With tax season coming upon us, I decided to sit down with Amanda Mills of Loose Alter, Inc. and capture a few of the wisdom she's gained in over 20 years expertise as a financial and organization management consultant for artists.
The tax program may be hard on artists. Artists just don't fit into a typical career path of creating a set amount of money and then growing that slightly year-by-year.
Here are the 7 most crucial lessons I learned from speaking with Amanda about artists, income and taxes.
1. Make your passion into a company. Claiming to the world, the government and your self that your art is a business can be a hugely essential step that demands courage and confidence. Reporting the income you create from your art shows that you're taking your art and yourself seriously.
Actions: Contemplate the beliefs that are underlying your choice of regardless of whether or not to report your earnings as an artist. And by all indicates, contemplate hiring a professional like Amanda Mills to assist you out.
Amanda's clients worth her exclusive expertise and understanding of the arts because she takes them seriously. Other accountants might have a look at the tiny earnings of an artist and ask, "Why bother?" Amanda treats your identity and earnings as an artist with respect and gives them the attention they deserve.
2. Fund your passion with a supplemental job. A "day job" does not need to be some thing that makes you miserable. If it really is, it's costing you a whole lot more than you are earning and you'd be far better off obtaining some thing else.
Look at the major picture - your supplemental job does not need to be some thing you are passionate about; its function is to present the funding for what you are passionate about.
Here's where a supplemental job can actually make things simpler with taxes. Let's say your supplemental job is teaching at a university, and you make $80,000 a year. You are also a sculptor, and you have established your sculpting as a small business.
You invest $40,000 on your sculpting in a year. Simply because it is a business enterprise, you are able to claim that as a business expense. So, instead of paying taxes on the $80,000 you earned at your supplemental job, you only have to pay taxes on $40,000. That could save you over $13,000 in taxes.
Action: Weigh out the expenses and earnings of your "day job". Take into consideration the financial costs (child care, gas, transit, parking, clothing, supplies, training, etc.), time costs (travel time, time spent at work, bringing work property with you, etc.), mental costs (finding distracted trying to solve work issues when you are at house, or other stressful thoughts related to work), and lastly the emotional costs (becoming miserable in a job you don't like, interpersonal conflicts with colleagues, or feelings that the job or organization just isn't aligned together with your individual values).
3. Art is life and life is art. For artists, there's considerably extra of a blurred line between individual and professional life.
Whether you're taking a trip, having lunch with a friend or seeing a movie, chances are that what you are doing will influence your creative work in some way.
And if you are not directly absorbing inspiration, you are fueling it inside your conversations, by talking about your work. And so these activities can frequently be deducted as enterprise expenses.
Action: Keep track of every thing you're spending dollars on and maintain notice of how it affects the enterprise of your art. Get receipts for every thing and maintain these in a folder, envelope or box marked, "Expenses".
4. Live at the bottom of the curve and maintain your footprints small. Artists often have an irregular flow of income coming in, so managing money flow may be tricky. It's crucial to see the low times (when less cash is coming in) as "normal", and budget yourself to be able to live on that. Keep your footprints small by minimizing the expenses of your lifestyle.
Then, when good times take place and some money is rolling in, you'll have the ability to take care of some larger issues - get the automobile fixed, as an example, or put some money aside for the next low time.
Action: Save three to six months of living expenses. Start tiny, just by putting aside 1 week of expenses. This is the best step you may take to minimize the impact of a fluctuating income.
5. Flatten your income. Artist incomes can vary wildly from year to year. 1 of Amanda's jobs would be to "flatten" a client's income out from 1 year to an additional. Often that's purely on paper and at times that is by means of strategic actions on the component of the artist.
It's particularly necessary that by your third year in enterprise, you are showing some earnings as an artist (that is normally the "red flag" point of time for the tax collectors).
Amanda recommends that her clients support this along by creating extra efforts to book shows, apply for as quite a few grants as doable, or by donating their artwork to charity.
Actions: Be mindful of the ebb and flow of your income, and how that may show on paper at tax time; not just this year, but within the history and future of your art small business. Also, make sure and tell your tax preparation specialist about any upcoming opportunities on the horizon.
6. Believe ahead and get your records organized. Contrary to the myth of the "flaky artist", Amanda finds that most artists are fairly organized.
Actions:
1. Get started by checking out the resources at Amanda's Artbooks web page (see below).
2. Find all of your revenue and expense receipts, sort them and add them up.
7. Come to peace with paying your taxes. Believe of it as rent for your country. If you are making funds at your art, get a person to figure out what percentage of your gross income goes to taxes, and send in your taxes as standard payments all through the year.
Otherwise, unless you're extremely disciplined at setting these amounts aside, you will wind up scrambling to come up with this large lump sum of money at tax time. This is a recipe for fiscal disaster.
Action: Choose upon quarterly or monthly tax payments, or possibly pay following you've received a massive payment which include a grant or a paid lecture.
© Linda Dessau, 2006.
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