If you are someone who sells commissions in exchange for a fee, then you need to learn about freelance artist taxes. Even if it is something you enjoy doing in your spare time, you still get paid for it - and if you get paid, you need to report the income to the IRS.
Income received from a freelancing business is taxable income - and as a result, you are considered a self-employed person. Read our guide to find out what taxes you have to pay and what tax deductions you will be eligible to get.
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Do You Have to Pay Taxes If You Do Art Commissions?
As long as you get money from the art commissions and you also earn a profit, you will have to pay taxes. Only when you are doing it as a hobby, without making any profits, can you get your tax money back.
Here's the process: regardless of how much money you make - be it $400 (at which point you need to pay self-employment tax) or $1, you will need to report your income. On tax day, you can apply for deductions, where you can get the tax money back for the resources used.
If the art is a hobby, then they will basically cancel each other out - so, it will be like you are paying nothing. With that in mind, you are still reporting and paying taxes, despite the workaround.
Can I Avoid Taxes As a Freelancer?
Even if you can do something, it doesn't mean that you should. You need to declare your freelance earnings by the end of the tax year, regardless of how much you earn.
If you ignore your taxes, you might avoid the eyes of the IRS for a while. If they don't notice, consider yourself lucky. However, if they do, you might find yourself with added interest, fines, or even jail time.
You might escape with only paying how much you owe, but this only happens if you make the report yourself. If the IRS is the one issuing the audit, then you might be faced with a greater penalty.
If you make over $600 as a freelance artist, then you will receive a form 1099-NEC or form 1099-MISC from your payer. One of these forms will go to you, and the other will go to the IRS - which means they will certainly know you owe taxes.
If you make under $600, then you won't get either of those forms. However, you still need to report it as self-employment income by tax time.
If you are self-employed with your own freelancing business but have never paid one tax for that, then you might want to bring this matter to your attorney and your accountant. If you still want to be in good standing with the IRS, then you must pay up to six years back. Otherwise, you will lose credibility and will receive grave penalties - especially if the IRS is the one to catch you first.
What Taxes Will Freelancers Be Required to Pay?
As a freelancer or sole business owner, you will be required to pay your income taxes, just like you would have to if you were working at a 9 to 5 job. However, aside from income tax, you will also have to pay the self-employed tax.
The latter is to pay Social Security and Medicare taxes, which would have been handled by your boss. However, now that you are your own boss, you will have to pay this tax by yourself.
Income taxes also break down into different types: federal taxes, state taxes, city taxes, and local taxes. If you hire people to work for you as well, whether it's full-time or project-based, you will have to pay half their income tax, withholding the other half from their taxable income.
Last but not least, sales tax is also something that you will have to deal with as the sole proprietor of a freelancing business. Aside from Alaska, Montana, Delaware, New Hampshire, and Oregon, every state has sales taxes on products and goods.
When you file your taxes for the income tax return, you only need to file for physical products. If your freelancing business only provides a service, then you don't have to worry about the sales tax.
Tax Forms a Freelance Artist Needs to Deal With
As a freelance, you will have several tax forms to work with. Some will be used to report your income, whereas others can be used to get your tax deductions. Here are the tax forms you will come across.
- Form 1040 - This one is used to fill in all your information for your individual tax return. This is used to opt for either itemized or standard deductions, report income, list dependents, and any other information you may need for your tax return.
- Form 1099-MISC - This is a form that you will receive from your payer when you earn more than $600 per project. You may also get a form if you earn less money, but in this case, the payer is not required by the law to send this form.
- Schedule SE - This form is used when figuring out how much self-employment taxes you owe. It can also be used in order to account for half the owed deduction.
- Schedule 1 - Schedule 1 is used to report any additional income you may have. It's also where the last of your business income goes, along with several deductions.
- Schedule 2 - When paying for extra self-employment taxes, you'll be using Schedule 2. This can include the alternative minimum tax or the self-employment tax.
- Schedule A - If you go for itemizing, Schedule A will list out the deductions that you can make here. You will get all the boxes to calculate your taxes and get a minimum.
- Schedule C - This is one of the most important forms for freelancers, as this is where you report any profits and losses that you have. A schedule C with 1099 is where you put in your gross receipts, your business expenses, and all the other key items that have to do with your business.
The chances are that you will not have to bother with all of these forms. The ones you'll have to fill in will depend on your income and the deductions that you may take. If you are not completely sure what forms you should use, a good piece of advice would be to hire an accountant.
How Much Tax Do I Pay As a Freelancer?
As a freelancer, you have to pay two types of taxes. First, you will have the self-employment tax, and then you will have the income tax. For income taxes, you can pay between 10% and 37%, depending on the federal tax bracket that you are in. The higher your income, the more you will owe in terms of income taxes.
The self-employment tax is generated automatically if you earn more than $400 worth of net profit for your art. In this case, you will pay a 15.3% self-employment tax on 92.35% of your taxes. This money will go on your Social Security and Medicare taxes.
How Much Should You Set Aside As a Freelancer
Every freelancer may pay different sums when it comes to taxes. However, it is common sense that you put aside around 30% of your paycheck when filing for taxes.
This usually applies to those that have an average income from their freelancing work. If you earn very high amounts of money (i.e., you are a high earner), you may have to pay more than 30%.
On the other hand, if you earn very little, then you may also pay less than 30%. It mostly depends on the tax bracket that you are in.
Depending on the state that you live in, you might have to pay a separate city tax as well. Still, in most cases, it is enough to save for the federal tax (which is the Social Security and Medicare tax), state tax, local tax and other usual taxes.
However, if you are living in a bigger city (i.e., New York), your business might get hit with a city tax as well. This might increase your tax rate, and you may be required to set aside as much as 40% for the tax season.
What Tax Deductions Do Freelancers Qualify For?
Freelancers have their share of tax deductions that they can qualify for. When filing for your tax return, here is a list of freelance artist tax deductions that you may get:
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Self-Employment Tax
When you work for a boss, they would pay half of your 15.3% self-employment tax. However, now that you have your own business, you will have to pay that tax yourself in full.
Luckily for you, you can also deduct half that sum - the amount that your boss would have paid. Depending on your income, you may or may not be eligible for this deduction, so you may want to contact a tax professional and see whether you are eligible or not.
Home Office & Supplies
The home office is the most important deduction you'll be able to claim, as there is a very good chance you will be doing your business from home. No matter if you own the place or are renting, you'll be able to deduct the room (or part of the room) when filing for tax deductions.
According to the IRS, you may claim a total of $5 per square foot, for a maximum of 300 square feet. Bear in mind that line 16, 25 and 27 should not be included here. All you should deal with is line 30.
Also, do you use things such as pens, paper, or other office tools when doing your art? In that case, you may deduct that as well through line 18. You might want to make sure that you keep all the receipts for this.
The Internal Revenue Service now moved on digital means of showing proof. As a result, if you do not have the actual receipt, you can use your credit card statement or bank record, as long as it is clear the purchase was for supplies. If you do not want to stash paper receipts all over your home, you may also snap pictures of each receipt and save them on your computer.
Hardware and Software
As a freelance artist, you'll probably have a lot of hardware and software to deal with as well. For instance, if you need to buy a tablet or something to do your art on, then you may deduct that during tax time. This applies to computers or other types of hardware you may need.
Software deductions is also included here. For instance, you may have to buy Photoshop or any other programs where you may do your art. Whether you buy the full program or you are going for a subscription, you may get deductions when applying for tax return.
Health Insurance Premiums
As a self-employed individual, the chances are that you are paying for your health insurance. In this case, you may deduct the health insurance premiums. Bear in mind that this deduction cannot go past your annual earned income, were you to be eligible for it.
Travel Expenses & Mileage
Let's say that you are the sole proprietor of a small business, where you offer commissioned portraits to your clients. In certain circumstances, you may have to travel in order to meet the client - be it to discuss the project or to deliver the finished project.
In that case, you may be able to deduct travel expenses. This includes lodging, plane tickets, car rental - and perhaps even dry cleaning if necessary. You may also plan a vacation around this kind of trip, but you may only deduct the part that was spent on doing business.
Bear in mind that you may only claim business deductions that are deemed "ordinary and necessary." Let's say you went to the Wizarding World of Harry Potter. If you are an artist looking to interview craftsmen there and are there for an extremely good reason, then you might get some business deductions. Otherwise, it might fall under personal expenses.
Furthermore, just like you can claim tax deductions when you are out of town, you may also deduct the mileage when you are still around. This is very useful when you are driving around a lot, meeting clients.
For 2021, the mileage rate was 56 cents per mile, whereas in 2022 it is 58.5 cents. Make sure to do your research, as the mileage rate changes every year.
Try our mileage tracker worksheet template to record your business miles.
Education
On occasion, your line of business may require that you obtain a specific certification or earn certain skills. If this is your case, then you may get deductions for it.
Bear in mind that the education expense deduction only applies if you need the certification in your current line of business. You will not be able to get it if you are trying to change your career or gain different skills unrelated to your business.
Internet and Phone
If you get your business income from freelancing, then you have to pay quite a bit in business expenses for phone and Internet. With that in mind, when you file for an income tax return, you may deduct the phone bill and Internet as well.
To make your tax preparation easier, you might need a different phone line and Internet connection. This way, you will get a full deduction for the income and expenses.
That being said, freelance business owners may also calculate estimated tax on a personal line. You will just need to deduct the percentage that you use for business and then file taxes like you normally would.
Transaction Fees
Does your business get paid through PayPal or any kind of third-party payment platform that requires a transaction fee? If that's the case, then you can deduct the estimated tax as well. This should make it much easier on your income and expenses.
When you file taxes, put them together on line 27A. If your line of business has you selling products on pages such as Etsy, you may write off the tax here as well.
Loan Interest
Business owners do not have it easy. You need to pay for a variety of things such as the social security tax and other business-related costs. The problem is that when you handle these business costs, you do not have a lot of funds left to help you increase your business area.
For instance, as a freelancing artist, you might have to get a loan to buy a fancier graphic tablet with more options. This will give you more control over the business and you should be able to finish your project much faster. The faster you move, the more projects you will be able to take on - and this will allow your business to grow.
The problem here is that these items come at a hefty price, so it's great when you can write at least the interest off. Credit and debit cards you get for this purpose can also be written off on Line 16.
Contributions to Retirement Accounts
When you are the sole proprietor of your own small business, the chances are that you are also responsible for contributing into your retirement account. Social Security and Medicare taxes may cover some of this, but very often, you will find out that it is not enough.
Luckily for you, retirement contributions may also be written off when you file freelance taxes. Make sure that you keep track of all the contributions you make to IRA or SERP accounts, so that you may get your due tax deductions.
In most cases, this deduction was made for small businesses that can contribute up to $53,000 every year. Each dollar that is contributed to these accounts is fully deductible.
Marketing and Advertising
The problem with being a freelancing artist is that unless people know you, you don't get many commissions. When you are just starting the business, you'd be lucky to get one commission every couple of weeks, until people start knowing what you can do.
This is why you need to get your business out there by means of advertising. As the sole proprietor of your somehow small business, you will have to pay these business expenses from your own taxable income.
This is why you will be happy to know that you can get a tax return when you file your taxes. All marketing and advertising expenses used to attract clients to your business are fully deductible.
Startup Costs
Let's say that up until now you were only a hobbyist, but now you decided to level up your art. Now, you want to be your own business owner, so that you can get actual business income from your passion.
The problem is that startup costs for businesses can be rather high, and we are not only talking about registration. We are talking about costs to buy the business gear as well. For instance, this may include tablets, pencils, or whatever tools you may need.
As long as it is related to the startup, these costs are fully deductible. If you still have doubts about what is and what is not deductible, you may want to discuss matters with your accountant. You may deduct up to $5,000 of these costs.
How to Do Your Taxes As a Freelance Artist
To pay your taxes as a freelance artist, you need to fill in Schedule C from your form 1040 for tax return. You also have to make sure that you pay your self-employment tax.
When doing your taxes, ensure that you report all income you make, even if you do not receive a 1099-MISC. Keep all the records so that you can make the proper calculations.
You may file freelancer taxes yourself using tax preparation software, an IRS tax calculator, or by hiring a tax accountant. The latter is generally recommended when you do not know the tax law.
They will have a better notion of what forms must be filed and how much you will have to pay. This way, you won't have the unpleasant surprise of finding out you paid too little in taxes or even overpaid.
Deadlines for Quarterly Taxes
If you are self-employed, you have two options to pay your taxes. On one hand, you can pay it all in one sitting on April 18, 2022, for the 2021 tax year. You will need to file the forms first - otherwise, you might end up with a penalty.
The other variant is to make the payments quarterly. This is a typical option for freelancers, as you pay 25% of your taxes every quarter.
The last quarter for the 2021 tax year was on January 18, which covered September 1 and December 31. Now, the quarterly estimated tax payments for 2022 are as follows:
- Quarter 1 - April 18, 2022: Covering January 1st - March 31st
- Quarter 2 - June 15, 2022: Covering April 1st - May 31st
- Quarter 3 - September 15, 2022: Covering June 1st, August 31st
- Quarter 4 - January 15, 2023 - Covering September 1st, December 21st
Keep them in mind so that you don't miss any payment day. If the due date falls on a holiday or the weekend, then the deadline gets extended until the next weekday when the banks and offices are open.
The Bottom Line
Running your own freelancing business might feel rather scary, especially considering how you will have to do your own tax work. Still, as long as you keep track of what is tax-deductible, things shouldn't be that complicated. Work closely with your accountant so that your freelancing business does not bring you any tax surprises.
