A Simple Tax Guide For Artists
Some of the most important things to know about doing your taxes as an artist
By Karina Vahitova on January 31st, 2018
Photo by NeONBRAND
What does it even mean to do your taxes?
Doing your taxes as an artist is not that different from doing your taxes as any other kind of working person. Every year when you file your Individual Tax Return, also known as your 1040 form, you are painting a picture of your financial life for the IRS. This picture consists of your losses and your gains — this is what the IRS wants to know on the most basic level. Your losses are qualified as the amount of money you lost on making something happen. As an example, let’s say you sold a painting for $100, but used $200 worth of materials to make the painting. Sure, you sold a thing, but you made no profit on it — you actually went into the red and had $100 worth of losses on this particular sale. Listing out your deductions for the IRS shows them that no matter how much money it looks like you made in your income, you also spent a lot of money on sustaining yourself and your work. Basically, doing your taxes is just a way to keep track of your fiscal year. It's a way to assess how much money you made and what it cost you to make that money. Tax season can be very stressful, but if you get good at keeping track of your sales, expenses, and incomes, it can be a gratifying way to reflect on how hard you worked all year.
Hobby vs. Business
One of the big discrepancies that folks come across when trying to file taxes as an artist is whether they even should document the income from their art if it’s not “significant" or not their primary source of income. Let’s say you are an artist who is in the process of moving towards sustainability, but right now you have a salaried day job or you freelance as a graphic designer to pay the bills. You make some money on your artwork, but a lot of the time it’s not much and goes straight back into making more art. If you made $3,000 on your art the whole year and made no profit on it, meaning the expenses to make the art were either $3,000 or more (which would put you at a loss), this would qualify in the eyes of the IRS as a hobby. If you made “significant” profit from your art and you intend on making even more money the following year, then you can qualify your activities as a business. You do not need to be a registered LLC or other kind of corporation to be a business — you simply need to be making a profit off your work and have the "intention" to do so. Now, I put the words “intention” and “significant” in quotes because the guidelines the IRS provides regarding whether you qualify your art activities as a business or as a hobby are very vague and ultimately leave the decision in your hands. I wrote this section for you because any income that you have needs to be classified when you are filing your 1040 form. You will be asked to qualify your art income as either a hobby or a business. You can check out the leading questions the IRS provides for this decision here.
Standard Deduction vs. Itemized Deduction
Oh, deductions! The joy! A tax deduction arises due to various types of expenses you’ve had throughout the year. There's a whole bunch of things that are considered to be tax deductions, but some of the most common deductions are expenses on your business, medical expenses, property taxes, and charitable donations. Deductions exist to basically give you a break with the understanding that no matter how much money comes in, a good chunk of it goes out. Though the number you come up with in deductions will not lower your tax rate (the percentage you pay each year), it will lower your taxable income. In other words, it will lower the amount of money the IRS will consider you to have truly made that year that they'll ask you to pay taxes on.
Deductions come in two flavors: the itemized deduction and the standard deduction. The standard deduction is for folks who either did not keep records of their expenses throughout the year or know that they will probably not have itemized expenses that are larger in sum than the standard amount. The standard amount is set each year by the IRS and is based on one’s filing status. It is the dollar amount that you can automatically write down as a deduction when you are filing your taxes. To figure out what your standard deduction is for this tax season, you can use this IRS provided online tool. A standard deduction for a single person is usually around $6,000 per year. According to the IRS you should only do itemized deductions when you know that it will be a larger number than the standard.
If you feel that your deductions for a tax year will be larger than the standard deduction provided by the IRS, then you should use the 1040 form add-on called Schedule A to list out your expenses item by item. Anything that you use to make something that you later sell can be listed as a deduction on this subform. You can read this article to see what other kinds of things can be listed as deductions on this form.
Crowdfunding and Taxes
Perhaps you crowdfunded a work of art last year! Technically, unless you are crowdfunding on behalf of a 501(c)(3) non-profit, all the money you make through crowdfunding is considered to be income and should be filed under “Other Income” in Line 21 of your 1040 form. If you make over $20,000 on Kickstarter or Patreon or any other crowdfunding platform, they are required to send you a 1099 form which details the amount of transactions and the amount of money you made in an official manner. Even if you made less than $20k and do not receive a 1099, you still need to report the income you made on your tax return. Here’s the exciting thing about crowdfunding and taxes: when you run a crowdfunding campaign, you create a budget that allows you to pay yourself for your time and all other expenses involved in the project. When crowdfunding, you are seldom crowdfunding for profit — rather, you are simply asking for the exact amount of money you need to make a work of art happen. When you document your crowdfunding income for tax purposes, you will also document your expenses for the project, which should be equal. As everything that went in also went out to create the project, this essentially means that the money that went towards your campaign will be deducted from your annual income by the IRS.
Forms to Know
In this last section, I want to list out some of the important forms you need to know in order to properly file your taxes.
1040 form - the standard form individuals use to file their taxes every year. It can be found here.
W-2 form - the form employers are required to give to you every year so that you can use it to document your income on your 1040 when you are filing
1099 form - a form used to detail various types of income. There are many different types of 1099s, but since they are usually provided by whoever paid you money, you don’t need to worry about knowing all the kinds. If you’re curious, you can read more about 1099 here.
1040 Schedule A - a form you attach to you standard 1040 form and where you detail your itemized deductions. You can read instruction for 2017 here.
Just to be clear, we're not CPAs or tax professionals. This article is meant to help demystify the process and should not be considered legal or financial advice. We always recommend you consult the IRS website and talk to a professional tax advisor before you file.
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