Reeves - Updated September 26, If you're ready to quit your day job and work as an artist full-time, you need to prepare a business plan.
Taxes and administrating the business of art are often last on the list of concerns for the visual artist. The artistic temperament simply does not interface well with the exacting rule-filled world of federal and state taxation.
Artists tend to avoid the whole matter business plans for artists consequently leave themselves vulnerable to bad advice. The secret to overcoming this phobia is to develop an understanding of the mechanisms of the tax code and some simple, effective ways of complying with this onerous task.
I often use the analogy that you may not need to know how to fix your car but it is helpful to know how it basically works. In so doing you will pay less in taxes and you will be less likely to fall prey to erroneous tax information and disreputable or ill-informed advisors.
There is no legal separation, such as one would have in a corporation, partnership, LLC or other legal entity. The artist may file a form for the home office studio deduction and will also be required to pay self-employment tax Schedule SE on your net income profit as well as federal income tax.
All these forms are part of the year-end income tax filing. The goal is first and foremost to lower your taxes! The artist has a number of tax deductions that are unique. In the balance of this article I will try to break them down to their component parts to make the issues understandable.
For the IRS all deductible business expenses are those that are: The artist has a large group of basic expenses that easily fit the above criteria: Is Being an Artist a Business?
The heart of this matter is whether the I. Although you must claim the full amount of income you earn from your hobby, hobby-related expenses are generally deductible only to the extent of income produced by the activity. So if you don't generate any income from your hobby, you can't claim any deductions.
What's more, even those hobby expenses which can be deducted are subject to an additional limitation: In contrast, if your activity can be classified as a bona fide business, you may be able to deduct the full amount of all your expenses by filing a Schedule C.
In short, a hobby loss won't cut your overall tax bill because the tax law stipulates that you can't use a hobby loss to offset other income.
Converting your hobby into a bona fide business means you can deduct a net loss from other income you earn, such as wages and salaries.
How does the IRS determine whether your activity is a hobby or a for-profit business? The Internal Revenue Service publications discuss these nine criteria: Whether you carry on the activity in a businesslike manner. Whether the time and effort you put into the activity indicate you intend to make it profitable.
Whether you are depending on income from the activity for your livelihood. Whether your losses from the activity are due to circumstances beyond your control or are normal in the start-up phase of your type of business.
Whether you change your methods of operation in an attempt to improve the profitability. Whether you have the knowledge needed to carry on the activity as a successful business.
Whether you were successful in making a profit in similar activities in the past. Whether the activity makes a profit in some years, and how much profit it makes. Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
The primary determinant is your ability to make a profit at what you are doing. If your efforts result in a profit in three out of five consecutive years, your activity is presumed not to be a hobby by the IRS. If you don't meet the three-out-of-five years profit rule, is all lost?
Not necessarily, if you can prove to the IRS's satisfaction that you have made a genuine effort to earn a profit and that the reason you are not successful is related to special circumstances, the IRS might agree that your art is, in fact, a business.
This is often true for individuals engaged in the arts, where profits and successes are difficult to achieve. To increase your chance of gaining the IRS's recognition of your business, I recommend that you run your activity in a professional, businesslike manner. Doing such things as having business cards and stationery printed, maintaining a separate business checking account and telephone number, keeping accurate records of the time you put in, and carefully documenting all business-related expenses.
In short anything related to attempts to sell your artwork. Income Income for the artist includes amounts paid to the artist for their artwork.
Income for the artist also includes prizes, awards, crowdfunding, fellowships, and endowments received. Inventory Inventory is often problematic for many artists; I often get blank stares when I ask the question at tax time.Based on the profile of your ideal buyer, settle on the exact marketing strategy that complements your art business.
Think about which of these art marketing outlets you should use: social media, email newsletters, art fairs, galleries, blogging, etc. Based on the profile of your ideal buyer, settle on the exact marketing strategy that complements your art business.
Think about which of these art marketing outlets you should use: social media, email newsletters, art fairs, galleries, blogging, etc. business plans and as such, this is only one possible model.
Make sure that you are writing a business plan which best reflects you as an artist and your music. May 31, · One of my personal favorite artist-with-a-plan stories is the story of Paul Anthony and Rumblefish. He was a talented musician—a drummer who built a /5(11).
How to Write an Artist Business Plan by Heidi A. Reeves - Updated September 26, If you're ready to quit your day job and work as an artist full-time, you need to prepare a business plan. If you're ready to quit your day job and work as an artist full-time, you need to prepare a business plan.
This will keep you focused on meeting the artistic and financial goals you set for yourself, and it will help you focus your approach to marketing and distributing your artistic goods.