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If you’ve monetized your music on SoundCloud, you may have received a tax document called Form 1099-MISC. This document reports the total amount of royalty payouts you received from the platform during the preceding year.
SoundCloud 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 SoundCloud 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 to ensure a less stressful tax season.
Also, this guide is for artists who have already monetized their SoundCloud account. If you haven’t yet monetized your account, you should instead read my walkthrough of the tax form (Form W-9) you’ll submit when monetizing.
Let’s get started.
What is Form 1099-MISC?
Form 1099-MISC is an informational tax document that reports the amount of royalties SoundCloud collected and paid to you during the previous year. SoundCloud files the 1099-MISC with the IRS. You’ll also receive a copy.
Don’t ignore this form.
If you’re required to file a tax return, the IRS will expect you to report your SoundCloud income. You’ll use the 1099-MISC to report the income on your tax return. If you fail to report and pay taxes on your SoundCloud income, you’ll get a letter in the mail informing you that you owe penalties and interest in your unreported income.
Your filing requirements depend on a few factors, but you’re generally required to file a return if you earn more than $400 from your music business. This amount includes your SoundCloud income plus income from other sources.
Fortunately, since your SoundCloud income is business income, you’re allowed to take deductions that offset your income and lower your tax liability.
The ability to take deductions as a self-employed individual is why it’s important to file a tax return.
By filing a return you can subtract amounts from your gross income by claiming allowable business deductions. The IRS only knows about the income number reported on your 1099-MISC. They don’t know about your business expenses.
To avoid overpaying your taxes, you should also cross-reference the amount on your SoundCloud 1099-MISC with your own records to confirm that the form is accurate. If it’s not, SoundCloud can file a corrected 1099-MISC.
Where to find the SoundCloud 1099-MISC?
You would have selected a delivery preference for your SoundCloud 1099-MISC when submitting the tax form during the monetization process. The options were electronic or postal delivery.
If you opted for electronic delivery, SoundCloud will notify you by email that your Form 1099-MISC is available for download before March 31st. Otherwise you’ll receive your paper 1099-MISC by mail.
However, if you haven’t received it yet, there are a few possible reasons why:
- No payouts - It’s possible you earned royalties but had no payouts during the year. SoundCloud will only file the 1099-MISC if you’ve been paid earnings from your SoundCloud account, regardless of how much you earned.
- It’s too early - It’s possible that SoundCloud hasn’t issued you a 1099-MISC yet because, per IRS rules, SoundCloud has until March 31st to file a 1099-MISC. You may just need to wait.
- Below the filing threshold - Lastly, SoundCloud is only required to file a 1099-MISC if you withdrew $10 or more in royalty payments. If your payouts were less than $10, then SoundCloud may not have issued you a 1099-MISC.
Follow up with SoundCloud’s support team if you received more than $10 from SoundCloud and March 31st has passed.
Understanding your SoundCloud 1099-MISC
It’s important to review your 1099-MISC before preparing your tax returns. If something’s not correct you might end up paying too much tax.
Payer’s Information
The 1099-MISC should include SoundCloud’s information, including their company name and TIN (“Tax Identification Number”). If this information isn’t associated with SoundCloud, then you’re looking at the wrong 1099-MISC. You’ll need to track down the correct 1099-MISC.
Recipient’s TIN
The 1099-MISC should be associated with your name and Tax Identification Number (SSN or ITIN). You should review both before filing your tax returns. If either is incorrect, follow up with SoundCloud support to get a corrected 1099-MISC.
Box 2. Royalties
The 1099-MISC includes all royalty payouts you received from SoundCloud 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.
The 1099-MISC reports your total payouts before deductions such as PayPal’s processing fees, so you’ll need to add the total amount of deductions to the total amount of deposits to reconcile the 1099-MISC to deposits in your bank account.
Filing taxes as a monetized SoundCloud artist
After reviewing your SoundCloud 1099-MISC for accuracy, you’ll then need to report and potentially pay taxes on the royalty income by filing a tax return.
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). They 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.
SoundCloud 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 royalty income. In this case, how you report your SoundCloud income depends on whether 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 SoundCloud 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 SoundCloud, it might be difficult to argue that you don’t have a profit-seeking motive, in which case you’re running a business and considered self-employed.
Ultimately the decision depends on the facts and circumstances of your personal situation. In the event of an audit, the IRS will ask you to justify your decision to report SoundCloud earnings as self-employment income or hobby income.
Self-Employment Income
Self-employed musicians, 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 SoundCloud earnings on Schedule C of your federal tax return. 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 SoundCloud. For example, if you also played gigs then you’ll need to include performance income on Schedule C in addition to your SoundCloud income.
You don’t need to file a separate Schedule C for each income stream in 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 SoundCloud 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 SoundCloud 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
When tax season arrives, you’ll thank yourself for being organized and having clean financial records. Not only will good records save you time, 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 a simple and effective way to stay organized. For example, having a dedicated bank account for your SoundCloud 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.
As you’re receiving SoundCloud payouts, remember 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 or other account that helps you properly 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 estimated tax payments on a quarterly basis.
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.
With that said, here’s my plug…
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 SoundCloud taxes, or other tax questions, please don’t hesitate to get in touch through the contact form below.
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