An important part of starting an art business is making sure that you are set up to deal with the unexpected.
We all wish we could stay in the studio and live in a bubble of making forever, but in order to cover your bases, you need to set up the foundation of your business with the formal business model.
While we recommend professional legal counsel before making any legal decision for your art business, we have some basic steps to get you started.
You may have already opened an online store, started selling on Artwork Archive, or sold your work to family or friends. At this point, the government considers you a “sole proprietor”. You can continue selling in this way without legal repercussions or without filing for a business formation, but you are not protected from any potential liabilities.
Setting up a business identity and formation will depend on what you need for liability protection and what to consider for tax purposes.
There are a few popular business structures that artists usually use when they are setting up their art business. For the purpose of art-specific needs, we will be covering the following five structures:
- Sole proprietorships
- S Corporation
A lot of artists opt for a business structure such as an LLC, which separates your personal assets from your business assets. Without separation of your assets, if you are sued as part of your business (say someone slips in your studio), you would be personally liable and your personal assets would be used to pay for the damages.
Another scenario where an LLC would be helpful is, say, you have a print that incorporates a saying from a song or a movie that becomes popular. When you receive a cease and desist letter from that artist’s lawyers to stop creating that print as well as pay a fine, you will want to be protected by an LLC. If you have already set your business up as an LLC and you happen to be fined or taken to court, the courts can only take from your business assets and bank accounts—they cannot use your personal assets such as your car or home to help settle the damages.
However, there are more types of business structures than just LLCs. Here’s a breakdown of the five that are most applicable to your art business:
Sole Proprietorship for Artists
It’s just you, your artwork, and a dream. You are likely already, technically, a sole proprietor. This means that both your business and your personal assets are tied. When tax time comes around, all the income you have earned from your artwork is reported on your personal filings. Again, this means that you are personally responsible for all potential liabilities.
There are also some tax implications that you should be aware of when you are a sole proprietor. You will likely have to pay self-employment taxes and estimated quarterly taxes. In addition to your annual return, you will need to file quarterly. You will likely use a Schedule C and 1040 return but always consult with a personal accountant to make sure you are in compliance.
While that sounds like a bit of a pain, sole proprietorship is a relatively simple business model and is inexpensive to run and set up. Additionally, you only have to file on return and the tax rates are generally low. That said, you have the estimated quarterly taxes and are still personally liable for any misfortunes.
Partnership Business Models for Artists
If you have a collaborator in your art business or you are an art collective where more than one artist owns part of the business, you may want to look into a partnership for your art business.
There are few ways you can do this. You can establish a general partnership (where everything is divided equally), a limited partnership, or a limited liability partnership.
While a partnership is not technically a taxable entity, you will still need to file an annual return—but you will each be taxed on the income through your individual tax returns. There are some benefits to the partnership model, like sharing the financial burden of a new business and not paying income taxes on that partnership. However, you are personally liable for the other’s debt and have to trust your partners in paying their portion.
LLCs for Artists
An LLC (limited liability company) is a popular business entity for artists that, as discussed above, provides enhanced liability protection for you as the owner— as well as the tax benefits of a partnership. In order to establish an LLC, you will need to file in your particular state. Similar to a partnership, you can have multiple owners and will “pass the profits (or losses) through” your LLC to the owners who then will file that money on their individual tax returns.
Again, business structures such as an LLC are most common because they separate your personal assets from your business assets whereas working under a DBA you don’t have any separation—meaning if you get sued, your personal assets could be on the line.
DBA (Doing Business As) Options for Artists
A DBA translates to "doing business as." A DBA can be any registered name that you sell your artwork under that isn't your legal business name. A DBA isn’t a legal business structure and does not provide you with personal liability protection like an LLC, meaning if you’re sued for anything involving your business, a court could allocate your personal assets to pay damages.
Being a professional artist involves more than being skilled with paints or clay—you actually become a small business owner!
So, where do you begin? By creating a business plan.
That’s why we’ve come up with an outline for artists to follow on the next pages, so you can better understand your art business and develop a step-by-step strategy for success.
So when you are ready to carve out a half-hour or so, follow along with this guide and start writing down a plan to take your art career to the next level.