Tech: Bank account for music org?

Subject: Tech: Bank acc'nt 4 music org?
From: Kaleea
Date: 25 Mar 03 - 04:57 AM

Help!! Help me Mr or Ms Wizard!!!    This isn't exactly tech, but it does have to do with Music! Over 20 years ago, when laws were much less cumbersome, a traditional music society was organized in my area of Kansas. The main focus is teaching traditional music on traditional acoustic instruments, performing around town--usually for free, & a couple of annual events where we go camp out, have a retreat, or hire pros to give workshops--you get the picture. We are a small outfit! This year, when our treasurer went to change the signatures on the bank account due to new officers, she was informed that there has to be some kind of tax id number, or else someone would be required to put their social security number on it. She reluctantly used hers. We have 60-75 members annually, our dues are only $12 a year, and an annual budget under $2000. We are being told by Kansas that they don't know any way we could get a tax id # if we are not a regular business, and that we are required to incorporate (as a non-profit org if we are to accept donations) & get a Federal Tax ID number--going through the state as well as the feds. (Do I need to mention what I--a gal with ancestors who are/were rural dwelling persons in the hills--think of "them durn revenoors"?!!) We barely operate in the black, paying for the place where we meet, & activities & such. I know that there are lots of small organizations out there who do not go through the red tape & $500++++ to have an attorney do all the paperwork & filing & annual documentation, just to have a bank account!! Does anybody know how to get around having to do all this red tape to just have a small-time club bank account? Does every "Little Old Ladies Every Other Tuesday Tea & Crumpets Society" have to do this--I don't believe it! There are a couple of other organizations around whom we have asked, & some of us are members of some of the other clubs, but their people say either 1. "I dunno." or 2. "That's not my department" or 3. don't answer/return email/calls.   This is driving myself (I got railroaded into office!) & our board crazy!! Can somebody please help me, cause I think it would be easier to win the lottery or be struck by lightening!
             Thanks!!
                Kaleea (whose head is soon to be under the water, while she holds up 3 fingers!)

Subject: RE: Tech: Bank account for music org?
From: mack/misophist
Date: 25 Mar 03 - 10:12 AM

Call the local bar assn. and ask if any of the members do 'pro bono' cultural work. Lawyers actually do a surprising amount of pro bono work.

Take the bank manager out for coffee and quietly ask if s/he has any ideas on the subject.

Subject: RE: Tech: Bank account for music org?
From: Sorcha
Date: 25 Mar 03 - 10:17 AM

Is there a Kansas chapter of an Old Time music organization, like Old Time Fiddlers or something? Get hooked up with them and use their 501 number. That's what we do in Wyoming.

Subject: RE: Tech: Bank account for music org?
From: JohnInKansas
Date: 25 Mar 03 - 12:00 PM

Kaleea -

This sounds like a fairly simple thing. Because of the "need" for the Fed to track all those "money-laundering drug lords," banking regulations require a "taxpayer ID," even for non-profits, on every bank account.

For many small organizations, the common procedure is for a member to use their own ID - i.e. their Social Security number - just as you have done. The difficulty is in keeping the organization funds separated from your own - especially at income tax time. There are also some difficulties with determining whether you need to file an income tax return for the organization.

The procedure for obtaining a "taxpayer ID" for your organization is fairly simple, and the place to find out about it is the nearest Internal Revenue Service office. They should have the appropriate forms and instructions. About all you should need is an "official name" and a "permanent" mailing address. The address can be a member's address. The IRS may also want you to identify the principal officers, and to show some evidence that your organization is "real," although I haven't looked at the forms recently.

In addition to getting the "ID" number, it would probably be a good idea for you to register with the IRS as a "non-profit" entity, which is a separate process. The "ID number" is all you really need in order for the bank to set up an account, but non-profit registration may also be worthwhile just to "clarify your status" and to make sure they don't try to make you pay taxes on the organization's money.

If you don't have a handy-nearby-friendly-Internal-Revenooer, you should be able to find what you need at IRS HOME.

John

Subject: RE: Tech: Bank account for music org?
From: JohnInKansas
Date: 25 Mar 03 - 12:39 PM

A quick look at the IRS site suggests that it may be more efficient to talk directly to an IRS person. Odds of doing that successfully prior to at least April 16 are probably miniscule due to the tax filing deadline that's coming up.

Another possibility - if the person administering the account did not get adequate help from their bank - is to talk to another bank. (And/Or go back to the first one and tell them you're thinking of moving the account elsewhere because they weren't helpful.) The bank that wants your group's account should be able to answer your questions.

John

Subject: RE: Tech: Bank account for music org?
From: Gareth
Date: 25 Mar 03 - 07:13 PM

We had similar problems setting up the Uk bank account for The Friends of the Mudcat" here in GB.

Now we used the Unity Trust, a body set up by the British Trades Union Congress to cater for non profit organisations. Does the AFL-CIO sponsor any similar organisation ? Does the US of A equivelent of the Musicians Union have any connections ?

I appreceiate that Banking Laws in the US of A differ from the UK but I doubt that you are the only body in this situation.

Gareth

" And the Banks are built of Marble,
With a Gaurd, at every door,
And the Vaults are filled with Silver,
That the Miners Sweated for"

Subject: RE: Tech: Bank account for music org?
From: Kaleea
Date: 25 Mar 03 - 11:28 PM

Thanks very much for your suggestions!    We have actually talked to bankers, who told us we needed the tax number, and otherwise said they couldn't "help" us as far as getting it accomplished.
    I would appreciate any other suggestions as to how to deal with this!       Kaleea

Subject: RE: Tech: Bank account for music org?
From: KateG
Date: 26 Mar 03 - 05:13 PM

Talk to the IRS and to your state's Business Registration office, both of them have a wealth of info to help you. You shouldn't have to incorporate to get a tax ID number. At least in NJ you register you organization name with your county clerk and the organization with the state, and then fill out the relevant state and federal forms requesting a tax ID number...and make sure you check the boxes that say you have no employees so that you don't have to file payroll tax forms. None of this should require a lawyer, it's basically the same as setting up your own business. Going for formal 501(c)3 non-profit status to make your organization's revenue tax-exempt and donations to it tax-deductible is a bit more complicated, and you should talk to a lawyer. But if your annual budget is small enough, that may not be necessary since you won't owe taxes anyway.

Subject: RE: Tech: Bank account for music org?
From: open mike
Date: 26 Mar 03 - 05:43 PM

our local folk group has incorporated, donoe the 501 c thing and all
the benefits are that we can be considered for city funding...there
is a tax that is funnelled into entertainment..tax on motels and restaurants or something...we did get a grant from the city to provide
services (music) for folks that were citizens (tax payers? voters?) in that town..so we could get more money, but of course there were strings.we had to get insurance,,and it was a snow ball of paper work.
another group i am in, the contra dance group, joined anther organization in order to get insurance coverage (it might be folk alliance) (or it might be country dance and song society) so there is
another layer of paper work required,,,but then it is a good thing to affiliate with other like minded groups..
We have been also working with the state book keeping system to
acquire abandonded funds from another area music society which folded..our non profit status is supposed to give us access to some
advantages..but there have been times when groups i was in spent
more time raising money to pay for insurance than we did conducting the activities which we were involved in!
good luck to you-and let us know how it turns out.

Subject: RE: Tech: Bank account for music org?
From: JohnInKansas
Date: 26 Mar 03 - 07:26 PM

Kaleea -

The simplest way of handling it, for a small organization, is just what you've done. Use the personal ID number of one of the members, with the account in the name of the organization.

In effect, the member whose name (ID) is on the account is acting as an escrow agent for the organization. For the protection of that person, it is pretty significant to the bank examiners and to the IRS that he/she be able to show convincingly that there is an organization.

This means that even with the "simplest-way-out" you need to be sure that you have some kind of an "organizational agreement" that defines its existence. This is usually your Constitution and By-Laws, and if you don't have them in good order, you need to get them put together.

It is also very important that complete, accurate, and permanent records of all transactions be kept - and there should be at least periodic review and approval (accountability) to at least the "board" of the organization, with a record of the reviews - i.e. minutes of board meetings.

A commonly "overlooked" requirement is that when goods and/or services (did you rent a hall?) are purchased by anyone, including an organizations, in many cases a "Form 1099" needs to be filed with the IRS to document the payment(s). The "stated" reason is so that they have to report it as income. Your reason is that you can't show your expenses if you don't - and might end up showing a "profit" (taxable).

In other words - there ain't no really simple way.

Many small organizations get along just fine using "member name" accounts. It sounds as though your group may have reached a size where a more formal arrangement is justified, and an incorporation is likely to be your best method. This should not be overly complicated, or expensive; but it requires the same sort of "formalizing" of your organization as should be in place if you continue to operate it on a less formal basis, plus a couple of "form letters" that your attorney's secretary will copy out of his big book.

After your organization exists as a corporation, you could apply for an "Employer Identification Number" (EIN) from the IRS, and quite likely for non-profit status as a "Service Organization." (You may be able to get all the paperwork processed at the same time.)

Choosing someone to do the paperwork for you is sort of a coin flip. Quite a few accountants could handle it about as well as the "typical" attorney. ("Public" Income tax offices not usually a good choice. You do need a "real" accountant.)It is possible to do it yourself - depending on your tolerance for working your way through bureaucratic paperwork.

Note that I'm not qualified in any way for the advice offered. It's just my observations based on some years as an "independant employer" and as a member of some organizations who've hassled with the same question. You need to confirm your own choices, either through independant study or with the services of suitable "professionals."

John

Subject: RE: Tech: Bank account for music org?
From: Barbara Shaw
Date: 29 Jan 04 - 09:14 AM

Found this thread as I was about to ask a related question.

One organization where our 5-person band performed paid us by check and sent me a 1099 for the full amount, in the band's name but with my ss#. It's easy enough to divide up cash and misc checks 5 ways for income tax purposes, but what do I do with this 1099 that gets reported to the IRS as my income alone?? I have detailed records of expenses, etc but have never gotten a 1099 before for the band, and I don't know how to handle this 1099 that really reflects a payment to 5 different people. Is it time for an accountant?

Subject: RE: Tech: Bank account for music org?
From: Cuilionn
Date: 29 Jan 04 - 10:07 AM

We're in the process o non-profit incorporation for oor Celtic culture/music organization, sae I ken whit ithers are sayin aboot aa the paperwairk! Here's three things that micht help:

1) Ye can call the IRS an get a PROVISIONAL tax number, as a preliminary step tae explorin full incorporation. The incorporation process taks months, even years, but as lang as ye're nae bringin in thoosands an thoosands o dollars, the provisional tax number will allow ye tae conduct yir bankin business an aa that. We jist ca'd ane o those toll-free IRS phone numbers, did oor aplication for an EIN ower the phone, & explainit that oor intent wis tae seek eventual incorporation as a cultural education organization unde the "501(c)(3) catagory. Twa minutes later, we haed an EIN, went richt tae the bank, an were able tae open a special sairt o bank account available tae non-profits, even tho we tauld the banker we didnae hae full status yet!

2) There's a grand buik ye suid seek oot frae yir local library system, a definitive manual ca'd sumpit like "How to incorporate as a nonprofit organization in all 50 states." Dinnae ken if I've gaet the title jist richt, but it's printit by Nolo Press, sae ye cuid luik them up on the web an get the exact title, then gae tae yir library an get the buik thro interlibrary loan.

3) The Folk Alliance provides a verra wide range o sairvices for wee local folk organizations like yourn. Ane o their sairvices is that they can act as an "umbrella organization" and confer THEIR nonprofit status (and grant-receiving ability) on your organization. They micht be able tae help ye wi details like the EIN as weel. Luik at their websicht (under "member sairvices", I'm thinkin) an consider jynin the Folk Alliance wi an organizational membership. It costs muckle less than the application fee ye'd pay the Feds tae become a stand-alane organization.

Hope this helps--

--Cuilionn (Program Director, Ceilidh House School & Cultural Center, Maine)

Subject: RE: Tech: Bank account for music org?
From: JohnInKansas
Date: 29 Jan 04 - 10:49 AM

Barbara -

The paper work is not really too complicated, so whether you need an accountant is a matter of whether you are willing to spend your own time doing it, or prefer to pay someone else.

The decision may also depend on whether you paid all the bills for the band, or whether other band members may want to (or be able to) claim "performance expense" as deductions.

In principal, the 1099 you received shows that you had income as an "independent contractor." You most likely will need to include "business income and expenses" on your tax return in order to show that it wasn't all net income that you would have to pay taxes on. The downside of having such income/loss information on your return is that it may mean paying an additional tax for you. The additional "hit," other than the simple tax if you call it ordinary income, is the Social Security/Medicare due on the "band income."

In all likelihood, the people who sent you the 1099 did not make any withholding deductions - i.e. they didn't take out anything for income tax, social security, or medicare. If the 1099 doesn't show any withholding, it doesn't have to be filed with your return, but it should be reported on your tax return.

You can "pass" the income to the band members by giving each of them a 1099 to show what their share of band income was. This lets you list the payments to the other members as "payments to independent contractors" and deduct it from your income.

You don't really have to use any particular "form" to notify the other band members, as long as it's written and has some indication that it's "in lieu of form 1099;" but you do need to file, on the proper form, a "1099 summary sheet" with the IRS that shows that you paid the other band members and that you gave them the "1099 notice" that they should report their individual income from the band. You can get the forms from your local IRS office.

Since you received the 1099 showing income, it has to appear on your income tax return. If you can show enough "band expenses" to wipe it out on your own return, you might consider just handling it there. If it's going to cost you tax on money you didn't get, then you pass the appropriate amounts on to the other band members by giving them individual 1099s, and file the 1099 summary with IRS to show that it's their income and not yours.

The forms are not at all complicated, but there is a deadline for getting the individual 1099s to the band members and reporting it to IRS, so you need to check with IRS for the dates for this year. It is very soon, if not this week! [It's March 1, see below]

If you normally "do your own" tax returns using one of the commercial tax programs, you probably will not find the 1099 forms in the simple packages - you'd have to get a "business" version. Paying extra for one of these is not really too helpful, if its just for printing 1099s to give to your band members; and I'd suggest just getting the forms from the IRS.

If the amounts involved are small, you and the band members can probably still use the "individual" programs to file your tax returns; but that depends very much on how complicated each person's return gets.

The 1099 income each member reports may subject them/you to a "Self Employment" tax. This is the FICA/Medicare tax on any income for which no deduction was made, and is the amount you'd have paid if you got it as wages, plus half the amount a regular employer would have paid for you. Other than that, it's just a matter of making sure that the money gets "credited" to the person who got it.

NEW STUFF

The "bottom line" is that the 1099-MISC that you got shows that you have income that you have to report on your return. You can show that you paid it to the other band members by filing a 1099 with the IRS, showing that you gave each band member a 1099-MISC for the payment of their shares to each of them. (You do, theoretically at least, need to show the taxpayer identification number (SSN) for each band member on the one you file with IRS.)

You will likely have to file at least one additional form with your own income tax return (I think its a "Schedule C," but check that out when you get to filing your return).

You can get some additional info from IRS FAQ 1099-Misc

The "Information Return" (1099) you file with the IRS to show that you gave 1099-MISC reports to the other band members is described at href="http://www.irs.gov/govt/fslg/article/0,,id=110125,00.html">Information Returns

Instructions for the 1099-MISC are at 1099-MISC(.pdf 7 pages)

The instructions seem to say that, technically, you would only have to give a 1099-MISC to a band member who got more than $600 from you last year, but you're "covered" if you report all such payments. (If the payments were smaller, you could probably deduct them as "undocumented payments to independent contractors" or some such on your return.)

You have to go to General Instructions for 1099 to find that the filing date for your 1099 with the IRS (the list of what each band member was paid) is March 1. Individual band members should be given their 1099-Misc reports by then as well.

Note that I'm not a "tax consultant" on this, just a reasonably experienced "user." The 1099 system is sort of like a "sticky note" you can use to tell the IRS "it ain't my money" and to tell the other band members "it's yours - you gotta deal with it;" and it actually works about as well, and as easily, as anything else associated with the IRS.

John

Posts combined, links repaired by clone

Subject: RE: Tech: Bank account for music org?
From: Barbara Shaw
Date: 29 Jan 04 - 12:39 PM

John, thanks, I think. I was hoping you would notice the thread and post, since you know a lot about a lot of things. But now I'm dreading doing taxes more than usual because of the additional headache with this 1099. I pay all the expenses and keep all the records, so it looks like I'll just put the amount on our own tax return and take it out of their hides... Wonder if I could have asked the producer of the event to give out individual 1099's to each band member. It's not a huge amount, but who knows, we make someday break into 4 digits!

I guess I need to do some homework first, and check out some of the issues you brought to my attention. Sheesh. Thanks!

Subject: RE: Tech: Bank account for music org?
From: JohnInKansas
Date: 29 Jan 04 - 01:38 PM

Barbara -

The 1099 thing really isn't too tough to do. It's just a matter of writing down the amounts on a separate piece of paper for each band member, and then sending the one form to the IRS to tell them who got the money. That makes it the band members' money to deal with, instead of just yours. If you can work it all into your own tax return, the IRS probably doesn't really care, but figuring out exactly how much each band member owes you can be pretty tricky.

If you choose to go with the 1099, and let the individual band members handle their own shares, they can probably just wring them into their simple tax returns, although if they are smart about it, they'll likely want to file the Sched C.

In order for you to get all the deductions you might may want to claim for band expenses, you probably do need the additional schedule for "income from self employment." Little things like postage, phone calls for bookings, and such can add up, and you might want to include depreciation for some band equipment, or even some of your personal stuff you use with the band. There are some very real advantages in how you show the "deductions" for that extra bunch of transactions, and the "extra" form gives you a place to put stuff that's very difficult to work into a simper return.

That's an extra form, and will cost you a little extra if you pay someone to do your taxes, but if you use one of the tax software programs it's just an extra piece of paper. (But make sure you get a program that includes the forms - and don't forget to deduct the price of the software under "tax preparation.")

If you already plan to pay a preparer - have him/her handle the 1099 business, - just make sure you allow time to do it before March 1 even if you plan to file your own complete return on April 15 like most of us do. (If your preparer doesn't know what to do, get a different one. It's a very common thing, and you shouldn't be using a preparer who doesn't understand this stuff - for anything.)

John

Subject: RE: Tech: Bank account for music org?
From: Dave Bryant
Date: 30 Jan 04 - 10:26 AM

Do you have any retired members who don't pay tax anyway ? - ask them if you can use their Tax Id.

Subject: RE: Tech: Bank account for music org?
From: Barbara Shaw
Date: 30 Jan 04 - 03:41 PM

Arrrrrggghhhh!! I hate tax time! I've been using basic TurboTax for several years, and I'm guessing it will handle this. The guys in the band do so many benefits at our request that I'll probably take the full 1099 this time, or maybe take 3/5 of the tax amount off the top of the next gig or something. (TurboTax will show me the difference in the net return).

What I wonder is why this one place gave us a 1099 but no one else ever has? Under what circumstances do they have to give us one?

Reaching for the bright side, I'm learning a lot about the music business, especially about how much money you don't make. (After all the expenses I wrote down, which didn't include mileage and a few other things, we actually did NOT make any money! But boy, was it fun...)

Subject: RE: Tech: Bank account for music org?
From: JohnInKansas
Date: 30 Jan 04 - 05:16 PM

The place that paid you has to give you a 1099-Misc to be able to prove that they paid you, so that they can deduct that amount as a business expense on their own income tax return.

In general, in order to be able to deduct a business expense for services you pay for, you have to report, using 1099s, that the amount you paid is income for the person to whom the money was paid, instead of for you.

The general rule is that you don't have to file the 1099 for payments of less than $500 or so, (unless it's to a lawyer, in which case its $50), but anyone who is making some reportable 1099 payments will generally be better off if they just put all their payments on the report.

Dave - putting 1099 income on a retired someone's "tax number" would subject them to the "self-employment" tax, even if they had no "taxable income." You have to pay that FICA/Medicare withholding even on income that's too small to require you to pay an "income tax." (It could also really screw up their Social Security benefit, if any questions come up.)

If you're retired, and working for someone as an employee, you may get by with no withholding for income taxes, and may not pay any "income tax;" but the employer still must withhold FICA/Medicare payments. If you're working as an "independent contractor" so that the employer doesn't withhold anything, you have to pay the FICA/Medicare withholding in the form of the "self employment tax."

There is also a distinct difference in how the tax system treats a participating member of a business and how they hit a "front man."

If it's your income, report it as such and pay the taxes. If it's someone else's income, tell the IRS who else is gonna pay the tax on it, and you take the deduction.

It's an acceptable practice (and favorite US indoor recreation) to use the business income return to "mine" all the possible expense deductions (depreciate the new microphone and amp, maybe; write off the new strings you put on for a gig; pay the printing costs and postage; etc.) but don't try to "hide" or "disguise" the transactions. If you use the reporting tools available, it's not necessary; and it's far too likely to get someone in real trouble.

John

Subject: RE: Tech: Bank account for music org?
From: GUEST,leeneia
Date: 31 Jan 04 - 10:22 AM

Let's take a step back here and consider the overall picture. Folkies seem to have two approaches to money.

1. Folkies don't make any money and then complain they are broke.

2. Folkies make some money and then complain that they have to account for it.

What is wrong with this picture?

Subject: RE: Tech: Bank account for music org?
From: JohnInKansas
Date: 31 Jan 04 - 07:21 PM

leeneia -

Folkies are human?

Actually this thread has been more about how to account for it, with very little real complaint that it needs to be done. If there's a complaint, its just that it's not as easy as it "should" be to make the system work.

There is that other thread down in the BS: section though...

John

Subject: RE: Tech: Bank account for music org?
From: Cuilionn
Date: 01 Feb 04 - 09:01 AM

A wee aside, here:

If ye're wantin tae explore the makker/sillar (artist/money) issue, there's an unco fascinatin buik Ah'd recommend tae ye: Lewis Hyde's "The Gift." It's weichty material, aye, but wairth gang thro, an fu' o brilliant insichts.

--Cuilionn