Taxes, Budget and Finances

How do I keep track of all this?!

Background of cash receipts and till slips randomly thrown in a drawer or box for accounting

As we learned in the Pricing your Work post, it is important to understand how much it costs to make your work, from fixed costs to variable costs. It is also important to keep track of your expenses to your income tax. You can offset the cos of your taxes by writing off a good deal of what you spend in pursuit of your art career. Keep your receipts! Keep track of your hours! You can do a lot of this with apps. I use an hours tracker and a receipt tracker. this way you don’t end up with a shoe box  or a ziplock bag at the end of the year or quarter to sort through.


A little light reading about your finances in general.

Ok, every business needs a budget – your art or creative business is no different. A budget for your business is sometimes called a cash flow budget or cash flow projection. Typically a cash flow budget covers a 12 month period and is updated over time. The concept is simple – you itemize your anticipated expenses by month and subtract them from the funds which come into your art business from sources such sales or cash injections like loans.

If you have money left over at the end of the month you can apply these funds to future monthly expenses. If you have a deficit at the end of the month you will need to come up with additional funds or possibly defer some expenses to a later date. Budgeting for your art business is really no different than having a budget for your home

KEEP A SEPARATE CREDIT CARD OR BANK ACCOUNT

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.

For example, here’s a simple budget I did for a recent craft show. This does not include the cost of my materials, rent etc, just the cost of the event and the income I generated.

 


Billing and Collection.

And let’s examine cash flow.

Reasons you need a budget

  • It will help you plan the growth of your art business and manage your finances
  • You will be able to see when you will need funds from sales or cash injections to keep your business going
  • If you are seeking financing such as a bank loan, a cash flow projection will be required of you
  • With a cash flow budget you should be able to minimize financial “surprises”
  • It will force you to look at where you funds are coming from and where you are spending these funds

Funds coming into your art business

  • Funds from sales made by cash, credit cards, checks or other electronic methods
  • Funds from customers who owe your money – these are called accounts receivable
  • Funds you put into the business – sometimes called an owners cash injection
  • Funds from personal or bank loans

Funds going out of your art business

Cash goes out of your art business every time you make a purchase or spend money. Many of these expenses are easy to forecast such as monthly rent on your studio or insurance payments. Other expenses may occur less frequently or on a one time basis. Some examples of some of the ways cash goes out of your business are:

  • Monthly rent, insurance and maintenance
  • Phone and other utilities
  • Sales, advertising and marketing expenses
  • Salaries and employment taxes
  • Materials and supplies used in creating your art
  • Planned expenses such as booth rental in an art fair or new project

How to prepare a cash flow budget for your art business

If your business is very small and you don’t have a lot of financial transactions you might be able to get by with just a pencil and paper. As your art business grows you will probably need to prepare your cash flow projection on a computer using some type of spreadsheet software. Many accounting programs also have built features to help you prepare a cash flow budget – be sure to check this out.

If you are not sure how to put together a budget ask for help from your accountant or bookeeper.  If you don’t have an accountant a friend or acquaintance may be able to help you.  A finally a web search on Cash Flow Projections will give you lot of resources on understanding and preparing a cash flow projection.

12 Month Cash Flow Budget Template

As your art business grows your need for cash flow projections and budgets will increase. Budgets are key to understanding how the financial end of your art business works. Budgets are also the tools that allow you to monitor your business’s financial activity and make corrective actions as needed. Take a bit of time and put together a budget for your business – not knowing how your business stands financially could be costly.


Taxes! 

*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.

From Freelance Taxation.com:

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.


Timely tax planning

Tax Deductible Expenses for Artists

Artists: Use this list to help organize your art tax preparation. DesignersFilm & video, and photographers, here are some more specific lists.

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
  • Framing
  • Gallery fees
  • Gas and electric
  • Internet
  • Legal fees
  • Memberships (museums, professional organizations)
  • Messengers, private mail carriers, postage
  • Office supplies
  • Promotion
  • Studio or home office rent
  • Tax preparation, 
  • Telephone
  • Travel

 

Tracking freelance Income and Expenses This is really good advice!

Got a Side Hustle? Here’s How you Pay Your Taxes

Learn how much to budget for Taxes as a freelancer

Artists to Reap Reward of New Tax Plan

How to do your Taxes as an Artist

What papers do I need to do my taxes?

Estimated taxes for artists

Claiming a loss

Artists Rejoice! Painting isn’t a hobby! from Forbes.com

What do I do when I have both 1099 and w-2 forms?

Bartering and Trading and more bartering info

Charitable Contributions and more charitable contributions *see below for more

Common mistakes when doing taxes

Interview from the Artists Guide

Financial Disaster kit


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?


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