Are you ready for tax season?
Don’t wait until the last day to complete your taxes; do a bit at a time!
Tax season has officially arrived. Most people loathe filing their taxes, but it doesn’t have to be a painful experience. Here are some things to take into account when preparing for tax time:
1.) Develop a Plan
Don’t wait until the last day to complete your taxes; do a bit at a time. Our comprehensive Tax Time Roundup is a great starting point. You can find free tax help, financial counseling and even review tax requirements for artists from abroad. Maintain a proactive approach throughout the process; add specific tasks to your calendar, such as organizing receipts, meeting with an accountant and tallying tax deductions. If needed, create alarms for yourself to ensure you don’t let deadlines slide. By developing a comprehensive timeline, you can accurately organize your documents in advance and file with the IRS by April 17 (deadline for 2018 taxes).
2.) Understand your deductibles
As an artist you may have certain deductibles, such as art supplies, studio space rentals, entry fees for submissions and travel costs. According to the legal website Nolo.com, “Professional artists are usually independent contractors, not employees. A self-employed artist may deduct any expense that is directly related to the art activity, ordinary and necessary, and not lavish or extravagant under the circumstances carefully.” In addition, it’s beneficial to keep business transactions in a separate bank account in order to track your expenditures.
3.) Prove your art is your professional vocation
Whether or not you can claim tax deductions depends on whether or not you are conducting your activities as a hobby or a business. The IRS determines the activity’s status for profit or as a hobby by reviewing the following factors:
- Does the time and effort put into the activity indicate an intention to make a profit?
- Do you depend on income from the activity?
- If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
- Have you changed methods of operation to improve profitability?
- Do you or your advisors have the knowledge needed to carry on the activity as a successful business?
- Have you made a profit in similar activities in the past?
- Does the activity make a profit in some years?
- Can you expect to make a profit in the future from the appreciation of assets used in the activity?
In addition, you have to state the structure of your business: sole proprietor, partnership, corporation, LLC or LLP.
If you plan ahead, you can determine your tax deductions early and, consequently, get your tax return sooner! There are several resources that offer financial support, tax preparation and planning for artists and creative professionals. Don’t delay the inevitable, find the tools you need to tackle tax season successfully.
Note: This article was updated on February 20, 2018 and applies to taxes filed in 2018 for the 2017 calendar year.
– Glory Edim, Program Associate, Online Resources
Image: Andrew Brischler (Fellow in Painting ‘15)