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If you’ve distributed your music through Distrokid, you might have received a tax document called Form 1099-MISC. This document reports the total amount of royalty payouts you received from Distrokid.
Distrokid sends the 1099-MISC to both you and the IRS. You’ll use it to file your tax returns and potentially pay taxes on the income. The IRS will use the 1099-MISC to verify that you’ve reported the correct amount on your tax return.
In this guide I’ll walk you through the tax filing process. I’ll show you where to find the Distrokid 1099-MISC, explain what’s on it, and how to use it when filing your tax returns. At the end I’ll throw in a few tips for a less stressful tax season.
By the way, this guide is for U.S. residents and citizens only. If you’re outside the U.S., check out my other guide on the Distrokid Form 1042-S.
Also, in order to receive Distrokid payouts you’ll first need to submit an accurate W-9. Here’s my walkthrough of that process.
Let’s get started.
What is the Distrokid 1099-MISC?
Form 1099-MISC is a tax form that reports the amount of royalties collected and paid out on your behalf during the previous year. Distrokid files the 1099-MISC with the IRS. You’ll also receive a copy, which you’ll use to file your tax returns.
It’s important to not ignore this form. The IRS will expect you to include the 1099-MISC on your tax return. If you fail to report and pay taxes on your Distrokid income, you’ll receive a letter informing you of penalties and interest for underpaying your tax liability.
Your filing requirements depend on a few factors, but you’re generally required to file a tax return if you earn more than $400 from your music business. This amount includes your Distrokid income plus income from other sources.
Fortunately, since your Distrokid income is likely business income, you’re allowed to take deductions that lower your tax liability.
This is why it’s important to file a tax return.
The benefit of filing your tax returns, aside from avoiding penalties, is that you can adjust the amount that the IRS has on file by claiming allowable business deductions. The IRS only knows about the amount reported on your 1099-MISC. They don’t know about the business expenses that can offset this amount.
To avoid overpaying your taxes, you should also cross-reference the amount on your Distrokid 1099-MISC with your own records to confirm that the form is accurate. If it’s not, Distrokid can file a corrected 1099-MISC.
Where to find the Distrokid tax form?
According to their help center, Distrokid will send your 1099-MISC to the email address in your payments profile. You would have provided this email address when setting up your profile in addition to providing tax and payment information. This may or may not be the same email address that you use to log in to Distrokid.
If you’re looking for your Distrokid 1099-MISC but haven’t received it yet, there are a few reasons why.
- It’s possible you had no withdrawals during the tax year. Distrokid will only file the 1099-MISC if you’ve withdrawn earnings from your Distrokid account. if you can’t find your 1099-MISC. Check the “Bank” section of your Distrokid account to confirm that you withdrew funds during the year.
- It’s also possible that Distrokid hasn’t issued you a 1099-MISC yet. Per IRS rules, Distrokid has until March 31st to file a 1099-MISC so you may just need to wait.
- Lastly, Distrokid is only required to file a 1099-MISC if you withdrew $10 or more in royalty payments. If your withdrawals were less than $10, then Distrokid may not have issued you a 1099-MISC.
Follow up with Distrokid’s support team if you withdrew more than $10 from Distrokid and March 31st has passed and confirmed the email address linked to your payouts profile is correct.
Understanding the Distrokid 1099-MISC
It’s important to review your 1099-MISC before preparing your tax returns. If something’s not correct, you might pay too much tax.
Payer’s Information
The 1099-MISC should include Distrokid’s information, including their company name and TIN (“Tax Identification Number”). If this information isn’t associated with Distrokid, then you’re looking at the wrong 1099-MISC. You’ll need to track down the correct 1099-MISC from Distrokid.
Recipient’s TIN
Your Distrokid 1099-MISC is associated with your name and TIN (SSN or ITIN). You should review both items before filing your tax returns. If either is incorrect, follow up with Distrokid support to get a corrected 1099-MISC.
Box 2. Royalties
Your Distrokid 1099-MISC includes all royalty payouts you received from Distrokid during the year. You should review your bank statements to confirm that the total amount of payout deposits matches the amount reported on your 1099-MISC. Follow up with support if you notice any discrepancies.
Take note that your Distrokid 1099-MISC reports gross payouts before deductions. Distrokid’s payment processor deducts a fee when you initiate a payouts, so you’ll need to reconcile this fee to total deposits received in your bank account and the amount reported on your Distrokid 1099-MISC.
Filing taxes with the Distrokid tax form
After reviewing your 1099-MISC, you’ll then need to file a tax return and potentially pay taxes on the income.
By “tax return,” I’m referring to Form 1040. This is the form that U.S. citizens and residents use to report their annual income, deductions, and credits to the Internal Revenue Service (a.k.a the IRS). You may owe taxes or receive a tax refund depending on what’s reported on Form 1040.
Not everyone is required to file a tax return though.
Distrokid will send a 1099-MISC if you received at least $10 in royalty payments through the platform throughout the previous year. However, you only need to file a tax return if the total income you earned from your music business was greater than $400. If you earned income from other sources, such as a job, there are other income thresholds that might require you to file a tax return.
Assuming you’re required to file, your next step is to actually file a tax return.
If you’re new to filing taxes, and comfortable with a DIY solution, I suggest filing with software such as FreeTaxUsa, TurboTax, or the IRS’ free filing program. You can also have a tax professional prepare your tax returns if you’re not comfortable doing it yourself.
Maybe you’ve filed taxes before but have never reported streaming income. In this case, how you report your Distrokid income depends on whether your music production is a business activity or a hobby.
This decision requires reflection and analysis on your part.
If your goal is to earn a living as a musician, even if it’s part-time work, then you’re probably considered self-employed for purposes of reporting your Distrokid earnings. You can still be considered a business even if you’re operating at a loss.
You’re more likely to be a hobbyist if you produce music sporadically without the intention of profiting from your music. The IRS publishes a list of factors that help distinguish whether you’re operating a hobby or business.
if you’re publishing music through Distrokid, it might be difficult to argue that you don’t have a profit-seeking motive, in which case you’d be running a business and considered self-employed.
In the event of an audit, the IRS may ask you to justify your decision to report Distrokid earnings as self-employment income or hobby income. Be prepared with a rationale that reflects the facts and circumstances of your situation.
Self-Employment Income
Self-employed taxpayers, like any other business owner, can take deductions to offset their self-employment income. They’re also required to pay self-employment taxes on their business income.
You’ll report your Distrokid earnings on Schedule C of your federal tax return. You’ll also use The amount on Box 2, Form 1099-MISC should be reported in the income section of Schedule C.
As a musician, you probably earned income from sources other than Distrokid. For example, if you also played gigs then you’ll need to include your performance income on Schedule C in addition to your Distrokid income.
You don’t need to file a separate Schedule C for each source of income related to your music business. You can group all music business income on one Schedule C and take deductions against the total income.
Hobby Income
Hobby income is income related to pleasure or leisure activities. Income earned as a result of this hobby is merely incidental and not the intent of pursuing the hobby.
If your Distrokid income is hobby income, you’ll report it on Schedule 1 of your tax return.
Unlike business income, you won’t pay self-employment taxes on income reported on Schedule 1. You also can’t take deductions to offset the income. You’ll simply transfer the amount from your Distrokid 1099-MISC to Schedule 1 and you’re done.
Additional tax tips for independent musicians
Using these simple tax strategies will make tax season less stressful.
Keep good records
Being organized and maintaining clean financial records will benefit you when tax season arrives. You can take advantage of deductions that you may have otherwise forgotten.
You’ll also be prepared in the event of an IRS audit, since the IRS will ask you to substantiate your deductions. Having your receipts, bank statements, and other supporting documents together will help you retain your deductions.
Segregating your personal and business finances is an easy but effective way to stay organized. For example, having a dedicated bank account for your Distrokid payouts and business expenses will help you more quickly put together your income and expenses during tax season.
Save for taxes
Taxes are an expense that you accrue while earning income but pay later.
Remember as you’re receiving Distrokid payouts to set aside a portion of your earnings to save for taxes. Otherwise you may end up with a tax bill you can’t pay for when filing your tax returns the following year.
Set up a savings account that helps you fund your tax liability as income is earned. A good rule of thumb is to set aside 30% of your income for taxes. The remaining amount is yours for personal expenses or to reinvest in your music business.
Make estimated tax payments
As a self-employed taxpayer, the IRS requires you to make quarterly estimated tax payments.
The IRS charges underpayment penalties and interest on underpaid tax liabilities. By paying the minimum amount, you’ll avoid paying the IRS more than you need to, which means more cash in your bank account that can be reinvested in your music business.
Don’t forget about self-employment taxes
Self-employment taxes are equal to 15.3% of your business income. This tax is in addition to the regular income taxes you’ll pay on your business income. When estimating your taxes for the year, remember to factor in an additional amount for self-employment taxes. Otherwise you’ll fall short.
For more tips, check out our comprehensive tax guide for music industry professionals.
When to consult with a tax professional
At some point, consider working with a tax professional who can prepare your tax returns and give you advice on how to pay less tax.
That’s where I come in…
As a business-focused CPA, I help clients in the music industry stay IRS compliant and better position themselves for tax savings. If you have questions about your Distrokid taxes, or other tax questions, please don’t hesitate to get in touch through the contact form below.
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