Legal Criteria for Setting up Home Recording Studio?
W. Anthony Ross III
I'm trying to find out information on the legal ramifications of setting
up a recording studio out of your home as a business! Is it as simple as
having proof of attempting to "make a profit" for tax purposes?
What distinguishes this between a business and a hobby in the eyes of the IRS?
Thanks,
Tony
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Mike Rivers
> I'm trying to find out information on the legal ramifications of setting
> up a recording studio out of your home as a business! Is it as simple as
> having proof of attempting to "make a profit" for tax purposes?
Depends on where you live. The first thing to check on is your local
zoning laws. Usually they won't bust you for running a business out
of your home, but if you're not in a commercial-zoned area and your
neighbors complain, you probably won't stay in business long enough to
worry about the IRS.
> What distinguishes this between a business and a hobby in the eyes of the IRS?
The intent to make a profit. That doesn't mean that you HAVE to make
a profit, but if you operate at a loss year after year, particularly
if you have another source of income, they'll tell you that you're not
a business. There are no hard rules, just interpretations, but you
want to have the right intentions and be able to prove that there's
potential for making a profit if you ever have an audit.
Do you have a business plan? That's a good start. Pick up a copy of
the book "A Project Studio Blueprint" - it's a pretty good catch-all
and will give you a lot to think about if you're serious about turning
recording into a business.
--
I'm really Mike Rivers (mri...@d-and-d.com)
Barry Rubin
>
>Hi,
>
>I'm trying to find out information on the legal ramifications of setting
>up a recording studio out of your home as a business! Is it as simple as
>having proof of attempting to "make a profit" for tax purposes?
>
the IRS?
>
>Tony
You should call the IRS at 1-800-tax-form and ask for Publication 535,
Business Expenses. On page 5 they list nine factors used to determine if
you have a business or hobby. The limits of what you can deduct are
determined by which type activity you have.
--
b...@netpoint.net
a008...@bcfreenet.seflin.lib.fl.us
Greg House
>
> Hi,
>
> I'm trying to find out information on the legal ramifications of setting
> up a recording studio out of your home as a business! Is it as simple as
> having proof of attempting to "make a profit" for tax purposes?
Check the newsstand, the current issue of either EQ or Recording (sorry
don't remember which, I'm very tired) has an article on just this topic.
Greg
Notes
This is a very "touchy" subject for the "traditional commercial studio"..and
it really pisses them off. If you call MIX magazine, you can order several
back issues that delve into this subject. The problem is due to the low
overhead, the commercial studio in someone's home is _sucking_ lots of
business away from the traditional commercial studios. No kidding, I think
the figures are that in Southern California for example, the LA area to be
specific, more than 50% of total gross revenue for studio time goes to the
home bases commercial studio. Yes, folks, I read this in MIX magazine last
year. There is a serious effort from the commercial studios to _stop_ the
proliferation of the homes based studio by creating various zoning
regulations in municipalities, etc.
I've created my own studio so I don't rent time anymore....but when I did, I
felt the best values for the client spending $30-$80 hour were to be found
at the home based commercial studio. These studios afforded me the budget
to hire a pro engineer and bring him into the studio to mix my records. And
these home based commercial studio have _everything_ Pro all the way...I've
seen them with Euphonix & SSL consoles....but typically they have some kind
of a Trident, etc, console. But many of them are professionally designed
from the floor up. What's funny is when you learn of the major labels that
are doing their projects in these home based studios....I know of one home
based studio in New Jersey that has produced several platinum recordings....
Lancelot
M Notes
Brandon Mathew
>Hi,
>
>I'm trying to find out information on the legal ramifications of setting
>up a recording studio out of your home as a business! Is it as simple as
>having proof of attempting to "make a profit" for tax purposes?
>
I set up a business so that I could report income and sales tax on tape
sales (I do location recording and sell tapes to the participants). One
thing I did not realize is that (at least in California), they may want
to charge you property tax (normally 1% of value) on all of the
equipment that you own that you use for your business. For my case,
since the equipment is expensive and I don't sell many units, the tax
is damn near my total profit (this is a hobby business after all). This
was a most unexpected side effect of opening up a business. This could
be a California thing which could explain why so many businesses are
leaving the state...
--
Brandon Mathew - bra...@core.rose.hp.com
Jay Rose
|: >
|: > Hi,
|: >
|: > I'm trying to find out information on the legal ramifications of setting
|: > up a recording studio out of your home as a business! Is it as simple as
|: > having proof of attempting to "make a profit" for tax purposes?
IANAL. But my accountant has explained to me a "three-out-of-five-year"
rule: hobby businesses have to make a profit for real, 3/5 of the time, to
allow taking a loss the other 2/5.
If the studio is your _only_ activity, and you're not working at anything
else, the rules might be different.
-----------------Jay Rose's Digital Playroom--------------------
Clio/Emmy Winning Sound Design for Broadcast, Multimedia
617/277-0041 fax/232-8869
http://www.tiac.net/users/jcrose/playroom.html
John Kodis
Brandon Mathew <bra...@core.rose.hp.com> wrote:
>W. Anthony Ross III (ar...@spd.dsccc.com) wrote:
>>What distinguishes this between a business and a hobby in the
>>eyes of the IRS?
>
>to charge you property tax (normally 1% of value) on all of the
>equipment that you own that you use for your business. For my case,
>since the equipment is expensive and I don't sell many units, the tax
>is damn near my total profit (this is a hobby business after all).
Maryland also collects personal property tax on business assets, so
it's not limited to California. On the other hand, equipment
purchases are now business expenses, and so (under proper
circumstances, I am not a laywer or accountant, blah, blah, blah...)
are tax deductable. The effect is similar to every audio equipment
store having a 50% off sale in effect all of the time for all of your
(oops, I meant "all of your business's") purchases, since you pay with
pre-tax dollars. This easily makes up for the property tax that you
may have to pay.
You should really try to find a good accountant and spend a few hours
discussing the situation with him. You could ask him about deducting
business-related home expenses, S-corporations vs individual
proprietorships, self-employed pension plans, and other similarly
boring topics. There can be many financial benefits, but determining
which are worth going for requires more time spent reading IRS
literature than you'll like. A pro can help tremdously with this.
-- John Kodis.
EDWARD K. ZOLLARS
In a previous article, ar...@spd.dsccc.com (W. Anthony Ross III) says:
>I'm trying to find out information on the legal ramifications of setting
>up a recording studio out of your home as a business! Is it as simple as
>having proof of attempting to "make a profit" for tax purposes?
The theory is simply what you state--you have to have a
profit motive. The interesting part is determining whether
you do or don't have such a motive.
First, there is a (sort of) safe harbor provided in Section
183(d). It reads:
--begin quoted material
If the gross income derived from an activity for 3 or more
of the taxable years in the period of 5 consecutive taxable
years which ends with the taxable year exceeds the
deductions attributable to such activity (determined without
regard to whether or not such activity is engaged in for
profit), then, unless the Secretary establishes to the
contrary, such activity shall be presumed for purposes of
this chapter for such taxable year to be an activity engaged
in for profit. In the case of an activity which consists in
major part of the breeding, training, showing, or racing of
horses, the preceding sentence shall be applied by
substituting "2" for "3" and "7" for "5".
--end quoted material
Note that the above is simply a "safe harbor" test. Failing
it doesn't mean you don't have a proper profit motive, but
it may mean that you'll have more trouble convincing the IRS
of that fact.
Regulation 1.183-2(b) has a list of items to be considered
in determining if you have a profit motive. Those items
include the manner in which taxpayer conducts the activity,
expertise of taxpayer or his advisers, time and effort
taxpayer spends on the activity, expectation that assets
used in activity may appreciate in value, taxpayer's success
in similar activities, taxpayer's history of income or
losses with respect to the activity, the amount of profits,
taxpayer's finances, and elements of personal pleasure or
recreation. You can probably guess how those items enter
into the decision.
--
Ed Zollars, CPA Phoenix, Arizona
ezol...@aztec.asu.edu, ezol...@getnet.com
Chris Christensen
>W. Anthony Ross III (ar...@spd.dsccc.com) wrote:
>>I'm trying to find out information on the legal ramifications of setting
>>up a recording studio out of your home as a business! Is it as simple as
>>having proof of attempting to "make a profit" for tax purposes?
>>What distinguishes this between a business and a hobby in the eyes of the IRS?
>I set up a business so that I could report income and sales tax on tape
>sales (I do location recording and sell tapes to the participants). One
>thing I did not realize is that (at least in California), they may want
>to charge you property tax (normally 1% of value) on all of the
>equipment that you own that you use for your business. For my case,
>since the equipment is expensive and I don't sell many units, the tax
>is damn near my total profit (this is a hobby business after all). This
>was a most unexpected side effect of opening up a business. This could
>be a California thing which could explain why so many businesses are
>leaving the state...
I _believe_ that the property tax is regional (as in county) and not state.
I pay property tax on my equipment. It is a cost of doing business.....
In my county, and for the sole proprietor, my bisiness property tax was
linked to my personal property tax bill......
While I concede that it's a cost of doing business, It is taxation without
representation, and maybe it's time for a float in the Boston Harbor......
--
Just My opinion, worth the price paid and not a reflection of my employer.
D.R. "Chris" Christensen chr...@shasta.gvg.tek.com
Grass Valley Group Inc. 916-478-3419 Voice 916-478-3887 FAX
P.O. Box 1114 Grass Valley, California, 95945
Steve Miller
>
>In article <3v6alb$g...@sun001.spd.dsccc.com> ar...@spd.dsccc.com writes:
>
>> up a recording studio out of your home as a business! Is it as simple as
>> having proof of attempting to "make a profit" for tax purposes?
>
>zoning laws. Usually they won't bust you for running a business out
>of your home, but if you're not in a commercial-zoned area and your
>neighbors complain, you probably won't stay in business long enough to
>worry about the IRS.
Also be wary of other local commercial studios. 2 or 3 years ago, a home
studio which charged $20-25/hour was shut down by a complaint made by the
commercial studio (at $40-50/hour rates) due to zoning violations. Check
with your local zoning board.
--
Steve Miller
mill...@dmapub.dma.org
WD8IXE - Ridin' the aethereal waves
Mike Rivers
In article <paul.d.race....@daytonoh.attgis.com> paul....@daytonoh.attgis.com writes:
> Good, point, Steve. But another thing to think about is just being careful
> not to tick off the neighbors. A commercial studio on the other end of town
> can't really do much to shut me down. But if I have a big sign out front,
> traffic coming in and out at all hours, people unloading heavy gear at three
> in the morning, people standing around talking loudly at 5am, etc., bass
> guitar and bass drums making the foundations of the building shake at
> midnight, etc. I'll attract a lot of attention. And my next door neighbor
> has a lot more clout with the zoning board than some business across town.
HARP, out in Los Angeles, was attempting to shut down studios all over
town a few years back. The way most zoning boards work, they don't go
out looking for violations, but they have to act on complaints. They
prefer to act on a complaint coming from the neighborhood, but no
matter where the complaint comes from, they're supposed to follow it
up. Your neighbors could think you're just a hermit and have a lot of
friends who show up with their musical instruments and play quietly
and never think to complain to the zoning board. If the studio across
town rats on you and they find that there's a violation of a zoning
ordinance, either the buisness has to get a variation or shut down.
Paul Race
>Also be wary of other local commercial studios. 2 or 3 years ago, a home
>studio which charged $20-25/hour was shut down by a complaint made by the
>commercial studio (at $40-50/hour rates) due to zoning violations. Check
>with your local zoning board.
Good, point, Steve. But another thing to think about is just being careful
not to tick off the neighbors. A commercial studio on the other end of town
can't really do much to shut me down. But if I have a big sign out front,
traffic coming in and out at all hours, people unloading heavy gear at three
in the morning, people standing around talking loudly at 5am, etc., bass
guitar and bass drums making the foundations of the building shake at
midnight, etc. I'll attract a lot of attention. And my next door neighbor
has a lot more clout with the zoning board than some business across town.
Be a good neighbor and you'll live longer. :-)
Paul D. Race - Paul....@DaytonOH.ATTgis.com
(513) 445-1665
Should I or any of my opinions be killed or
captured, my employer will disavow any knowledge
of my actions.
Dan Russell
>friends who show up with their musical instruments and play quietly
Or like most neighbors to home studios, they'll think your
dealing drugs <g>. Long hairs and punk rockers, rappers, all
night long... I bet they're dealin dope over there Margaret<g>
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