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What You Should Know About Freelance Artist And Taxes?

What You Should Know About Freelance Artist And Taxes?
Ines Zemelman, EA
03 August 2022

As online platforms are encouraging artists to showcase their talent there has been a massive increase in demand for their services which means artists are generating revenue from selling their creative work. So now these creative souls are wondering about the connection between freelance artist and taxes. 

The questions like Do you have to pay taxes on sold artwork? do you have to pay taxes on art commissions? How to file taxes as a freelance artist? May have occupied your mind lately. 

Once you understand the framework the tax system is standing on it will be easier for you to work out your taxes & understand which tax law applies to what part. In this article, you will learn how to qualify as a business for tax purposes? What are the possible income sources for freelance artists? Which deductions do freelance artists qualify for?

How To Qualify As A Business For Tax Purposes?

Once you start making a few bucks there will be tax consequences. How much you owe & how many deductions you are eligible to claim will depend on whether or not your artistic gift is qualified as a business. 

If your intention is to engage in your art practice for sports or recreation while it is also generating extra income you are making hobby income. You need to express the intent of making a profit to actually have it considered a business. 

And If you have made a profit in at least three of the past five years it is very likely that your activity will be presumed to be a business rather than a hobby.

Here is what you need to do to qualify as a business for tax purposes.

Consider whether you want the manifestation of your artistic gift to be classified as a hobby or business. Many artists, whose work has been very well received by their admirers, when start to earn money still think of it as their hobby or a side hustle. 

The technological breakthroughs have eroded the barriers to showcasing your talent to the entire world. Multiple online platforms like Patreon are offering opportunities to artists to generate income. Even businesses are demanding creative artwork more than ever to promote their product and services.

If you are struggling to find out the status of your activities you can use the IRS nine factors to determine if your hobby income has turned into business income. Once you decide to run it as a small business you need to make that official and for that, you might need to do the following to start your journey as a business person.

What Are The Income Sources & Relevant Forms For Freelance Artists

The freelance artist can earn from multiple sources such as selling digital painting, conducting online & offline workshops, creating videos on online platforms, etc.

A traditional employee receives a W-2 form which reflects your income earned & taxes withheld during a tax year to be reported on your tax return. 

On the other hand, if you are self-employed you will receive Form 1099 NEC which reflects your non-employment compensation. A self-employed person also files a schedule C to report income & loss from their business. 

It is noteworthy that self-employed people are liable to pay their self-employment tax which is a combination of social security and medicare taxes.

As a freelance artist, you are most probably classified as an independent contractor and will receive Form 1099 NEC. If you have been using the third-party payment facility to receive online payments (Paypal) for your services you might get a 1099-K form

Which Deductions Do Freelance Artists Qualify For? 

This freelance artist and taxes guide will remain incomplete unless we talk about the deductions as these help you lower your taxable income which in turn reduces your tax liability. 

Since 2018 IRS has no longer permitted writing off hobby expenses to lower your taxable income. However, if your artistic side hustle qualifies as a business then you are allowed to write off your ordinary and necessary business expenses to save your tax bills. Following are some of the expenses that you can write off as a self-employed artist.

Cost Of Creative Space 

As an artist, you might rent a creative space such as a studio or create one at your home. Whatever you do remember you can deduct the cost of maintaining it. 

If you are using your home space then you will compute your deduction by either using the regular method (actual expenses) or the simplified option (home office square footage *IRS prescribed rate). 

Your deductible expenses may include rent, utilities, home insurance, mortgage, etc. 

Travel Expenses

As an artist, you might have to travel many miles to create masterpieces. While the IRS does not allow you to deduct expenses that are lavish or extravagant and has been incurred for personal purposes but it does permit you to deduct ordinary and necessary travel expenses. These include the cost related to the

  • Mode of transportation 
  • Rides you take between your airport or bus station to your hotel.
  • Shipping of baggage
  • Lodging and non-entertainment-related meals.
  • Business calls
  • Dry cleaning and laundry.

Automobile Expenses

If you use a car for your work whether at your regular workplace or at a temporary destination you are eligible for a certain deduction. 

You can claim automobile expenses by either using the standard mileage rate (total annual business-related mileage *IRS prescribed mileage rate) or by keeping track of the expenses as they incur. 

The deductible expenses related to your vehicle include fuel, repair & maintenance, car insurance, parking, etc. These individual expenses cannot be deducted if you choose to use the standard mileage rate. 

Start-Up Cost

Once you start your business you will incur start-up costs. Let’s say you initially invested around $8000. You can treat $5000 out of this as a one-off deduction and will capitalize the remaining $3000. This means you will deduct this remaining cost over the years. 

While setting up your creative business you might purchase some assets such as a camera or a computer. You will recognize these as capital assets and will depreciate them over their useful life. 

Cost Of Promotional Campaigns

The freelance artist primarily uses all social media platforms to spread the word that they are creating art and are willing to offer their services. They might need to:

  • Develop a website and hire a developer. 
  • Hire a copywriter to write an excellent sales copy to give a call to action to customers to purchase their products & services. 
  • Offer free giveaways to keep people engaged. 

All these costs are tax deductible. 

Other Business Expenses 

Other deductible business expenses include 

  • Photo & video editing software 
  • Fees & other dues
  • Creative supplies
  • Health insurance 
  • Cost of hiring creative assistance 
  • Conferences & classes to upgrade your skills
  • Phone & accessories

Ever since technological breakthroughs have connected the entire globe, freelance artist and taxes have become a popular topic for discussion. Apart from income tax, you might also have to pay sales tax. How much state and local taxes you owe will depend on various factors. 

A tax specialist will make sure you file your returns without errors and get the benefit of every deduction & tax credit to save money on your taxes.

Ines Zemelman, EA
Founder of TFX