Artists thrive on creativity, exploration, and self-expression. They don’t thrive on tax codes, income calculations, and tax deductions. Whether you’re a casual crafter who sells a couple pieces a year or a professional artist who gets their sole income from their artwork, doing your taxes can feel overwhelming and tedious. It’s probably the last thing you want to do.
But unfortunately, taxes are unavoidable. As an artist, managing and filing your federal income tax is a complicated responsibility you’ll need to tackle each year. Like other freelancers, professional artists earn an income that needs to be reported to the Internal Revenue Service (IRS). However, identifying the expenses you can write off and the income you need to declare is not a straightforward process. Whether you’re a budding or professional artist, here are some things that can help you during tax season.
If you’re like many artists, you want to focus on creating beautiful, thought-provoking work. You don’t have time to spend wading through the tax code and business law. Here are a few strategies you can employ to help keep your taxes as manageable (and as low) as possible.
The first step you need to take is to classify your business. Do you categorize your art as a hobby led by passion, or do you plan to profit from your work? If you’re just creating art as a hobby but you’re not generating a profit from it, then you’re not really able to treat it like a business for tax purposes.
But if you are going to be recognized as a business rather than a hobby by the IRS, you need to demonstrate your potential for future profit through consistent profitability and other factors.
One way many artists show that they’re operating a genuine business is by transitioning from being a sole proprietorship into a limited liability company, or LLC. Not only does this choice solidify your art efforts as a business, but it also helps shield you from personal liability. That’s because, unlike a sole proprietorship, an LLC is regarded as a separate legal entity from you personally. So if your art business was ever sued or defaulted on a debt, the LLC would be held liable for it. Your personal assets couldn’t be seized to pay for it.
As an added plus, making your art business into an LLC helps prove that you’re operating for profit, entitling you to take business-specific tax deductions and incentives.
Whether you’re operating as a sole proprietor, LLC, corporation, or another business structure, it’s highly recommended (or even required) to have a separate business bank account for your business. You might even decide to get a business credit card for your art transactions.
Having this dedicated business bank account accomplishes a lot of things. For one, it makes your life easier. Separate accounts helps streamline your tracking so it’s easier to spot deductible expenses (more on this in a moment). But more importantly, a separate bank account helps prove that you’re treating your art as a business, not a hobby.
Many financial institutions require you to provide your employer identification number (EIN) before they’ll issue you a business bank account. If you don’t have one yet, you can get one for free from the IRS. You can get an EIN even if you don’t have employees.
Another benefit of a business bank account is that it allows you to easily track your deductible expenses; they’ll all be clearly marked in one place. But in addition to using your business bank account for your art purchases, you should be careful to keep your receipts. These receipts help prove that all of your expenses are legitimate.
For many artists, deductible business expenses can make a huge difference at tax time. Some of the expenses you can write off include home office expenses, half of your self-employment tax, internet and phone bills, travel expenses, bank fees, interest on loans, business insurance and licenses, and retirement savings plans.
For instance, if you will be attending a conference or an art fair related to the art piece you are making, you can categorize your airfare and hotel accommodations as travel expenses. If you’re renting a studio for your office or workspace, you can write them off under your office expenses. Be considerate when classifying your returns and avoid overly estimating your tax-deductible costs.
As an artist, you can deduct various business expenses related to your art practice on your tax return. These deductible business expenses can include:
Keeping accurate records of your business expenses throughout the year is essential. This will make it easier to report them on your tax return and maximize your deductions. Consider using a spreadsheet or accounting software to track your expenses, helping you capture every deductible business expense and reduce your taxable income effectively.
As a self employed artist, you are required to pay self employment taxes on your net earnings from self-employment. This includes income from your art business and any other self-employment income you may have.
Self employment taxes are comprised of two main taxes: Social Security and Medicare taxes. In an ordinary employment situation, the employer pays half of this tax, and the employee pays the other half. The employer withholds that tax from your paycheck on your behalf, too. But when you’re making self employment income, you’re responsible for both halves. It’ll be your responsibility to set aside that portion of your income and pay it yourself.
To report your self-employment tax obligations, you’ll need to file Form 1040-ES and make estimated quarterly tax payments. Understanding how to calculate and pay self-employment taxes is crucial to avoid penalties and ensure you’re meeting your federal tax obligations.
It’s very common for artists to purchase larger equipment that depreciates in value over time. And in many cases, businesses are advised to depreciate the value of the asset over time on their tax returns for the next several years, reducing their taxable income by a smaller amount for several years.
That said, Section 179 of the tax code gives businesses the option to deduct the entire cost of qualifying equipment as long as it’s put into use during that tax year. For example, let’s say you’re a woodworker and you decide to buy a heavy duty, industrial planer to help you process wood faster and improve the furniture you make. It’s an expensive asset, but it falls well beneath the $1,220,000 maximum for 2024 (this number is subject to change), so you deduct it on your taxes for the year. This deduction could greatly reduce your tax burden for the year.
We won’t get into the nuts and bolts of the math here, but there are pros and cons to depreciating an asset over time or deducting the whole cost all at once. Even if you don’t normally work with a tax professional or accountant, it might be worth consulting with one to get customized guidance on which type of deduction is better for large equipment purchases.
If you’re selling qualifying goods and services to consumers, then there’s a good chance that you need to collect and pay sales tax in your state. Every state has slightly different requirements for sales tax, but it’s very common for artists to need to get a sales tax permit, collect sales tax, and remit those taxes to the state.
Some states have different types of sales tax licenses depending on the type or volume of sales you make, too. Be sure to consult with your state’s Department of Revenue (or similar office) to get guidance for where you’re selling.
While you’re at it, keep in mind that many cities and counties require a supplemental sales tax on top of the state rate. So you’ll also need to confirm whether you have any sales tax obligations on the local level, too.
Filing your taxes as an artist can be complex, but it’s essential to get it right to avoid any penalties or fines. Here’s a quick look at what you can expect to do to file your taxes correctly:
By following these steps, you can ensure that you’re accurately reporting your business income and expenses, minimizing your tax liability, and staying compliant with federal tax laws.
The art industry is a very dynamic sector that contains several facets. If you have any doubts or questions when filing your taxes, it’s vital that you consult with an expert. A reliable accountant can help when deducting your returns and can help ensure that you’re tax compliant. They’ll also help you understand your tax bill, pay estimated quarterly taxes that accurately predict your net income from the year, and more. Before consulting with an accountant, make sure that you have all your financial records ready, as these documents are crucial when assessing your tax situation.
It’s perfectly natural for you to get intimidated and confused when filing your taxes, but it’s vital that you know how to properly manage them and always seek the help of a professional.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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