Math, accounting, record keeping, and taxes. I know. Yuck. Most artists hate all of this, but it’s important that you understand at least some of the issues so that you’re not paying too much - or (maybe) worse, not paying enough - which could result in an audit, fines, and penalties.
A few years ago, when I set a goal to make a living as an artist, I decided that I would keep track of my expenses and income. Partly as a psychological boost – to show that I was serious about being an artist.
Recently my local art group, VAST invited an accountant to talk to the group about tax issues for artists. I wanted to let you know what he said and give you some basic ideas to get started on your record keeping. I want to stress that he was talking specifically about issues related to artists in Texas, and he was just answering general questions. So if you need to know something specific to your situation, please contact an accountant in your area.
So here are some of the things he suggested:
Get a separate bank account for your art business
This helps simplify record keeping. Pay for your supplies out of this account and deposit your income from art sales, teaching, commissions, etc. into this account.
Avoid using a debit or credit card
People tend to spend more when using plastic as opposed to cash or checks.
Keep good records with financial software (like Quicken)
It’s easy to use and you can set up categories like art supplies, meals and entertainment, travel, education, etc.
Tax exempt status
Use tax exempt status to buy consumable items such as paint, paper, canvas, wood (anything that becomes part of your artwork). You have to pay tax on things you use but keep, such as brushes, tools, easels, tables, etc.
Forming a corporation doesn’t usually benefit you
Until you’re making $30K or $40K per year.
You can claim mileage but you must keep accurate records. The going rate right now is 44.5 cents/mile. You can keep a notebook in your car and jot down your odometer readings every time you drive to your studio, to meet a client, visit a gallery, etc. It has to be business-related.
You’re responsible for sales tax on your artwork
If you’re not charging your customers sales tax, then you have to pay it. Most gallery owners will take care of the sales tax, so sales through a gallery usually aren’t a problem. But when you’re selling at an art fair or out of your studio, you need to be charging tax. This is a subject that I’m not really clear on, so definitely consult a professional.
It’s best if your studio is a separate structure that is solely dedicated to your business, but you can also get a deduction for studio space within your home. The benefit to claiming an in-home studio is that you can claim mileage on any trips you take away from your studio on business. The example he gave was a musician – if the musician travels to different locations to perform or give lessons, he/she can’t deduct the mileage. But if he/she has a separate studio (even just a section of a bedroom), then any trips away from the studio are deductible. Presumably you can deduct rent, utilities, etc. You definitely want to consult a professional on this question…
Hopefully some of these tips will help you – or at least alert you to things you may need to look into.
Here are some resources with more information:
NYFA article on taxes
Lots of articles from All Creative Portfolios
The Artist Help Network has a listing of helpful books
Volunteer Lawyers for the Arts has lots of info