How to Structure Your Music Business (Complete Guide for Musicians)

May 6

Welcome to Musicians Tip Jar, where we talk about musicians and money. And to all the people who said musicians wouldn’t amount to anything because of procrastination, just you wait. I’m Chris Webb, joined by my co-host and the guy whose response I can’t wait to hear, Dave Tamkin.

Today we're answering a question we hear all the time: What’s the best way to structure your music business?

There isn’t one right answer, but we’ll give you everything you need to make the best decision for you.

“The most successful entrepreneurs are those who not only master their craft but also understand the business behind it.” — Unknown

Why Structuring Your Business Matters

The music industry is growing fast. It's projected to grow more than 10% annually through 2027. That means more money, more opportunities, and more need to be smart with how you run your business.

Benefits of structuring your business:

Easier to track income and expenses
Establishing your music business as a distinct legal entity allows you to access dedicated bank accounts and accounting tools. This makes it much easier to monitor your earnings from gigs, streaming, merch, and teaching—while clearly documenting expenses like gear, travel, and studio time. Organized finances simplify tax prep and give you a clearer view of your profit margins.
Eligible for more tax deductions
Operating as an LLC or S-Corp provides access to tax deductions that a sole proprietor may not always be able to claim. Musicians can deduct business-related costs like instrument repairs, recording software, marketing services, and mileage for tours. These deductions reduce taxable income, helping you keep more of what you earn.
Personal asset protection in legal disputes
If your business faces a lawsuit, such as from a contract dispute or injury at a show, having a formal structure like an LLC helps protect your personal assets. Without this protection, your savings, home, or vehicle could be used to settle business debts. A legal structure creates a clear boundary between you and your business.
Access to grants, loans, and sponsorships
Most music grants, small business loans, and sponsorship opportunities require applicants to have a registered business entity with a valid EIN. Having a structured business boosts your eligibility for funding that can support touring, recording, and scaling your brand. It shows funders that you're operating professionally and planning for long-term success.
Builds professionalism and trust with venues and labels
Registering your music business as an LLC or S-Corp signals to industry professionals that you’re serious. Venues, booking agents, and record labels often prefer working with musicians who are legally established and financially organized. A formal structure adds legitimacy and strengthens your negotiating position.
Helps manage royalties and income streams
Musicians earn from multiple sources: performance royalties, sync licensing, streaming, merch sales, and teaching. A structured business makes it easier to manage and distribute this income, whether you’re solo or part of a group. It also enables you to set up entities like publishing companies or record labels to fully capture your rights and earnings.

1. Sole Proprietorship

The simplest way to start a business. You operate under your legal name or file a DBA.

✅ Pros:

Easiest and cheapest to set up
You can start working under your legal name right away, or file a “Doing Business As” (DBA) name with your state for a small fee. There’s no separate legal structure required.
Simple tax filing
All income and expenses are reported on your personal tax return (Form 1040, Schedule C). This saves you the complexity and cost of filing separate business tax returns.
Full control over business decisions
You make every call—from bookings to budgeting—without needing approval from partners, boards, or shareholders.

❌ Cons:

No legal separation between personal and business assets
If someone sues your music business, your personal savings, home, and car could be on the line. This can be risky if you're touring, hiring, or signing contracts.
Harder to secure funding or business credit
Banks and grant providers prefer working with registered businesses. As a sole proprietor, you might rely more on personal credit or crowdfunding.

🎤 Example: An emerging singer-songwriter who plays coffee shops and local gigs on weekends may be fine starting as a sole proprietor. But as they grow, the risk and income may require a switch.

✅Best for:

Musicians just starting out
If you’re testing the waters or not generating much income yet, a sole proprietorship can be a good first step. It’s a low-risk way to get your business off the ground.
Low risk and low income operations
If you aren’t touring, hiring staff, or signing contracts yet, this setup can work fine. As your business grows, you can always restructure.

2. Limited Liability Company (LLC)

An LLC creates a separate legal entity. You can run it alone or with partners.

Benefits:

Protects your personal assets from business-related legal issues
If your business gets sued or goes into debt, your personal savings and belongings are generally safe. This layer of protection gives musicians confidence to grow.
Simple pass-through taxation
LLC profits are taxed once on your personal return, not at the corporate level. This avoids double taxation and keeps things relatively simple.
Fewer formalities than a corporation
You don’t need a board of directors or regular shareholder meetings. This makes it easier to manage day-to-day operations without a legal team.
Easier to get grants or loans
Having a registered LLC and EIN helps you qualify for music industry grants, business loans, and even sync opportunities. It shows you’re serious and structured.
Professional appearance to venues and partners
An LLC gives you a business name, bank account, and brand presence. It helps you stand out when applying for shows, partnerships, or licensing deals.

Real examples:

A fan gets injured at a show
An LLC may prevent the use of your personal assets to settle liability lawsuits.
Dispute over session work
If a session musician or collaborator claims they weren’t paid fairly, your LLC status can help resolve the issue without personal risk.
Selling music online or licensing beats
Your LLC can own and license music, making contracts and royalty management cleaner and more professional.

How to set up an LLC:

Choose a unique business name
File Articles of Organization in your state
Get an EIN from the IRS (free)
Create an operating agreement (even if you're solo)
Open a business bank account
Follow state rules for renewals or permits

LLC doesn’t equal trademark. If you want to protect your band or artist name, file a separate trademark.

Tip: Keep your business finances completely separate from your personal ones. It protects your liability shield and proves you’re treating the business like its own entity.

✅ Pros:

Protects personal assets from business liabilities
If your band gets sued for breach of contract, or a fan is injured at a show, your personal assets are protected—only the business assets are at risk.
Flexible tax options
By default, an LLC is a “pass-through” entity, meaning profits flow through to your personal return. But you can also choose to be taxed as an S-Corp later to save on self-employment taxes.
Easier to secure funding than sole proprietorships
Grants, sponsorships, and music business loans often require an EIN and formal business registration—both of which you’ll have with an LLC.

❌ Cons:

Requires formal registration and fees
Each state has its own LLC filing fee (typically $50–$500) and annual renewal fees. For example, California has an $800 minimum franchise tax for LLCs.
Some states impose additional taxes or reporting requirements
States like New York and California may require additional publishing or reporting steps, so it’s important to understand local regulations.

🎤 Example: A touring indie band sets up an LLC to protect personal assets while applying for festival grants and hiring crew members. This gives them legal protection and funding credibility.

✅ Best for: Musicians ready to grow, earn $50K+, or manage multiple income streams.

3. S Corporation (S-Corp)

If your business is earning consistent profits above $30K, it might be time to elect S-Corp status.

This doesn’t replace your LLC—it just changes how you’re taxed.

Ownership rules:

Up to 100 shareholders
An S-Corp can have multiple owners, but must stay under the 100-shareholder limit. This helps keep it tailored to small business operations.
Only individuals (not other businesses)
Entities like other corporations or LLCs can’t be shareholders in your S-Corp. This keeps ownership simple and straightforward.
Must be U.S. citizens or residents
You can only form an S-Corp if all owners are legal U.S. citizens or resident aliens. This limits international collaboration in ownership.

Structure:

You act as both board and officer
Even if you’re the only owner, you’ll take on official roles in the business. You’ll make strategic decisions and handle daily operations.
Required to hold annual meetings and keep minutes
S-Corps require more formal documentation than LLCs. You’ll need to track meetings and decisions to remain compliant.

How it saves you money:

You pay yourself a salary (subject to payroll taxes)
The IRS requires you to pay yourself a "reasonable salary" based on your role in the business. This salary is taxed like regular employee wages.
Remaining profits are paid as distributions (not subject to self-employment tax)
After salary, additional profits can be distributed to you without the 15.3% self-employment tax. This can save thousands each year.

This setup can significantly reduce your self-employment tax burden if done correctly. The key is paying yourself a reasonable salary, with the rest of the income taxed at a lower rate.

Example:

LLC Owner earning $100K pays $15,300 in self-employment tax
S-Corp Owner pays $7,650 if they split $50K salary / $50K distribution

Steps to set up:

Form an LLC or C-Corp
File Form 2553 with the IRS
Set up payroll for yourself
Issue W-2s and file an S-Corp return (Form 1120S)

S-Corp works best for:

Musicians consistently earning $50K+
If you’re making consistent income from shows, royalties, or licensing, S-Corp status can help lower your tax bill. It’s a strategic move for established businesses.
Those who want to reduce self-employment taxes
If you’re already paying a lot in self-employment taxes, switching to an S-Corp structure may be a smart financial decision.

Keep in mind:

More paperwork
Expect to spend more time tracking payroll, filing tax forms, and following corporate formalities. It’s more involved than an LLC.
Payroll and tax filing costs
You may need to hire an accountant or use payroll software to manage the additional requirements. This adds to your business expenses.
You need to pay yourself a "reasonable" salary
The IRS watches closely to ensure you’re not avoiding taxes by underpaying yourself. Make sure your salary matches what someone else would earn in your role.

You may need an accountant or payroll service to stay compliant, which adds cost. But if you're bringing in higher income, the tax savings can outweigh the extra work.

✅ Pros:

Avoids double taxation
Like an LLC, profits are passed through to your personal tax return, avoiding corporate income tax. You only pay taxes once—on your personal return.
Personal asset protection like an LLC
As with LLCs, your home and personal belongings are protected from lawsuits or business-related debt.
Can save on self-employment taxes if structured correctly
You split your income into a reasonable salary (subject to payroll taxes) and distributions (which are not). This can save thousands annually if done right.

🧾 Example: A music producer earns $120K a year. As an LLC, they would pay self-employment tax (~15.3%) on the full amount. As an S-Corp, they take a $60K salary (taxed normally) and $60K in distributions (not subject to self-employment tax), potentially saving ~$9K per year.

❌ Cons:

More regulations and paperwork than an LLC
You’re required to run payroll, issue W-2s to yourself, file an S-Corp tax return (Form 1120S), and maintain meeting minutes—even if you’re the only owner.
Restrictions on number and type of shareholders
You can’t have more than 100 shareholders, and all must be U.S. citizens or residents. Other businesses (like LLCs or partnerships) can’t be shareholders.

🎤 Example: A successful sync licensing artist chooses an S-Corp to reduce tax liability and appear more professional to licensing agencies and investors.

💡 How to Choose the Right Business Structure

Ask yourself:

👥 Are you a solo act or working with a team?

Solo: Sole Prop or LLC
Band or group: LLC or Partnership

🛡️ Do you want to protect your personal assets?

Yes: LLC or S-Corp
No: Sole Proprietorship (risky, but simple)

💵 How much are you earning?

Under $50K/year: Sole Prop or LLC
$50K–$100K/year: LLC or S-Corp
Over $100K/year: Consider an S-Corp

🎯 Do you need grants, loans, or investors?

Yes: LLC, S-Corp, or C-Corp
No: Sole Prop may still work, depending on your goals

🎬 Action Step: Take the Next Step for Your Business

Using the info above, ask yourself:
Is it time to level up how I structure my music career?

Whether it’s forming an LLC, switching to an S-Corp, or just registering your music name for the first time, this decision can help you:

Save money on taxes
Protect what you’ve built
Open new doors for income and growth

🤝 Resources & Connect

Need help setting up your structure? We’ve got tools and resources just for you:
👉 Email us at MusiciansTipJar@gmail.com
👉 Watch episodes on our YouTube channel

💬 Let us know what structure you’re using and why—we’d love to feature your journey!

🧠 Final Thoughts

There’s already enough out there for everyone. You just need to know how to get it—and structuring your business is a powerful step in that direction.

🎧 Catch this full discussion on our podcast: Musicians Tip Jar, Episode S5E6
📢 And don’t forget to rate, review, and subscribe to help spread the word!

Thanks again for reading. And remember:

There is already enough for everyone. You just need to know how to get it.

Stay happy, healthy, and wealthy.

A great musician plays the notes. A savvy musician plays the industry.

This is Musicians Tip Jar.

Dave Tamkin