Week 13 - Music Lawyers and Accountants

CLASS 13 - ATTORNEYS & ACCOUNTIING FOR ARTISTS, 

I- MUSIC ATTORNEYS: WHERE ARE THEY AND WHAT DO YOU NEED THEM FOR?

Music lawyers are a subset of entertainment lawyers. Generally they fall into two basic categories: “In-House” Counsel who work for Music Companies or counsel who have their own private practice. 

Most entertainment lawyers in private practice are either in solo practices or small partnerships. Only in New York and Los Angeles, will you find large firms practicing a substantial amount of entertainment law.

When looking for a music attorney, be aware that there are a variety of specialties practiced by entertainment lawyers, which may or may not include representation of clients in the music industry. Such specialties include film, copyright and trademark. Below is a partial list of law practice specialties.

- Film

- Music

- Sports

- Copyright

- Trademark

- Patent

- Litigation

- Corporate/Business Formation

- Real Estate

- Securities

A.     When Should You Consult with a Music Lawyer?

The following are typical situations that often require the assistance of experienced music attorneys:

1.      Contract Review, Drafting and Negotiation

Music talent should never sign a written agreement for their services that they do not understand completely. Usually, that requires the assistance of an experienced lawyer. Sometimes clients simply want to fully understand what type of terms are proposed. Other times they want help in trying to negotiate better terms than offered. Or, an artist may want to sign another artist to a record label they are forming. All of these transactions should be handled with the assistance of counsel to avoid unpleasant surprises in the future.

2.      Copyright and Trademark Issues

Music clients often seek assistance in registering copyrights and trademarks appropriately. If there are other parties who are infringing on these exclusive rights, cease and desist letters need to be sent.

3.      Starting Businesses

Whenever two people or more are starting a business, whether it be a partnership, LLC, corporation or other form, it is wise to seek counsel to set it up properly and advise on the type of business entity, and the terms to be agreed with the co-owners.

4.     Legal Claims 

Clients who are harmed by breach of contract, infringement of trademark or copyright, may wish to file complaints in court - or defend a case brought against them by someone else. Having a good counsel is essential in these situations.

B.      Sources of Referrals to Entertainment Attorneys

-  Referrals from experienced entertainment industry professionals is the best source

 - Music Trade organizations (Black Entertainment and Sports Lawyers Association member listing for example)

- Music Conference Panels

- California Lawyers for the Arts

C. Services Provided By Music Attorneys

- Contract preparation and negotiation

(Transactional Attorneys)

- Contract enforcement and litigation

(Litigation Attorneys)

- General advice on music business activities

-  Business formation and termination

(Always cheaper to get advice before entering any deal or spending any money on the project)

D. Compensation of Attorneys

Written Fee Agreement:

Always demand a written fee agreement; California law requires it for the protection of the Client

- hourly rates from $100 to $700

- retainers - advance fees paid against which hours are billed as worked

- flat fee agreements for certain tasks such as contract preparation

- contingency compensation percentage of income 5% to 25%

Billing/Fee Statements:

- should be issued monthly; if hourly, should contain details of service provided such as the date, amount of time spent, and service provided

- client should always review for accuracy, everyone makes mistakes

E. Deciding on the Right Attorney

- factors to consider

- their reputation 
- experience (ask what percentage of their time is spent on music related matters. Is it 10% or 100%?)

- availability

- response

- persistence

- location

F. Communication with Attorneys by Client

- writing emails is best; it can be saved indefinitely and easily forwarded to others

- when Attorneys are billing hourly, phone calls are charged by the fraction of an hour, so be mindful

G. Attorney's Work File for Client

- Client always has the right to have a copy of their file

- Contracts you pay to have drafted can be emailed for your later use

H. Conflicts of Interests

- An attorney can not represent two parties in the same transaction without a written waiver of the conflict of interest from both parties

examples of conflicts:

You are a manager and you represent a producer and an artist. The artist wants to hire the producer and work out a contract. You refer both to your attorney. The same attorney can't represent both the producer and the artist without a waiver signed by both clients since they have differing interests in the transaction.

I. Confidentiality

- Attorneys cannot disclose details of client's personal affairs without permission from client. if the information is already public, then it is not a problem.

J. Discharge

Client can discharge attorney at any time. If there is a fee agreement that provides for compensation based on past services, that will be enforced, but Client is not obligated to continue to be represented by Attorney.

II. ACCOUNTING SERVICES

The following is a list of basic accounting services needed by entertainers and the companies they form to handle their activities:

1. Preparing Invoices for Services Rendered

2. Paying Invoices for goods and services received

3. Preparing and Monitoring royalty payments from 3rd parties

4. Tracking Expenses for Tax Purposes

5. Making Deposits to Checking Accounts

6. Monitoring Balances in Checking Accounts

7. Making Estimated Tax Payments

8. Preparing Tax Returns and Financial Reports

9. Tax and Cash Flow planning

Many of these tasks may be done by the taxpayer themselves during the year with the help of their accounting and tax software. If significant amounts of income are being processed, you should seek out more skilled accounting assistance such as:

A. Bookkeepers (No College needed, just experience)

B. Accountants (College Accounting Graduates)

C. CPA’s (Highest Level of Accountant; Requires Certification)

D. Tax Attorneys (usually for tax disputes)

Practically all professionals working in the Music Industry are hired and paid as independent contractors (either as an individual or as a business entity such as a partnership, LLC, or Corporation) rather than employees. Artists, Vocalists, Musicians, Producers, Engineers, Promoters, Publicists, Studio owners, Re-mixers, Songwriters, Publishers, Personal Mangers, Talent Agents, Road Managers, Stage Managers, Sound crew all fall into this category.

Many people starting out to work in the Music Industry are unused to the tax, record keeping, and accounting matters that are important for independent contractors to understand. Failure to comprehend the importance of such concepts and tasks can have dire consequences on many levels. Tax returns may not be filed, expense deductions may be lost which can reduce taxes, and profits may be understated or overstated leading to disputes with profit partners.

The basic steps to properly manage the finances of an independent contractor in the entertainment field are as follows:

1. Set up a checking account with a national bank that has electronic Bill Pay and Overdraft protection. For touring Artists, a national bank such as Bank of America with branches in many states is very helpful. Cash deposits have to be deposited on the road and can be done in any state. Electronic Bill pay is also helpful in allowing creditors to be paid from wherever you are at the time.

2. Install a basic financial software package such as Quicken or Quickbooks on your computer and input all expenses and deposits in the appropriate categories. i.e. tour receipts, merchandise receipts, record royalties, travel expenses, recording expenses, tour expenses, etc. Keep the paperwork associated with the expense or income in appropriate files or scan into files on your computer. Reconcile your monthly bank statements each month using your software.

3. It is hard to understate the importance of using accounting software to track all expenses and income receipts using the appropriate categories. In addition, by reconciling your checking account each month, you will insure that there are no missing bank entries as the reconciliation process will force you to catch all bank entries that were inadvertently missed when you were inputting the information. In addition to PC based software such as Quicken and Quickbooks, there are also mobile based applications that offer similar services.

4. File tax returns and pay them on time. This is the most common error. Today individuals have a variety of options on getting their tax returns completed and filed:


A. FreetaxUSA.com

This service is available online and is very user friendly. Federal Returns are free and State Returns are $12.95

B. Turbotax

Turbotax is also available online. You select the product that best meets your situation. The more complex your return, the higher the price. 

C. Professional tax preparers

More expensive but if your return is very complex this is the best choice. Tax Preparers usually have their clients answer questions each year about income and expenses in a booklet form that is designed to insure that any tax deductions they are entitled to, or any income that they received, are properly identified. The answers to those questions will be made much easier when you have the amounts of money spent in all your business categories. Do not wait until the end of the year to establish a relationship with an accountant or tax preparer who will file your taxes. You would not want to wait until the end of the year to find out that all the good tax return professionals are too busy to work with you. Once you have a relationship with a tax professional, you can seek tax planning advice during the year before taxes are due to insure you make the best decisions.

5. Obtain receipts for all cash expenditures and keep in a box for the year. The receipts you keep can either be given to your tax preparer at the end of the year or you can Input the expenses into your financial management software into the appropriate category. The goal is to insure that all records pertaining to cash expenses that are related to your business income are retained and tracked. ATM charges are

6. Insure that Bills are paid on time and that outstanding accounts receivable are invoiced and collected. Your credit will be adversely affected and credit card interest be much higher if your credit rating is low due to late payments to creditors. Set up online banking and pay bills online. Take advantage of online billing to avoid late payments.

7. Use credit cards wisely and seek a line of credit at the Bank as soon as you have a good credit history. Keep your credit cards and line of credit current. This is a good way to build credit scores.

8. Pay quarterly estimated taxes

The first year that you are in business as an independent contractor, you will have to estimate the amount of money to set aside to pay your end of year tax liability. For the first year, set aside at least 1/3 of your income earned during that year (after expenses). After your first year of business ends and your taxes are calculated, your tax preparer will calculate how much you should pay for state and federal taxes for the past year and how much you should pay for the year to come in estimated taxes due each calendar quarter. Failure to pay these amounts will generate penalties and render you at significant financial disadvantage when it comes time to pay your taxes at the end of the year.

9. Use the financial software on your computer to calculate all business income and expenses for the year. Use that information to file taxes online or  take that information to your tax preparer after the end of the year so your taxes can be prepared. Collect all 1099 forms that you receive for the year for income paid to you, make copies, and give to your tax preparer along with any other information they request. Also Issue 1099 forms to any persons that you have paid over $600 as an independent contractor during the year.

10.  Paypal and Square

For receiving or transferring monies domestically or internationally, Paypal can come in very handy whether you are on the receiving or sending end. It is a good idea to establish an account which is free. Receiving funds for commercial transactions may cost 2.9% of the amount received.

For selling merchandise or services, Square is one of the most convenient means of taking credit or debit card payments. It can be added to your cell phone.

A. BUSINESS MANAGEMENT SERVICES FOR HIGH END ARTISTS

A Business Manager is usually an accountant or attorney with financial experience who works with high net worth entertainment clients to advise them on tax and financial matters. The compensation of Business Manager is usually 5% of the gross income of the client. The services rendered may include the following:

- monitoring of sources of income and collection of that income under various contracts

- preparing budgets and monitoring expenditures

- oversee insurance coverages such as health, liability, auto, and life

- assist with investment decisions

- review tax consequences of all actions to be taken and file tax returns when and as required

- estate planning

- pension planning

- determining whether audits of royalty statements should be initiated

- financial reports

- tour accounting services