You have plenty of challenges as an artist. Finding inspiration, honing your craft and selling your art are common topics of discussion year-round. And every April, those of us in the United States have our minds on one more aspect: taxes. Don’t stop reading! I know it’s tempting to move on to something more entertaining (trust me), but today’s newsletter comes with a Q&A that is likely to put more money into your pocket. And that’s always a good thing.
“Ask the Experts” is a regular column in The Artist’s Magazine, (click here to subscribe so you won’t miss an issue) and recently Leonard D. Duboff of the The DuBoff Law Group addressed some art income deductions questions. Also, if you want to see your art featured in The Artist’s Magazine, then enter” your best in the annual art competition>–the deadline is May 1.
Question: As a working artist, what deductions can I take on my earnings?
Leonard D. Duboff’s Answer: All of the ordinary and necessary expenses you incur in connection with your art business are deductible, though, if you’re engaged in a hobby rather than a business, you can take deductions only to offset income from your art hobby. Either way, potential deductions include the following:
• art equipment, such as easels, cameras, light fixtures and kilns
• supplies such as paint, brushes, canvas and clay
• studio space
• office supplies and equipment
• books and magazines related to your business
• mileage for travel related to your business (either actual costs or the standard deduction, which was 56 cents per mile for the 2014 tax year; check www.irs.gov for the 2015 tax year rate update).
• parking charges, subway and bus tickets, and tolls for travel related to your business
• trade association dues
• copyright registration fees
• fees to enter juried shows
• agent’s commissions and fees for online sellers, like www.etsy.com
• classes to improve your skills
• costs associated with maintaining a website
• legal and accounting fees
• amounts paid to employees
• some travel and entertainment expenses, such as hotel stays, meals and art museum admissions for which you can show a business purpose.
Some of these expenses, however, may not be fully deductible in the year incurred. Purchases of equipment with useful lives of more than one year are capital expenditures that cannot normally be fully deducted in the year of purchase. Instead, the cost of the item must be depreciated over its useful life, as determined by the tax code. You can, however, for 2014 taxes, expense up to $25,000 plus an adjustment for inflation for items that would otherwise have to be depreciated if you’re operating as a business. This is known as the Section 179 deduction. (Visit www.section179.org for updated information for the 2015 tax year and after.)
In addition, supplies sometimes must be deducted as part of “cost of goods sold” rather than deducted when they’re purchased. Furthermore, there are strict rules for some deductions, such as expenses related to travel and entertainment.
If you’re making and selling art as a hobby, related expenses can be deducted only if you itemize and only to the extent they (plus any other miscellaneous itemized deductions you have) exceed two percent of your adjusted gross income.
If you’re unsure about how to take any of these deductions, talk to your tax advisor or lawyer; errors on your tax return may result in interest charges and penalties. ~Leonard D. Duboff
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