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.
Note: If you want to capture all your graphic designer tax deductions and maximize your savings, try Bonsai Tax. Our app could scan your bank/credit card receipts to discover all your potential tax write-offs. In fact, users save on average, $5,600. Try a 14-day free trial today.
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.
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.
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.
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.
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.
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.
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.
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:
Note: the best way to record all the tax deductions you qualify for and maximize your savings is with an app like Bonsai Tax. Our software will scan your bank/credit card receipts to find all the potential write-offs to claim and categorize the expenses at the push of a button. Users typically save $5,600 from their tax bill. Claim your 14-day free trial today.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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:
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.
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.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?