Things You Need to Know About Income Taxes for Artists
Taxes can be frustrating. Sometimes it seems like the entire tax system is unfair, yet it helps our nation thrive. We pay taxes, it gets credited to the government’s treasury (“piggy bank”) and our country runs. If you are an artist, you need to pay attention to a few types of taxes. In this post, we will discuss a couple of important things you need to know about income taxes for artists in the United States.
1. Is Your Art Activity a Hobby or a Business?
This is the first and foremost important thing. Whatever you are doing: is it a hobby or a business? The IRS has a long list of criteria to determine whether your art endeavors are a hobby or a business. If you have monetized your art, then it generates for you a source of income. In this case, you fall under the category of self-employed. On the other hand, if you are doing what you do for passion and it is not monetized, then it will be treated as a hobby for income tax purposes. Further, if you suffer a net loss from your art and derive tax benefits from said loss, then the IRS may review your business model and ponder several other factors in deciding whether your activity is a hobby or business. To follow, expenses incurred in connection with a hobby are not eligible for tax benefits when they exceed the sales generated in that activity.
2. You need to File Both Federal and State Income Taxes
As an artist, you have to pay both Federal and State income taxes for artists if your net income is more than the stipulated government limit, a/k/a standard deduction. Also, you will be required to pay estimated quarterly taxes if your Federal (or State) tax liability is over $1,000 during the year. Apart from that, you also have to pay regular income tax and self-employment tax.
3. Sales Tax and Employment Tax
If you are making money by selling goods, then you are liable for sales tax (some exceptions apply). Also, if you gross over a certain amount from the sale of goods, then you have to pay sales tax to the government. Regarding employment tax: if you have staff working under you then, depending on the type of business you are in, you may be liable for the employer’s share of Social Security and Medicare tax on your staff’s payroll. So… all of this can get really confusing. That’s why, when it comes to artists who have monetized their art, it is recommended you hire an accountant for freelance workers in order to avoid any unwanted surprises.
4. What are the Business Tax Deductions you can Take
Did this article scare you a little bit? Well, it is not all that bad! That is because, on the bright side, there are tons of tax deductions available to you as a self-employed artist. You can deduct the expenses that you incurred for business traveling and meetings; for studio costs, supplies, equipment, and many more. The list keeps going, really. You should work with an expert accountant for artists in order to find out about all of the business tax deductions allowed by the IRS.
