.
Work For Hire. If it is a single song deal, make sure that "employment for hire" and "exclusive writer agreement" phrases are not included. Also, there should be no options for future songs.
Changes To Song. The publisher should only be able to change the title, lyrics or music with the songwriter's consent.
Royalty. The songwriter should receive at least fifty percent (50%) of all income earned from the song(s).
Deductions. The costs of demos should be paid 100% by the publisher.
[part 2 next time]
Ben McLane Esq
benmclane.com
Reversion Clause. There should be a provision that if the publisher does not secure a commercial release within a specified time (i.e., one year), the songwriter can terminate the deal.
Work For Hire. If it is a single song deal, make sure that "employment for hire" and "exclusive writer agreement" phrases are not included. Also, there should be no options for future songs.
Changes To Song. The publisher should only be able to change the title, lyrics or music with the songwriter's consent.
Royalty. The songwriter should receive at least fifty percent (50%) of all income earned from the song(s).
Deductions. The costs of demos should be paid 100% by the publisher.
[part 2 next time]
Ben McLane Esq
benmclane.com
Monday, September 5, 2011
Music Business/Law Tips - "Royalties (computing)" [Part 2]
Since new, unknown acts do not have a guaranteed audience, the label is hesitant to grant a high rate because there a is good chance that the artist will never even sell enough records to recoup all of the costs that go into releasing a record (i.e., recording, promotion, pressing, etc). In comparison, a well-known artist is almost assured of making a profit and hence would receive a higher rate.
The artist must be knowledgeable about what the royalty is based on. The base is usually the suggested retail list price, but oftentimes the wholesale price of the record acts as the base upon which the royalty is computed. Since the wholesale price is roughly one-half of the suggested retail list price, the artist should receive approximately twice the royalty that would be allowed under the retail base price system.
The artist should try to negotiate escalations for royalties. In essence, this means that the artist is rewarded in the future with a higher rate if the artist reaches certain sales levels. For example, it the artist has a 10% royalty, the rate would be bumped up a percentage point if 250,000 units were sold. Increases can continue for even further sales levels. Escalations can also be tied to when the label picks up an option for another year/record.
Royalties for sales outside of the United States are usually reduced. The reduced rates depend upon whether sales are in major foreign markets or not. For example, Canadian sales usually receive 85% of the U.S. rate; sales in the United Kingdom, Germany, France, Japan and Australia receive 75% of the U.S. rate; the remainder of the world receives approximately 50% of the U.S. rate. The justification for the lower foreign rate is that the label is probably licensing the product to an independent foreign distributor that must also be compensated.
Other things which affect the rate but which were not discussed here consist of, but are not limited to, packaging deductions, free goods, and whether a record is a budget release or not.
Ben McLane Esq
benmclane.com
The artist must be knowledgeable about what the royalty is based on. The base is usually the suggested retail list price, but oftentimes the wholesale price of the record acts as the base upon which the royalty is computed. Since the wholesale price is roughly one-half of the suggested retail list price, the artist should receive approximately twice the royalty that would be allowed under the retail base price system.
The artist should try to negotiate escalations for royalties. In essence, this means that the artist is rewarded in the future with a higher rate if the artist reaches certain sales levels. For example, it the artist has a 10% royalty, the rate would be bumped up a percentage point if 250,000 units were sold. Increases can continue for even further sales levels. Escalations can also be tied to when the label picks up an option for another year/record.
Royalties for sales outside of the United States are usually reduced. The reduced rates depend upon whether sales are in major foreign markets or not. For example, Canadian sales usually receive 85% of the U.S. rate; sales in the United Kingdom, Germany, France, Japan and Australia receive 75% of the U.S. rate; the remainder of the world receives approximately 50% of the U.S. rate. The justification for the lower foreign rate is that the label is probably licensing the product to an independent foreign distributor that must also be compensated.
Other things which affect the rate but which were not discussed here consist of, but are not limited to, packaging deductions, free goods, and whether a record is a budget release or not.
Ben McLane Esq
benmclane.com
Monday, August 29, 2011
Music Business/Law Tips - "Royalties (computing)" [Part 1]
Once an artist is fortunate enough to obtain a deal from a reputable record company, the artist is probably most interested in how much money will be made on sales of the records which are released. This article will briefly explain some of the elements of an artist royalty clause.
The artist royalty clause determines how much money an artist will receive from the sales of CDS, downloads, etc. In most contracts, the royalty is expressed in terms of a percentage, rather than an actual dollar or cent amount. The percentage is called the "rate".
Generally, for a new artist, the rate will range from 10% to 15% of the selling price. However, some smaller independent labels might offer even a lower percentage (or a net profit split). As with most things in a contract, the rate is negotiable depending on the bargaining power of the artist. A new group with no proven sales record that has never toured will probably not be able to achieve a very high rate. However, if the A&R staff feels that an act has tremendous sales potential and/or there is a bidding war between labels, the rate will tend to increase.
[part 2 next time]
Ben McLane Esq
benmclane.com
The artist royalty clause determines how much money an artist will receive from the sales of CDS, downloads, etc. In most contracts, the royalty is expressed in terms of a percentage, rather than an actual dollar or cent amount. The percentage is called the "rate".
Generally, for a new artist, the rate will range from 10% to 15% of the selling price. However, some smaller independent labels might offer even a lower percentage (or a net profit split). As with most things in a contract, the rate is negotiable depending on the bargaining power of the artist. A new group with no proven sales record that has never toured will probably not be able to achieve a very high rate. However, if the A&R staff feels that an act has tremendous sales potential and/or there is a bidding war between labels, the rate will tend to increase.
[part 2 next time]
Ben McLane Esq
benmclane.com
Thursday, August 18, 2011
Music Business/Law Tip - "Reserves" (Part 2)
Generally, the label does not state any percentage limit on reserves in the contract. Instead, it is common to see that "reasonable" reserves will be held back. If a percentage is stated, it will be lower for established artists and higher for new artists. Additionally, different configurations have different reserves percentages because of the return history for that type of recording. For example, usually more singles and EPs are returned than CDs and cassettes. (Note there are no returns on digital, so reserves should not apply to that configuration.)
An artist needs to be mindful of the reserves percentage because it can substantially reduce the initial royalty payments and it postpones the date that the artist will be paid. An artist can negotiate protections into the contract. First, the artist should have a specific reserves percentage in the contract (25% is common for an album). Second, the artist should limit the amount of time that a label can withhold royalties (i.e., "liquidation period"). Instead of just accepting that reserves will be liquidated within a "reasonable" amount of time, the artist should ask for a specific liquidation period (12 to 24 months is common).
Ben McLane Esq
benmclane.com
An artist needs to be mindful of the reserves percentage because it can substantially reduce the initial royalty payments and it postpones the date that the artist will be paid. An artist can negotiate protections into the contract. First, the artist should have a specific reserves percentage in the contract (25% is common for an album). Second, the artist should limit the amount of time that a label can withhold royalties (i.e., "liquidation period"). Instead of just accepting that reserves will be liquidated within a "reasonable" amount of time, the artist should ask for a specific liquidation period (12 to 24 months is common).
Ben McLane Esq
benmclane.com
Friday, August 12, 2011
Music Business/Law Tips - "Reserves" (Part 1)
Every record contract includes a hazy and mysterious concept called "reserves". Since this concept can have such a negative impact on the artist's ability to be paid royalties, it is important that an artist be aware of this clause and know how to limit it.
The language of a record contract generally sets forth that royalties will be paid to the artist only on records that are actually sold to the general public, not on records that are manufactured and shipped but eventually returned because they are unsold (i.e., "returns"). Depending upon the particular artist, the number of records that might be returned can be substantial. For example, if the label ships 300,000 records to the stores, 150,000 might be returned as unsold goods. Imagine what would happen if the label based its royalties payable to the artist only upon the amount of records shipped; it would have paid royalties on 300,000 units instead of 150,000, resulting in an overpayment of 150,000 records. Hence, since the label knows that there will normally be returns, to protect itself it withholds a certain percentage of an artist's royalties in anticipation of such returns. This ensures that the label will not overpay an artist.
[part 2 next time]
Ben McLane Esq
benmclane.com
The language of a record contract generally sets forth that royalties will be paid to the artist only on records that are actually sold to the general public, not on records that are manufactured and shipped but eventually returned because they are unsold (i.e., "returns"). Depending upon the particular artist, the number of records that might be returned can be substantial. For example, if the label ships 300,000 records to the stores, 150,000 might be returned as unsold goods. Imagine what would happen if the label based its royalties payable to the artist only upon the amount of records shipped; it would have paid royalties on 300,000 units instead of 150,000, resulting in an overpayment of 150,000 records. Hence, since the label knows that there will normally be returns, to protect itself it withholds a certain percentage of an artist's royalties in anticipation of such returns. This ensures that the label will not overpay an artist.
[part 2 next time]
Ben McLane Esq
benmclane.com
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