A little light reading about your finances in general.
Creating a budget and Example Budget for Artists . I highly recommend you download the forms available on the GY*T site. They are so useful and as they are geared specifically for artists, they are a heck of a lot easier to use than many of the templates available online.
And let’s examine cash flow.
*First, the tax system is changing this year so some of this information may become obsolete before you can use it. The language however is not changing and much of this information WILL stay current.
Taxes are difficult for small business owners and private contractors. Artists often fall into both of these categories. When first starting out, artist often have temporary jobs that are in the 1099 category. Be aware that if you have a 1099 form for teaching a class here or giving a workshop there, be aware that you are responsible for paying all your own taxes for that job. If you are a salaried or hourly employee with a w-2, the employer pays 1/2 those taxes, and if you filled out your forms right, you pay the rest before you even see a payceack. If you find yourself in the enviable position where you are completely supporting yourself with your art, you will need to file taxes quarterly or four times per year. Technically, we are required to pay taxes as we earn money. In a typical job, employers take care of this, deducting your taxes before you get paid. If you are self employed, be aware that what you make is not what you earn! Paying quarterly, or setting up a system in which you deduct your estimated taxes and put them in a saving account will help you a great deal. Trust me, when I first started out, I didn’t do this, and it took me close to 2 years to pay off what I owed in taxes for one year.
When you have a job with a W-2, you have a steady income, your taxes are taken out, and you know when that income is coming in. When you’re a freelancer, whether you’re an artist, a designer, or a writer, you may know when a project is going to actually happen but then again you may not and you may hope you know when you’re going to be paid but that’s often not sure either these days.
As a freelancer, you’re responsible for running a business, your business. As a self-employed person, you’re not only responsible for paying your own income taxes but you’re responsible for paying your own self-employment taxes. On top of that, you have to keep all the records for your business including your freelance income and your freelance expenses. Many freelancers encounter a cash flow issue when your bills come in before the payments for your work.
Tax Deductible Expenses for Artists
This is a basic list of typical expenses incurred by artists. You may have others.
- Art supplies
- Books, magazines, reference material
- Business gifts
- Business insurance
- Business meals and entertainment
- Cabs, subways, buses
- Copying, printing
- Cultural events/ museum entrance fees
- Entry fees
- Equipment and software
- Film & processing
- Gallery fees
- Gas and electric
- Legal fees
- Memberships (museums, professional organizations)
- Messengers, private mail carriers, postage
- Office supplies
- Studio or home office rent
- Tax preparation,
Tracking freelance Income and Expenses This is really good advice!
Speaking of Financial Disasters…..
As artists, we often find ourselves with very little savings, underinsured, and living close to the edge to destitution. Thus “starving artist”. Should something happen, and it does happen from car wrecks, to illness to natural disaster, it is easy to find oneself in a disastrous position. While you should do your best to plan for these occasions, there are some resources out there for artists encountering hard times. CERF or the Craft Emergency Relief Fund helped artists in Louisiana so much after Katrina for example. Also, NYFA has a fellowship for NY artists that provides services. Here’s a great list from women arts.org of other organizations that have been set up to aid artists in need.
Charitable contributions: There’s some good advice in the links above about how to claim your charitable contributions on your taxes. Now again- this may become totally irrelevant in the coming year. However, I would like to spend a moment talking about art auctions and the organizations that solicit artists to donate work to their cause. There are all kinds of organizations out there that artists inevitably get involved with. As you grow, you will find yourself invited to donate your work for these organizations to raise $ for their missions or projects. My advice first and some thoughts about auctions second. First, I suggest that you choose one or two auctions per year to donate to. Think about this at the beginning of the year. Consider how this organization has impacted you personally. Also consider what might be in it for you. It is great to have altruistic feelings about giving back to an organization, but remember that you are giving away your hard work. It is often the best way for us to “give back” as we so rarely have enough actual cash to give away. I think it is great to give an object donation to a group that is raising money for something you benefited from at some point yourself (think about the Clay Collective and its annual auction to raise $ for NCECA). Really think about what the organization is raising money for and really ask yourself if you can get behind the cause. There are several auctions that have enough prestige as exhibitions that your work will be seen by major collectors- thus creating a symbiotic relationship between the organization and yourself. Some auctions offer the artists a percentage of the sale. Regardless, it is so important that you give your best work and not that thing that has been sitting on the shelf, or a second or the like. This is still art going out into the world with your name on it. This work should reflect the standards of quality you hold yourself to when having work in an important exhibition. What are the drawbacks then? For one, it is rare that the work will be actually sold for what it is worth, thereby undervaluing the work you give. Some people wait all year for an auction, reserving their money for a good deal rather than paying market value. This is a disservice to you and the organization to which you are giving. Another drawback is that there are so many auctions to give to! Be careful not to overextend yourself. When giving to an auction, really look at the contract. Are you responsible for shipping? Do you have to pay $ to apply? Will you receive a portion of the sale? Is this a good cause or it this an organization raising money for its operating expenses?