I'm sure that every music group has someone who at least thinks about this question. Based here in the US our group functioned informally for over 12 years with one member filing a Schedule C on his personal return as Profit or Loss from Business. This procedure seemed to work fine given that we didn't generate a lot of income and whatever we did earn went for obvious expenses such as travel, printing, phone, mailing, and office supplies. However, once we began planning for producing CD's, it seemed to make sense to reorganize more formally. Now we are incorporated and are filing a 1120-A U.S. Corporation Short-Form income tax return.

A perlexing question is how best to deal with the expenses and income generated from producing a CD. It makes sense to us that the production expenses (recording, studio rental, mastering, manufacturing) would all be deducted as expenses but we also hear that the inventory produced is a taxable asset even before any sales; is this an option or are we all screwed up?

We would appreciate advice others who are trying to deal with this question in some logical and responsible fashion, which probably leaves out over 90% of Mudcatters.;~)