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?


22 thoughts on “Taxes, Budget and Finances

  1. I enjoyed the common freelance mistakes because it debunked or explained everything that I thought I knew. After looking into what a Schedule C is the article mentioned a 1040 form. When do I receive a 1099 and a 1040?

  2. I learned what a cash flow budget is and how to properly prepare one. My question is how do you know if something is a tax deductible expense? A fellow artist once told me if you see a movie and it inspires you to create a piece of work then you can use the movie ticket as a tax deductible expense which kinda seems like it’s pushing it.

  3. I learned that budgeting, keeping track of your finances, and setting financial goals will probably be a good way of knowing how to price your art as well as knowing when to raise your prices (as per my previous question about pricing). Are tax deductibles just things that we as artists/small business owners don’t have to pay tax on? and are these also expenses that we need to keep record of to receive the deductible?

  4. It’s great to see a long list of things that are a part of a taxable deductible expenses. Never knew some of the things listed would count. When would be the best time to keep track of all these expenses? Should they be listed as they are being done?

  5. This was very helpfull, as it answered the question I had in the sales tax reading. Most of this was new information to me, and I especially appreciate the other links that lead bookmarkable sites that we can keep handy upon leaving this class. What is the time limit to consider holding onto for receipts and old transactions? Meaning, how long should an artist keep purchases organanized and accessible, before they’re outdated enough to move out of the newer purchases?

  6. It is really great to see that there is something for disaster relief for artists. This is all great to know but since there seems to be room for marking down deductibles and other sources of just doing the right things… Who can we contact to look over what we have written down? I know that the CDC here on campus is available for alums but are there other sources?

  7. I learned a lot about what can be taxed and what can be deducted from taxes. Also, I learned how community service can also be listed to benefit your taxes. The other thing I learned that is very important is the differences between paying taxes as a solo worker and as an employee. Since I’ve always been an employee this is important information to know. I still have a lot of questions about how often I will have to pay taxes and where exactly I can do the taxes online and with help from a platform.

  8. The section about monitoring your cash flow answered a previous question I had asked. The template provided was helpful in undertanding how to make one for myself. It is also interesting to think about who to make charitable contributions for and how much you need to think about how it benefits you. How do you draw the line between only donating when it helps you or only because it is a good thing to do?

  9. I will say it’s great to have some instruction like this and help us to figure out those complicated finance problems. Unfortunately, I found that being an artist always means to have more tax forms to fill. And for some digital artist, they will publish their works on the website or some platform, it could be hard for them to calculate their outcomes especially when this platform has a donate button or something. Is there a term that explains this boundary clearly?

  10. Don’t put your throw-away art in an auction! Even though you’re not making a sale on the work, it is a taste of the type of artist that you are an can build up a positive reputation and generate future sales!

    What decides how often you pay taxes whether it be quarterly, annually, etc? Also, on the form that you gave as an example could you explain more about the income row and where those numbers are coming from?

  11. Considering doing math is not my strong suit, the equations and charts were really helpful in explaining how to price your work. At what point in your career is it appropriate to deny any negotiations or discounts? Does your level of flexibility in negotiations also an indication of your level of confidence?

  12. As the daughter of a small business owner I have seen the repercussions of poorly kept records and I have also seen how helpful it is to keep tabs on finances regularly. Is there specific software that would help with freelancing type of record keeping? Would meeting with an accountant when doing taxes be helpful and worth the expense?

    • Yes- get an accountant! They are worth the cost! They prevent mistakes, and they find money for you. They will usually make up their fees in getting you money back. So worth it to pay an expert in this case.

      I like Quickbooks for software. They have a mobile app receipt tracker (really helpful) that feeds directly into your accounting spreadsheets. You can also invoice from there. It does cost money, and you can do most of your accounting just from Excel, but again, paying for a tool to make your life easier means more time in the studio for you.

  13. This reading cleared up a lot of questions that I had about taxing my work. I feel like a lot of this will become clear with more experience. I never really knew how much there is to keeping up with your taxes, and this helped. Im definitely going to start keeping track of my spending, I’ll have to check out a few of these options and see which works for me.

    If you haven’t really kept a good record of your spendings, what is your recommendation on where to start? Do you think meeting with an accountant is a good idea?

    • Skyler, I don’t entirely practice what I preach. What I’m trying to say is I don’t keep a great record myself. What I have don’e to get around my own bad habits is to designate bank accounts for certain types of purchases. One for the art business, one for regular bills, one for my house project. And- I never spend cash because I’m really bad at keeping receipts. Then, at the end of the year, or the end of the quarter, I can print out my bank statements and put all that information into spending categories. It has made it a ton easier. Therefore, a good place to start is to spend an afternoon going through your bank and credit card statements. Make a spreadsheet with categories like art supplies, equipment, office supplies, postage, rent utilities etc.

      Second- I always recommend going to see an accountant. They can save you sooo much more than they cost.

  14. I learned in this reading that it is useful to keep a separate bank account and card for art related expenses. This seems very useful to keep your business expenses separate from day to day purchases. Are there people who specialize in helping artists with their finances?

    • There are, but be careful about people who advertise themselves as such as many of those like to take advantage or disorganized artists. Whichever community you end up in, ask other artists who they use for accounting services. There is a great group in Hornell for example who the faculty all trust.

  15. One thing I learned and was surprised about was the number of items that count towards tax deductible expenses. As an artist you don’t tend to think of the little things required that go into your work, it’s just part of the routine. Keeping a list of items used and required materials is definitely something that should be apart of your process, and something to be conscious about regarding expenses.

  16. I learned more about keeping money organized and how to utilize spreadsheets. I have questions about how many ways there are to do taxes like what sites are best? also does the bank get involved at all since there is money involved? And what are some of the forms that are talked about?

  17. There is so much information within these readings. One of the many things I learned was what to include on a bill of sale. There turned out to be more to it then I thought. However,taxes are still a confusing subject for me. One question I have is as follows: If the taxing system is changing, when can we find out about the changes and where can we look to do so?

  18. It is great to learn about different expenses as an artist that are tax deductible. I realized the importance of keeping a record of all expenses I also think it’s amazing that should artists go through a financial disaster, CERF an NYFA have programs that help and provide services.

Leave a Reply