Tax situation of a Recording Artist

[QuestionGuy101]

What is the name of your state (only U.S. law)? CA

Need help to categorize the business expenses of a recording artist.

She made and produced her own CDs and is selling them on the internet. She incurred the following expenses in 2008:

Recording sessions and studio fees $4,500
CD manufacturing: $1,200
Business meals: $300
Shipping and Postage: $100
Supplies: $150
Advertising and marketing: $600
Travel expenses for promotion: $350

My question is which of these expenses are considered 'cost of goods sold' and therefore may not be fully deductible in 2008.

I think at least the recording sessions and studio fees and the CD manufacturing cost have to be considered part of the cost of goods sold.

Thoughts?

 

[LdiJ]

What is the name of your state (only U.S. law)? CA

Need help to categorize the business expenses of a recording artist.

She made and produced her own CDs and is selling them on the internet. She incurred the following expenses in 2008:

Recording sessions and studio fees $4,500
CD manufacturing: $1,200
Business meals: $300
Shipping and Postage: $100
Supplies: $150
Advertising and marketing: $600
Travel expenses for promotion: $350

My question is which of these expenses are considered 'cost of goods sold' and therefore may not be fully deductible in 2008.

I think at least the recording sessions and studio fees and the CD manufacturing cost have to be considered part of the cost of goods sold.

Thoughts?

Its a bit more complicated than that.

Normally the recording sessions and studio costs would need to be divided over the number of CDs that could eventually be produced from the sessions and sold within the reasonable span of time for CD sales. I don't know what that span of time is because I have never done the accounting for a firm in the recording industry.

However, since this is a new venture, its probably safe to add up the recording sessions, studio costs, and manufacturing costs and divide by the number of CD's produced. That number would be the cost of goods sold for each CD sold and would be expensed in the year that the CD is sold....or when the CD inventory is written down to zero, if not sold.

 

[QuestionGuy101]

Its a bit more complicated than that.

Normally the recording sessions and studio costs would need to be divided over the number of CDs that could eventually be produced from the sessions and sold within the reasonable span of time for CD sales. I don't know what that span of time is because I have never done the accounting for a firm in the recording industry.

How can you know though? Do they allow the artist to make his/her own estimation? Or do they require you to use an industry average or something?