Taxes for artists are no different than any other freelance business. Your 1099 income must be reported to the Internal Revenue Service (IRS). However, there are certain advantages of understanding the process for what the IRS expects you to pay for.
By understanding what qualifies as a business expense and properly keeping track of deductions you can save a lot of money. Also, you can reduce your taxes by using accounting software to automate your financial management.
In this article, we'll run you over some of the basics on how you will be taxed as an artist, the top tax deductions you can take advantage of, and how to properly file your quarterly taxes. Let's get to it!
Note: Use Bonsai's complete accounting software to easily do your self-employment taxes. Our tools help you track all your expenses, annual income, identify tax deductions, and estimate your quarterly tax payments. Come on board, we've got your back!
How are Artists Taxed?
The majority of artists are classified as "self-employed" for tax filing purposes. This implies that you are both your "enterprise" as an artist and an individual taxpayer in a legal and tax-paying sense. In contrast to a partnership, corporation, LLC, or other type of legal entity, there is no legal separation. A combination of your Medicare tax (2.9%) and Social Security (12.4%), make up the 15.3% self-employment tax rate.
The "Schedule C," which is where you report your art business income and costs, is often filed by the artist as part of the ordinary 1040 income tax form.
In addition to paying federal income tax and self-employment tax (Schedule SE) on your net income (profit), you may submit a form 8829 for a studio or home office deduction. These forms are all included in the year-end 1040 tax filing. If your federal tax due as a self-employed artist exceeds $1,000 for the year, you will often need to file Form 1040-ES, which is an estimate of your quarterly taxes. We’ll discuss more on making quarterly tax payments later.
When Being an Artist Is a Business and Not A Hobby
As an artist, you must decide if your artistic endeavor is a company or a hobby for tax purposes in order to comply with the IRS. So how does the IRS decide if your endeavor is a for-profit enterprise or a hobby? These nine standards are provided by the IRS:
- Whether you conduct the artistic activity in a professional manner.
- Whether or not the time and effort invested in it suggests you want to make the activity profitable.
- Whether your livelihood depends on the income from the activity.
- Whether your losses from the activity were brought on by uncontrollable reasons (or are normal in the start-up phase of your type of business).
- Whether you alter your operating procedures in an effort to increase profitability.
- If you possess the knowledge required to conduct the activity as a prosperous business.
- Whether you have previously been successful in turning a profit from similar activity.
- Whether or not the action generates a profit, and if so, how much.
- If the assets utilized in the activity will increase in value and result in a future profit.
Bottom line, your capacity to turn a profit at what you do is the key factor. If you generated a profit in three of the last five years your artistic activity will be considered a business. However, you must keep detailed business-related records and conduct yourself in a professional manner since you may need to demonstrate to the government that you have made an authentic effort to make a profit.
Tax Deductions for Artists
The IRS considers as business expenses those which originated from your line of work, profession or business, are "ordinary" and "necessary", and are NOT "extravagant" or "lavish" given the circumstances. These are many of the basic expenses you may incur as an artist that are generally deductible based on this criteria.
Keep track of the following deductible business expenses.
- Office or studio rental and expenses (whether at home or not) including utilities like phone or Internet.
- Business travel expenses such as hotel, food, transportation costs, and toll payments.
- Art equipment used in your trade including rental costs.
- Commissions or payment to managers or employees.
- Art materials and supplies.
- Safety equipment for your work or special clothing.
- Auto repairs and insurance.
- Legal fees or services.
- Fees from your banking institution.
- Entertainment and meals related to your business.
- Publications, advertisement, and other research materials.
- Fees for art seminars and workshops.
- Magazines and books related to your business.
- Membership or association dues.
- Mailing or shipping artwork.
- Copyright registration fees.
- Health Insurance Premiums.
Read our full list of tax write-offs for artists.
Filing Your Quarterly Taxes
Since as an artist you are considered a self-employed individual, you'll be required to pay quarterly taxes, aside from filing your annual tax return.
In most circumstances, if you anticipate owing $1,000 or more in taxes for the year—above and beyond the amount deducted from your wages—you must make estimated tax payments in order to avoid a penalty. You don't have to be a tax expert to do it, but the calculations sometimes can get tricky.
You’ll need to total up how much taxes you’ll be expected to owe in the following year and divide that number by 4.
Here's what you need to know about the due dates.
Quarterly Taxes Due Date
It's important to make your quarterly payments on time to avoid an Underpayment of Estimated Tax penalty. Here are the payment dates for tax year 2022:
- 1st quarterly estimated tax payment: April 15, 2022 (for the period of January 1 to March 31)
- 2nd quarterly estimated tax payment: June 15, 2022 (for the period of April 1 to May 31)
- 3rd quarterly estimated tax payment: September 15, 2022 (for the period of June 1 to August 31)
- 4th quarterly estimated tax payment: January 15, 2023 (for the period of September 1 to December 31)
Keep in mind if these deadlines fall on a Saturday, Sunday or a legal holiday, the payments will be due on the following business day. There will be a penalty if you wait until the end of the year to file your taxes. Each month you don't pay, the penalty increases by 0.5 percent of the entire amount due, up to a maximum of 25 percent.
How to Calculate Your Quarterly Tax Payment
Quarterly tax payments are also referred to as estimated taxes. The purpose of estimated taxes are to make payments on the taxes owed throughout the year.
To calculate your quarterly payments you are basically estimating how much income you'll make during the year to pay taxes on that amount. You may choose to itemize your tax deductions, or take the standard deduction method which may be different every year so make sure to double check the amount. You are also allowed to deduct 50% of your self-employment tax.
For example, if you expect to make 80k this year, and you choose the standard deduction method ($12,950 for a single taxpayer in 2022), plus you deduct the applicable percentage of self-employment tax. Your taxable income would be: 80,000 - 12,950 - 5,652 = $61,398.
The next step when calculating your tax payments is to use the applicable tax brackets (they change every year, you can find them here referred to as "marginal rates"). Assuming you are a single taxpayer, and considering your taxable income of $61,398, you would calculate your tax payment under three different brackets:
10% of the first $10,275 = $1027.5
12% of the following $31,500 = $3,780
22% of the remaining $19,623 = $4,317
This gives you a total annual tax payment of $9,125, which equals to four quarterly payments of $2,281.
How to Pay Your Quarterly Taxes
Now that you know how much your quarterly tax payments should be, submitting your payment to the IRS is very simple. You just need to fill out your 1040-ES form and mail it over along with a money order or check to the nearest IRS office. You may also pay online via the IRS Payments Gateway.
Use Bonsai for a Smooth Tax Season
As you can see, without proper expense tracking and documentation, calculating your artist income taxes can easily become a headache. To make this process a lot easier, use Bonsai Tax. You'll find an efficient invoicing and accounting software that allows you to stay on top of your business finances with income reports, categorize your expenses, track your profit and estimate quarterly/annual taxes.
All these tools make tax preparation a bliss, saving you time so you can focus on your passion, not your paperwork. Start today!