Taxes. Ew. It’s the word some of us dread all year, but the refunds are quite nice.
Being an artist and receiving income from sales, commissions, bookings and more can make tax season more complicated than it should be. Keeping up with everything you’ve spent and earned through the arts can get really messy if you aren’t staying on top of things. Most of us artists tend to not be so organized, too. Which doesn’t exactly help.
If you’re anything like me, you wait until the very last minute to file your taxes just because it’s such an annoying process and, to be honest, I’d rather be making art than dealing with numbers. Even if you are keeping up with all your tax info throughout the year, it’s still such a bummer to actually have to do them.
I am no tax expert, by any means. Let me make that clear. But I have been filing taxes as an artist for the past several years, and I’ve learned a few things. Here are said things.
1. Are you a business or a hobby? When it comes to filing taxes as an artist, the IRS draws the line between hobby and business. Your art practice is defined as a business if you intend to sell your work regularly for profit and a hobby is done without the drive for money. Hey, if you run your studio for profit, you can deduct business expenses, like studio rent, supplies, website costs, etc.
What qualifies as a business expense, though? Well, do you put time and effort into your art-making practice with the intention of selling the works? Do you rely on this income to live, or help you to live (pay rent, groceries, etc.)? Have you made profits in the past? Do you expect to see profits in the future? It’s ok if you don’t make a profit every year, but as a general guideline from the IRS, they really want to see a profit three out of five years.
2. What is your business type? Do a little research and decide what type of business structure you want to have. Whether that includes getting a license or not. Many artists choose to classify their business as a sole proprietorship because it’s easy to set up and meets the needs of a basic studio practice.
The process varies from state to state, so head over to your local Clerk of Courts website, your state’s Department of Revenue site, and the IRS site to see what steps are required next.
A Helpful Hint: Consider starting a separate business checking account with your bank. That way, it’s easier to see what’s what. Keep all your receipts too! Any purchases you’ve made on supplies, ads, etc. If you are a sole proprietorship, you would record all your sales as general income and you will deduct your expenses.
3. What to deduct. Well, anything that went toward your business as an artist. This includes advertising, business insurance, commissions from galleries or fees paid to venues, legal fees and professional services (like if you pay someone to help with your taxes), materials or supplies, meals and entertainment (like if you take a client out for lunch or pay a band to play at your art show), office supplies (your computer or phone counts if you bought or use it for your work), website hosting fees or pay for developers, cell and internet costs, professional development (membership fees, classes taken, etc), rent & leases, repairs and maintenence (like if you had to have your guitar repaired), business license costs, travel costs (gas to get to your show counts!). Really anything that went towards your art.
A Helpful Hint: Keep a running log of all of this, corresponding receipts, etc. in a file or spreadsheet. It really helps to stay on top of it. Sort everything by type, month, etc. Paid a model? Maybe that goes into an monthly expense report under “Model” with their name and contact info along with an invoice. Got new business cards? Put it under “Professional Suppies” along with the order receipt. Excel is a great tool, but you could do this on a simple sheet of paper.
4. If you are like most artists, you will probably have a few other income sources. If this is the case, make sure you get a 1099-MISC from each different income source that you received over $600 annually and file this as along with your sales income.
If you have the means and are still unsure about your arts tax filing this year, consult a professional. There are plenty of tax services out there who are gunning to save you money.
DONT FORGET! You can file your taxes for FREE. Check out the IRS website for more info. As a sole proprietor, you’d fill out a 1040 form. Remember that. I forget every year and have to re-look it up.
Again, I am not a professional. These are just some helpful tips from one artist to another and should be taken as such. If you are really struggling, I suggest you find a tax guru online or someone local to help you sort through your tax woes. I’ve personally used H&R Block a few times, but I’m sure you can find a local agency through a quick google search.
Well, that’s the word. I hope this helps all of you budding young taxpayers.