As tax time draws near, art business owners are prepping up. Shoeboxes and calculators in hand, artists are looking for forgotten expense receipts with the fervor of a child on an Easter egg hunt.
Before you meet with your tax preparer, you must prepare a full and accurate accounting of your annual art income and expenses. While most business owners create accounting records throughout the year, inevitably, a few entries slip through the cracks.
Help your tax preparer maximize your write offs (and reduce your taxes). For every $100 in deductions you find, you save $22 in income tax AND around $15 in self-employment tax. You can buy a lot of art supplies with that!
Before you hunt for more art expenses, keep in mind that some artists will not be able to write off their expenses at all. This article is not intended as tax advice, it’s intended to help you prepare for meeting with your tax preparer.
Ready for the hunt? Here’s where to look:
1. Supplies: You likely already know that you can write off your art supplies, but, Don’t forget that this includes more than the actual materials you used to create your work. It also includes office supplies such as the paper and Printer ink do you use to print your invoices or other correspondence. It also includes shipping supplies such as boxes and mailers you use to ship your work. Don’t forget cleaning supplies you use to maintain your equipment and studio space.
Where to look: if you order supplies online, login to your online supplier to locate overlooked invoices. Many online shops keep your past purchases available for longer than a year. Common online Shops artist used to order supplies online include: Amazon, Dick Blick, Utrecht, Etsy, and Uline. Where do you like to shop?
2. Transaction and Banking Fees Even if you are not maintaining a bank account solely for your art business, you still may have bank fees. If you are collecting payments online or at a weekend show, you are probably using a service such as PayPal or Square which charges a fee for every credit card transaction. These fees qualify as an expense. If you sell your art through Etsy, you are also paying a fee to list your product, as well as A transaction fee when your product sells.
3. Travel expenses: Artists is often travel out of the town, and when they do, they often visit with galleries, collectors, and other potential sources of sales. If you traveled and conducted art business this year, you may be entitled to write off all reasonable expenses incurred.The cost may include transportation such as airfare, hotel, or other lodging expenses. You may also get to deduct 50% of the cost of your meals when you travel for your art business. In fact, if you plan things right, you can even mix pleasure and business and still get a deduction.
Don’t forget the travel you conduct around town gathering supplies, taking your shipments to the post office, and other art business related errands. You are entitled to a mileage reimbursement for every mile you drive that is related to your art business. In order to get this deduction, you must keep accurate records of the dates and mileage you are driving.
If you find yourself at the end of the year preparing for taxes and realizing you did not keep these records, you can reconstruct a portion of your driving using your expense receipts. Create a calendar, and go through your receipts noting the date of the receipt, where you drove to, the distance, and the purpose of your trip.
4. Independent Contractors: If you hired any independent contractors this year, their fees are right off. This includes sales representatives, website designers, printers, other artists that you may have hired to assist with a project, and studio assistants. Keep in mind that if you paid an independent contractor more than $600, you may need to send them a 1099 form.
5. Studio Expenses: If you have an art studio in your home that you use exclusively for your art business, you may be able to deduct the cost using the home office deduction. This deduction is particularly valuable if you are a renter because it enables you to deduct a portion of your monthly rent, a sizeable expense that is ordinarily not deductible. The rent and utilities paid for an outside studio are fully deductible business expenses.
6. Art Gallery Rents: Art galley rents or membership costs are fully deductible.
7. Long-Term Property: Art equipment such as cameras and video equipment, welding equipment, kilns, or any other property that will last longer than one year are considered tangible property. This also includes other equipment you use to conduct your art business such as computers, cell phones, and even art and business books.
If you made any property purchases this year, make sure to ask your tax preparer if it;s advantageous for you to write it off in a single year rather than spreading it out over several years through annual depreciation deductions.The full cost of this property can usually be deducted in a single year using 100% bonus depreciation (in effect through 2022), Section 179 expensing, or the de minimis safe harbor (applicable to property that costs $2,500 or less).
8. Dues: Dues you pay to belong to professional artist societies or other organizations for artists are deductible. Also, if you belong to any organizations for the purpose of networking for your art business, those dues are also deductible. Examples include belonging to the local chamber, or other clubs such as Rotary or the Lions.
9. Fees to Show Your Work: Fees to enter juried shows are deductible. So are any fees incurred to show your work, whether in person or online. These include online shop fees Incurred in using services such as Etsy, Shopify, and Amazon handmade.
10. Education: Art classes and lessons are deductible. If you teach art, any materials and expenses used to prepare your class are also deductible.
11. Promotional expenses: Virtually everything you spend money on to promote yourself as an artist is deductible including advertising and listings in art publications, photos, business cards, care cards, certificates of authenticity, brochures, videos, and websites (including Internet connection costs).
12. Subscriptions: You can deduct the cost of art magazines, journals, newsletters, and other subscriptions useful for your art business.
13. Legal and Professional Services: You can deduct fees that you pay to attorneys, accountants, consultants, and other professionals if the fees are paid for work related to your art business.
14. Insurance: Self-employed people, including artists, are also allowed to deduct 100% of their health insurance premiums from their income taxes. In addition, If you have a home studio, you may deduct a portion of your homeowner’s insurance. If you had a major show this year and had to purchase insurance separately, don’t forget to include it in your expenses
15. Meals and food: You can deduct 50% of any meal expenses you incur conducting your art business. To deduct the cost of a meal in a restaurant, you must be having a serious art business discussion over the course of the meal with a potential partner, collaborator, or sales rep at the restaurant. Also, alcoholic beverages cannot be written off.
Restaurant meals incurred while traveling for art business can also be written off at the rate of 50%. Again, no booze.
Food expenses are a 100% right off if they are purchased for an art event. The most common example Are the art refreshments served at a gallery opening.
There are only two certainties in the life of a prospering artist: death and taxes. Help your tax preparer minimize your tax liability as much as possible by taking a few extra moments to look into each of these 15 categories of expenses before your tax preparation appointment.