Business of Art | The Artist’s Survival Guide to Tax Season
Already filed your taxes? We salute you! If not, we’re sharing a few tips.
April 15, 2019 is fast approaching, which means it’s time to get organized, reflect on your finances from 2018, and work on your 2019 financial goals. Many readers may have already checked the tax task off their To Do list for the year. If you have, we hope you’ll use these pointers to be even more efficient next year.
If you haven’t, we’re sharing a few essentials for navigating the tax process for creative entrepreneurs, including freelancers and small business owners, with significant inspiration from Elaine Grogan Luttrull, CPA/PFS. Through the auspices of Minerva Financial Arts, which she founded in 2009, Grogan Luttrull seeks to “build financial literacy in creative individuals and organizations.” While this article draws on the expertise of Grogan Luttrull and others, please note that it is meant as a guide, not as personalized financial advice.
Before launching into practicalities, here is some additional inspiration from “actress-turned-accountant” Katherine Pomerantz, whose comprehensive tax guide in The Creative Independent is a must-read. Pomerantz’s words, below, place taxes into a broader context:
Us fringe workers must always consider where our money is headed, because it’s up to us to provide our own healthcare, plan for retirement, and save towards personal goals. The more money we have left after taxes, the more we can grow our lifelong savings, and the sooner we start, the better off we’ll be. Tax planning thus becomes the first part of a holistic and healthy financial plan for our entire lives.
A Note on the Tax Cuts and Jobs Act (TCJA)
Major tax reform was passed in December of 2017. How might that sweeping change affect you personally? We’re highlighting three of the major changes here:
- Standard deduction amounts increased significantly to $12,000 for singles and separate filers, $18,000 for heads of households, and $24,000 for joint filers. For many, this change takes away the incentive to itemize but still underscores the need to track your expenses: you will need to have the information to compare and choose whether taking the standard deduction or itemizing deductions will be more advantageous.
- The I.R.S. changed its withholding tables, so, heads up! This may result in a smaller refund for some taxpayers, or even cause some taxpayers to owe the I.R.S. money. This does not mean that taxpayers have paid more overall; for many, a smaller amount was withheld from each paycheck than in previous years.
- There is a new 20% deduction for self-employed filers, which will cause some freelancers to breathe a sigh of relief. Learn more about changes for self-employed earners here.
Now that we’ve covered changes in the tax landscape, we can move on to a few general guidelines that will help you orient yourself, pre-April 15.
Decide Whether You Mean Business
For the purposes of completing your taxes in the most advantageous way possible, it’s important to differentiate your artistic practice as a “hobby” or as a “business.” Several experts encourage artists who earn income from their practice to consider themselves a business, so that they qualify for key business-related tax deductions. The I.R.S. provides several guidelines for what constitutes a “business.” Grogan Luttrull sums it up, though, saying: “One guideline is to aim to make money in three out of five years, but really, it’s more important to treat the practice professionally by keeping books and records, dedicating time and energy to it regularly, and seeking to improve.”
Channel Your Inner Organizational Nerd
When it comes to tracking your finances, says Grogan Luttrull, it’s essential to embrace your inner archivist. Ideally, you’re staying organized throughout the year. If this was not the case for your 2018 expenses, start getting organized now. It’ll save you time later on!
For each financial transaction you conduct for your practice, be sure to save four pieces of information. If your financial records are not complete, this is the information you will attempt to track down, assuming you have receipts of those transactions.
- The date
- The amount
- The counterparty: who did you pay, or who paid you?
- The business purpose, which must be commonly accepted as being necessary for your industry. Find deductions that are common to artistic businesses here.
You can stay organized with a simple spreadsheet. In addition to keeping physical copies, Pomerantz recommends taking a picture or screenshot of the receipts and uploading these to a cloud-based storage tool. The filename of each receipt should include the type of business expense, date, and amount.
Gather Your Tax Allies
Feeling exasperated or confused? Luckily, taxes are pretty universal, which means there are artists in your community who are experiencing the same frustrations. Taxes are part of your personal finances, but that doesn’t mean you need to go it alone. To defeat the urge to procrastinate, you can find a “tax buddy” and check in with each other to hold each other accountable on progress. (As an aside, the accountability buddy system also works quite well for finishing your applications for residencies, fellowships, and other opportunities.)
Many local governments and organizations also offer free tax assistance and free platforms for filing (in addition to the I.R.S.’s free filing option for those with qualifying incomes). See the list below for helpful links. Finally, if you choose to hire an accountant, Grogan Luttrull recommends researching fees and finding someone who understands the nuances of an arts business. Reach out to your artist network for their recommendations, or, if you’ve narrowed in on a candidate, ask that CPA for a reference from another creative client. If you think you may work with an accountant next year, starting the search in the summer of 2019 will make it easier to schedule an introductory meeting or phone call to make sure the client-accountant relationship will be a good fit.
To sum up: Go forth and file with confidence, artists!
Key Resources
- I.R.S. Self-Employed Individuals Tax Center
- I.R.S Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE)
- The Actors Fund Volunteer Income Tax Assistance Program (VITA) Program – Los Angeles
- U.S. Small Business Administration: Filing & Paying Taxes
- Freelancers Union: Money & Taxes Articles, including The Freelancers Union 2019 Tax Guide
- I.R.S. Directory of Federal Tax Return Preparers with Credentials and Select Qualifications
- American Institute of Certified Public Accountants (AICPA) – State Referral Sites
- Kansas City Volunteer Lawyers & Accountants for the Arts
- St. Louis Volunteer Lawyers and Accountants for the Arts
- Texas Accountants & Lawyers for the Arts
- Tax Assistance at the New York Public Library
– Mirielle Clifford, Program Officer, Online Resources
This article draws inspiration from #ArtistHotline, an initiative dedicated to creating an ongoing online conversation around the professional side of artistic practice. Our goal is to help artists discover the resources needed, online and off, to develop sustainable careers.
Have an arts career question? You can contact NYFA staff directly via the NYFA Source Hotline at (800) 232-2789, from Monday – Friday, 3:00 – 5:00 PM EST or email [email protected].
This initiative is supported by the Emily Hall Tremaine Foundation.
Image: Ginny Casey (Fellow in Painting ’18); Dulce Pinzón (Fellow in Photography ’06)
