PATA | Taxes for Artists

Taxes for Artists

Led by Sandra Vincent of The Bookkeeping Company, LLC

Want to keep more of your earnings?
Here's some great advice from Sandra Vincent, from our networking event held on December 4th, 2006.

Disclaimer: Tax preparation is all very individual, so in addition to the advice noted here you should plan to do your own research and get help with any questions you have. Much of what is involved in preparing your taxes is based on very individual information. What follows is general advice, and cannot take into account each person's specific circumstances.

Accurate record keeping is the key to accurate taxes!
Keeping good records of your income and expenditures will not only make you less likely to have an audit, but also make an audit less stressful if it does occur.

Records of Income and Disbursements:

Income records will be either W2s (in the case of full- or part-time employment) or 1099s (for independent contractor income.) Independent Contractor income of more than $600 in a year from one employer must be reported to the IRS, and the employer must provide you with a 1099. For earnings of less than $600 the employer may elect not to send you a 1099, and that income does not need to be included on your tax forms.
Disbursement records, a.k.a. receipts! These include receipts from all expenses that have to do with your business. Keep all receipts that are related to your business! Each receipt should have the following information on it: date; name of vendor; description of the purchase (meal, office supply, etc.); if it is a meal: who was there and the reason.
Examples of things you should save the receipt for: movie tickets, gym clothes, meals (50%), dues, makeup, tax preparation!
Two suggestions for how to save your receipts: keep 12 envelopes, one for each month of the year, into which you'll place all of the receipts for that month. OR - tape your receipts into a spiral notebook where you can jot down the specifics of each purchase.

Tax Preparation:

Claiming what you are entitled:
Dependency Exemptions: these include exemptions not just for children, but also for grandchildren who live with you, parents you support, and adult children who live with you who do not work (or earn less than $8000) or are disabled.
Itemized Deductions: can include medical deductions for vision/dental/alternative medical care, medical equipment (including rentals) and even mileage related to medical care.
Contributions: there are new rules for '07 about how much you can deduct for donations of clothing, household goods, and vehicles. These new rules are more strict about keeping a record of what was donated, and the actual value of the item (for clothes, for example, it's generally about a third of the cost.) These are still valid deductions, though, so keep those receipts.
Miscellaneous Deductions: including unreimbursed employee expenses, mileage, tax preparation fees, appraisal fees for charitable contributions, depreciation on home computers used for management of investments, fees to collect interest and dividends, and legal fees related to producing or collecting taxable income or getting tax advice.

And the big one - Business Deductions: This is where all of those receipts for your black clothes, gym memberships, PATA membership dues, and resume copying goes. Make sure to keep all of your business-related receipts, and to keep them clearly marked, and separated out from your personal receipts. - In order to deduct "Business Use of Home" you must have a separate room used exclusively for your business that also meets several other specific criteria. You may then deduct the furnishings and equipment in the room, as well as a percentage of your home's utilities and rent/mortgage based on square footage.

Reporting your claims:
Schedule A: typically used by those who own their homes, may still be available to you - consult a tax advisor for details. You may be able to file a state Schedule A even if you don't file a federal Schedule A.
Schedule C: this is where those receipts go to work. This form is for reporting the income and expenses from your business. Most of us are the Sole Proprietor of our business, but for additional protection from lawsuits (what if the set you build collapses?) you may want to consider forming a Limited Liability Corporation, or LLC, which involves a $55 fee, and a form from the State of OR. Visit http://www.sos.state.or.us/corporation/business/starting_a_business.htm for complete details.
Schedule SE: where your self-employment income is taxed. This will add up to 15.3% of your adjusted income. If you anticipate the total due to exceed $1000, you should make quarterly estimated payments.

All of these forms, as well as instructions for each of them, are available at http://www.irs.gov/formspubs/lists/0,,id=97817,00.html

If you are audited:

Don't ignore the letter! Take it to a professional or call the IRS. Use as much documentation as you have, and don't be afraid to ask for help. The things most looked at in an audit are meal, entertainment and mileage deductions, so make sure you've got proof of what you've deducted.

To contact Sandra Vincent: