Taxes. Every artist’s favorite topic, right?! Below is an overview of information on Artist Taxes.

Need more guidance? Fresh Arts partners with Texas Accountants and Lawyers for the Arts (TALA) every February to provide a FREE tax workshop. Need even more help? Fresh Arts will be developing a Tax Toolkit for Artists early next year … stay tuned for more info!

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Below is an overview of common Tax terms sourced by Void Academy. 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.

HOBBY VS. BUSINESS

Is your art a business or 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. (source)

You can check out the leading questions the IRS provides for this decision here.

STANDARD DEDUCTION VS. ITEMIZED DEDUCTION

Some of the most common deductions are expenses on your business, medical expenses, property taxes, and charitable donations. 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 ask you to pay taxes on.

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.

When to use an Itemized Deduction: 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.

Related Article: Tax Deductible Expenses for Artists https://www.freelancetaxation.com/deductions-artists

CROWDFUNDING AND TAXES

Did you host a crowdfunding campaign to raise funds for an art project? If so, unless you are crowdfunding on behalf of a 501(c)(3) non-profit (see Fiscal Sponsorship), 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.

Example: If you make over $20,000 on Kickstarter, Patreon, GoFund Me 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 a tip about crowdfunding and taxes: when you run a crowdfunding campaign, you should create a budget that allows you to pay yourself for your time and all other expenses involved in the project. When crowdfunding, you are usually 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 need to document your expenses for the project, which should be equal. This essentially means that the money that went towards your campaign will be deducted from your annual income by the IRS and won’t cause you to pay taxes on it.