As a self-employed artist, you are probably used to handling much paperwork. But did you know that you also need to keep track of your taxes? Filing your taxes can be confusing, especially if unfamiliar with the process. In this blog post, we will discuss some of the basics of artist tax filing. We will cover self-employment tax, business expenses, and more. So whether you are a new artist just starting or have been in the business for years, read on for helpful tips.
What every artist should know about taxes
Pooja Sheth
Apr 18, 2022
| Max
17
min read
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Brackets,Tax rates, + deductions 101
The benefits of good tax planning are clear, but businesses get the best ones. They pay more than employees and create new jobs in their wake; they also bring about sales-related taxes like license purchases or property titling, which can all serve to burden them less with an ever-expanding load on top.
The US government understands that as a business grows, it is only natural for there to be an increase in taxes. This can mean the difference between success and failure- so they offer generous tax breaks with your leftover money.
Taxes can be complicated, but the US government has your back. They created the tax code to offer special breaks for those who need them most, so they've created rules around nearly all business-related expenses and circumstances (which could depend on age or location).
Tax credits are like free money. They reduce the amount of taxes you owe by increasing your taxable other income.
Rates and tax brackets explained
The tax system is built so that people who make more money pay higher percentages of their incomes. The tax brackets are defined by income levels, which fall within each range on how much annual income earnings you have. These determine what percentage will owe the government comes time for payment.
Most people are probably familiar with tax brackets, where once you pass a certain income level, any money earned past that point will be taxed at higher rates. However, before meeting an individual's first salary or another threshold (in terms of earnings), everything received is subject only to lower bracket taxes--this includes all pre-tax bonuses.
Have you ever wondered how much tax should be paid on your income? If so, the process can seem like an impossible formula. However, it becomes easier once we break it down into pieces and take some time to understand all these numbers thrown at us by Uncle Sam's office (in more ways than one).
Most individuals believe that if their taxable income puts them in the 22% tax rate category, they must pay 22% of total revenue to taxes. However, you would only actually owe what corresponds with those higher rates on income within this specific band - so while some may be taxed at 12%, others could have an effective rate as low as 3%.
Standard tax deduction
The standard tax deduction is a great way to reduce your taxable income while still benefiting from all the advantages of claiming deductions. Most people don't have enough personal expenses that would require them to itemize on their taxes—and when they do, it's because there are things like mortgages or children attending a school where every little bit helps.
The standard deduction is one of the most popular ways to reduce your taxes. In 2022 for singles, it's $12,950 and will likely be high again next year - but what if you want more than that? When filing as an individual, it only counts when there are no other deductions or credits available, which means sometimes we need another trick up our sleeves. Here are a few numbers
- If you're a married couple filing jointly or a surviving spouse, your maximum refund will be $25,900 in 2022 (an increase of $800 from 2021).
- If you're a single parent and your tax-filing status is head of household, your refund will be $19,400 (an increase of $600).
- If you're single or married, filing separately, your rate is $12,950 (an increase of $400).
To save money on taxes, you should itemize your deductions and keep good records of all expenses. The standard deduction is often enough for most people, but if not, there's a list with some common ones that will help keep things simple (don't worry—we'll go over them later.).
Tax advantages of treating your artwork like a small business
The goal of tax time is to save as much money as possible, so if you're in the art business and want your taxes reduced by law, then it may be worth considering making yourself an official company. For this process to work effectively, some things need to be completed first; namely, qualifying concerning Business Tax Deductions will make these savings bigger than they would otherwise have been.
The business tax deductions will reduce their total income by approximately 30%. Next, they can apply individual taxes to this lower amount, reducing the taxable yield.
There are a few more reasons to be a business
Individual taxpayers miss out on too many opportunities to save money by failing to file as individuals. The "business loss" deduction, which you can claim if your company shows an income or losses for that tax year, is one such opportunity missed due only to filing status - not being able to take advantage of this could mean losing valuable deductions like those related to investments.
There is no more significant tax deduction than this. You can lose money in your company., If married, you may deduct that amount from your full-time employment or your spouse's income. This extra benefit only applies to individuals who cannot take advantage of any other type.
Calculating a business loss deduction can be complicated, and I don't have time to go into all the nitty-gritty here. If you think this may apply to your situation, please consult IRS publication 563 for more information on how it works.
How to Become a Taxable Business
Creative projects should take advantage of the fact that there is no rule about how much profit you have to show.
A lot of people assume they can't file as a business just because their side project isn't making money or it's not very lucrative, but those types of hobbies and passions still qualify under tax law so long as your work offers some kind; even if you will never earn its only potential income revenue from clients yet.
For a business to take advantage of these tax breaks, it must intend to make a profit. It's not enough that people buy their products; the company needs an intention on your end too.
If you're in business, then this is the best of all news: to qualify as a company and file taxes with Schedule C. All that's needed from here on out are some simple steps that will have your name automatically treated like an LLC or sole proprietor when filing individual returns (more info below).
When claiming business tax deductions, it is essential to be safe and play by the rules. This means having an official company bank account and following all other guidelines for filing claims with your IRS- recognizing that they will likely do some extra scrutiny if you aren't careful.
Tax form 101
The tax year is a hectic time for most people, with all the reporting and filling out of forms. Luckily this overview should help you make sense out there in cyberspace.
The deadline to file your taxes is April 15th. This means that no matter what type of business entity you decide, or if it's just an individual filing themselves as a single person with no dependents (which will be cheaper), everyone must make sure they get their Form 1040 submitted on time for things go smoothly during tax season.
The best way to keep track of your business income and expenses is by filing all necessary form 1040 with the IRS.
The IRS provides various business entity options for entrepreneurs, including sole proprietorships and single-member LLCs. To avoid too much information overload, you'll only be concentrating on tax forms when filing as an individual (or family). There's no need to set up any company since we already covered this earlier in the guide. All that's needed now is to attach your 1040 Schedule C with appropriate filers such as "Self-Employment," then head over here.
The IRS Free Fillable forms online are a great way to file your taxes. However, suppose you have never filed before and want professional guidance on the best steps for beginning taxpayers. In that case, e-filing may be more appropriate as it offers access 24/7 from experts who know how difficult this process can feel without enough information.
With the rise of tax reform, many people are converting their old federal income taxes into state versions. This is an easy way to file your return if you want all eligible deductions and credits without having too much research on what they may be worth.
State taxes and deadlines vary widely depending on where you live but finding out how your state handles tax filings, please consult their website or contact them through the mail. The best way would be by searching for "secretary of states' name + filer" plus 'state.'
What you need to do your taxes yourself
You'll need to gather certain documents and information before completing your taxes.
Here's a list of the things you'll need when it's time to submit your taxes:
- Your last year's tax return
- It's required to submit the W-2 form from your employer.
- To ensure that your taxes are filed correctly, you must receive a 1099-MISC from any client who pays you over $600 in 2021. You should send out the form by early February, so make sure they don't forget.
- You should have Form 1099-G for unemployment compensation and taxable grants.
- If you made more than $20,000 in income using a credit card or other payment processor for your business, then 1099-K receipts from those transactions should be filed with the IRS and viewed as income.
- All the money you made from doing things independently without having any W-2 income or 1099's. This includes personal checks, PayPal, etcetera.
- Other sources of income include gambling, prize winnings, and jury duty.
- If you are divorced and must pay alimony, these are the amounts that they may take.
- All interest payments and all property taxes paid on the home
- Your employer may match your IRA/health savings account contributions, but not all plans will.
- If you're paying off student loans and have a $1098-E (if you owe money on student loans) interest, the IRS considers taxable income.
- Tuitions for college, or any other form of tuition, will be expensed.
- Information about child care expenses (such as the child care provider's address, number, and federal ID number)
- If you own a home and make mortgage payments, you may be eligible for an interest-free US1098 loan.
So what do you need to file your taxes this year? If it's not on the list, consult with an accountant or check out IRS.gov for more information about which forms apply in certain situations.
The IRS requires that you receive certain tax documents from those who paid or incurred a loss of $600 in connection with your employment. These include:
-A W2 form if employed; -1099 MisCs for payments made over fifty dollars ($50) on behalf of any client during the year, which reflects income received directly by them at some point*. If this is not possible because it could result in an under declaration of wages, don't hesitate to contact an accountant so they can assist accordingly.
You are responsible for paying any taxes that may be reported to the IRS. So any mistakes need immediate correction. Ensure you compare your records against all forms and tell them if there is a discrepancy between how much was entered into each account before they issue corrections.
Other files that should be in place
- You should keep track of all the deductions you want to report, such as home office expenses or mileage. This includes documentation with receipts for purchases made from your credit card statements and schedules detailing when these activities were scheduled to make sure they're accurate.
- Don't let your clothes go to waste. Donate them and get cash or other items in return.
Some remarks on income streams: W-2 vs. 1099-MISC vs. 1099-K
As an artist or freelancer who works many different hours to make ends meet (or sometimes just enough), it's vital that you keep track of all the income sources so when reporting time comes around, we know what our chances are of getting audits done on us by professionals with piles-high upon piles—er sorry I meant tools -of paperwork already waiting patiently in their Inboxes FOREVER.
The W-2 form is a critical component of reporting your earnings to the IRS. If you are an employee, your employer will issue this at the beginning or end of each year's calendar. It reports how much money was made in past years and any deductions taken from paychecks during those periods - but if there wasn't enough space left over after all these figures were recorded for us, mention that something else might need filling out instead.
If you are reporting your business deductions on Schedule C, then it is possible that the 1099-MISC was given to you as an independent contractor. This means all of those hard work and expenses were deductible from what would have been a salary if they had been paid hourly or weekly.
Clients who pay you over $600 in a year should issue the 1099-MISC form to report their payments. If they use cash, check, or Venmo for payments, that is unnecessary as those transactions do not require an onward transmission of information from your side (to them).
The 1099-K is an important form that you should receive at tax time if your income exceeds $20000 in one year. This payment processor isn't as high; it only requires 200 separate payments via the same company and any client or customer who sends them money through their service during the calendar year 2022 (or whatever date range was chosen). If both requirements are met, then send over a copy by mail - they'll provide more details on how best to do so when we get closer...(Third-party processors are a necessary evil for many businesses. You can generally only accept payments from them if you have an account with that third-party payment processor, so check your online dashboard or monthly statement before claiming any funds.)
While 1099's are common in the US, it is essential to know that you must still file taxes even if you are not receiving one of these forms or reports from your employer--and can do so on an annual basis by April 15th each year since there's no other way for them contact us outside this deadline date.
The IRS has a way of finding out whether you're reporting all your income to them, and if not, they will come knocking on doors with officers who may be looking for any excuse to get their hands on that money.
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As an artist or freelancer, you must keep track of all the income sources, so you're not left scrambling when reporting time comes around.
How to make tax time more pleasurable
The key to making tax time easier is preparing all year long. You should also keep good records and have excellent bookkeeping habits because these will help you remember any deductions for which you may be eligible - ultimately saving us money.
When April comes around again, there isn't any stress involved. Suppose you want to make tax time a breeze, set daily reminders for yourself, and stick with them. Doing things like immediately documenting receipts from business-related expenses or paying bills on time each week will help keep your financials in check throughout the year.
A description of the best bookkeeping practices
Logging your daily business-related travel and expenses is a great way to be prepared for tax season. This will ensure that if you get audited, the records show where all of those hard-earned dollars went to calculate an accurate deduction on what's owed—the Mileage Allowance or "business mile" factor can make up as much as 50%of our total net earnings.
Because the IRS does not accept credit cards or bank statements as proof, you'll need a physical receipt for each deduction. You won't be able to show these receipts unless you are audited but keeping them organized throughout the year can save a lot of time when preparing taxes and prevent forgetting any proper claims.
The IRS recommends keeping your receipts for at least seven years, so don't delete them until then.
The most basic method to keep track of business deductions
- You can take a picture of your receipt or screenshot if you have one from any business-related expense. Make sure to show the amount paid, date and time.
- Upload this photo to the cloud. The best way is by uploading it onto one of many storage tools available, like Google Drive or Evernote.
- Make a label for the receipt and type of expense, date, and amount required.
- Include more information, such as what you bought, why you bought it, and where you purchased it from.
- Keep track of all your claims by deductible tax categories.
- Logging your expenses will help you keep track of the total amount so that when tax time rolls around, everything adds up.
Make keeping track of your finances a more straightforward practice to maintain
With an app like Quickbooks Online (QBO), you'll never have to worry about forgetting or losing any critical paperwork again. All of your past years' receipts are right at your fingertips so that you can claim all those tax breaks in one place.
Although Google Docs is outstanding for collaborative work, it doesn't have the features I need. QBO can send invoices and collect payments while saving my data to make tax calculations more manageable. It's $5/month or free with certain limitations if you're self-employed full time - worth checking out because there are so many Time Saver Automation options available in this program that save hours each week without any extra effort on your part at all (especially when paired together).
When choosing to use QBO or Wave, I highly recommend reaching out for help from your Quickbooks ProAdvisor or accountant. They will be able to train you on the software so that no mistakes are made during setup, which saves time in cleanup later down the line.
Filing your taxes is a time-consuming event that can take hours or even days to complete. It's essential no make sure you file correctly and keep good records so mistakes made by computer programs won't count against you in error correction proceedings if needed. Contact an accountant before anything else happens (especially since this will be their second year doing it).
Artist-specific tax deductions
You've learned how to calculate your taxable income and what documents you need for tax time. Now it's finally here - the part where I tell you about specific business deductions. So as an entrepreneur who isn't on salary, many things may be eligible in terms of credits or expenses associated with running a small business, such as travel costs if they're necessary/common among similar companies within one industry; rent payments when renting space at least partly because yours has more expensive rental rates than other options nearby ( Accessories For The Homeowner); phone bills since these often get overlooked even though calls might happen.
Deductions that are typical for creative businesses
Website costs
All of these expenses add up. Hosting fees, domain name registrations, and plug-ins to names like SquareSpace or Wix can be costly if you don't have the budget upfront, but they will help your business grow in ways other than just making it look pretty.
And then there are paying designers/ developers who provide services such as website designing etc., which could cost much more than what was initially expected because everything has its set price tag associated with each project.
Major equipment
Any material you buy for your business may now be entirely deducted under the new bonus depreciation rules, which have changed the game. For example, an artist may buy a printmaking press to print editions at home, or one who edits videos on their computer might invest in something faster and more powerful - all thanks to this great idea from our government.
Advertising
Advertising is an expense you incur to promote your brand. This could include paying for social media ads, print advertising, or even consulting services that help with marketing efforts like writing copy and design- treatment of all these as separate items will depend on what's most effective in reaching potential customers.
Professional instruction, training sessions, conferences, Etc.
The more specific your job requirements are, the better. Suppose you're in an industry with classes for actors to take on acting roles like martial arts or yoga-related work. In that case, these will count as deductions after being cast but only IF they become part of what's required by YOUR Productions company policy.
Conferences, festivals, similar events or online forums, etc.
The cost of pursuing new work is deductible. With such firms as Actors Access, Casting Networks, and Back Stage, you may submit a headshot; submitting articles or plays to playwriting competitions (or film festivals) for exposure as well - it's all worth doing if you want more business.
Trade publications
The more related to your industry, the better. You can use any magazine or publication that is relevant and fits into what you are trying to say in an article about it- but actors might want to avoid Backstage since they're usually not allowed there.
Business meals
When you meet with a colleague or potential employer to discuss business, deduct half of the cost of that coffee. You can also deduct 100% on meals while traveling and those bought for employees if they're not already covered by their own company's health insurance premiums care benefits plan.
Business gifts
The IRS allows you to deduct up to $25 per person for each gift given. You could show your agent tickets worth 300 dollars and write off only 200 of them (or claim all ten employees) if they are business associates- but not necessarily relatives.
Home office deduction
If you have a home office and use it for business, you may be able to deduct part of your mortgage or rent. To meet the requirements for this, it must:
- I do not have any alternative location to work
- For a more organized and efficient way to store your things, You can also use small plants to separate the space from your living room. Ideally, it would be in a separate area, like a converted garage or closet; however, you can also use any other space, such as a bedroom, if necessary.
- Only one primary use for the space is permitted: business, e.g., receiving clients.
Even if you have the perfect space for your business, it's essential to be aware of what type and size of office furniture will ensure that visitors are treated well. The IRS is very strict about these requirements, so don't get caught without a futon or divider in tow.
The home office deduction is a game-changer because it gets you double the money. You can deduct part of your rent or mortgage and utilities from taxes.
Storage or office space for rent
If you rent an office outside of your home or store materials for work in a storage unit, it's essential to keep track of what belongs. Ensure that any personal items don't get mixed into the business stuff and are only deducted from their expense account when used as part of doing business.
Travel for work
If you're away from home for more than a day on business, then it's safe to say that any trip could qualify as an expense. This includes conferences and interviews out of state or even international trips. Keep track of all receipts—even if they are small things like plane tickets to make sure there aren't any more surprises later.
Generally, the IRS will grant you a standard meals allowance on business trips, so don't worry about your meal receipts unless there are other recipients of these expenses. In that case, each person should have their section for what is eaten and how much was spent during the said trip - which you can deduct from any shared checks or expense reports accordingly.
You may also claim certain personal tax deductions
The standard tax deduction is $12,950 in 2022. If you're an entrepreneur and your deductions total more than this amount - or if they would otherwise reduce your taxable income below what's required by law-use Schedule A to itemize all of those pesky little things we know about ourselves better than anyone else does.
Charitable contributions
The IRS no longer recognizes tax-deductible charitable donations since 2018, but you can still claim them on your income return.
Beg yourself or a loved one to make sure that the charity they want their money donated to is recognized by federal law before deciding where it goes.
Unreimbursed medical
Medical expenses you pay out of pocket are deductible, but those from insurance or other sources do not count. This includes premiums for health care plans, copays, and dental work; eye exams if required by your doctor's prescription to see again ( contacts ), prescriptions too essential to ignore even though they may seem silly. You can also deduct the cost incurred when buying an ankle brace prescribed by a physician because it protects against future injuries during activities such as running marathons.
Real estate
You can deduct up to $10,000 in federal taxes if you're a mortgage holder and your home's value is less than or equal to this amount.
Other state and local taxes
The typical examples of federal income tax or sales tax are included in the $10,000 real estate cap.
Conclusion
You can lower your taxable income and keep more of your hard-earned money by taking advantage of as many tax breaks as possible. As an artist, you may be able to claim some of your deductible business expenses. But even if you can't, there are still ways to reduce the amount of taxes you owe. It would be best to get organized and familiarize yourself with the tax code. This guide is a good starting point, but don't hesitate to ask an accountant for more specific advice if needed.
Takeaways
- Artist taxes are no different from self-employed small businesses; you should take advantage of as many deductions as possible.
- Keep track of all your business expenses, even if they seem minor.
- Deduct your art supplies so long as they are used to work you're selling and not personal projects.
- You can claim a tax deduction for a home studio space if only used for that purpose.
- Get organized and familiarize yourself with the tax code to reduce your taxable income.
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