Leslie Parke moving work in studio. See more of her work on Artwork Archive here.
Tax season can be a stressful time of year for artists.
We can guarantee that no one became an artist in order to do taxes. But, as the adage goes, "in this world nothing can be said to be certain, except death and taxes." So, as tax season rolls around, your head might be swimming with questions about how to file.
Did you make money as an artist last year? Lose money?
How do you know if you need to give Uncle Sam a cut anyway?
And, why are taxes still so gosh darn confusing—even for those of us who have been paying taxes as artists for 10+ years?
Well, for one thing, the IRS changes the rules every year!
In this series, Artwork Archive answers your questions with the freshest information for the 2022 tax season and helps get you started on the path to paying taxes with confidence. We help you focus on the seemingly basic questions of if you even need to pay taxes as an artist and, if you do, what kind of business you should classify yourself as.
Please note: this article should not replace the advice of a tax professional and should be taken only as general advice. The author of this article is not a tax professional; you should always consult an accountant for specific questions about your personal tax circumstances.
Here are some common questions that we often hear from artists around tax time.
How much money do you have to make to file taxes in the United States in 2022?
Well, it depends on your age and income.
From TurboTax: In 2022, you don't need to file a tax return if all of the following are true for you:
Under age 65
Don't have any special circumstances that require you to file, such as self-employment income from running a business. This will apply to most independent artists.
Earned less than $12,950, the 2022 standard deduction for a single taxpayer
If you are self-employed, is there a limit to how much money you can make that you do not have to claim as income?
From the IRS: You have to file an income tax return if your net earnings from self-employment were $400 or more. If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement listed in the Form 1040 and 1040-SR instructions.
So, if you are an artist who sold goods or services and generated a total net earning of $400 or more in 2022 on your art business, you should file a Schedule C.
As a visual artist, is it better to be a sole proprietor, an LLC, a C-Corp or an S-Corp?
For most visual artists who are running a studio practice, the choice is between being a Sole Proprietorship and an LCC, typically with one employee, yourself.
LegalZoom has a handy comparison chart so you can see all the options together.
From Forbes: The difference between being an LCC and a Sole Proprietorship is how much separation you want between yourself and your business. Being an LCC allows you to take on partners, provides protection from financial and legal liability, and might provide access to some tax benefits depending on where you live. It requires a separation of funds, costs some money to establish, and varies greatly from state to state, so you will want to consult a tax professional to establish an LCC.
A Sole Proprietorship can only have one individual attached to it and works well for freelancers and others who do a lot of contract work. It’s easier for emerging artists and doesn’t require a separation of funds but also doesn’t provide the protections of an LLC.
If your business is growing a lot and you have multiple employees, it may make sense to file as an S-Corp or C-Corp which are companies with boards of directors and shareholders.
Many artists have other jobs that are unrelated to their art in addition to a studio practice or art business they run. Should you file everything together or separately?
From TaxRise: You only ever file one federal tax return, regardless of how many jobs or sources of income you have. If you moved in the last year or worked in multiple states, you may need to file multiple state tax returns if income was earned in multiple states.
What if you have a spouse and their tax forms? Should you file together or separately?
This depends on your individual circumstances and most tax professionals will run the numbers both ways for you to maximize your refund or minimize your payment. If you or your spouse had a significant out-of-pocket medical expense this year, it may be better to file separately, but in most other circumstances, there are more tax benefits to filing together than separately, according to TurboTax. Another possible reason to file separately would be if one individual had a significant amount of student loans— filing together might cause your lender to increase your payment based on a higher reported income, according to US News.
What if your expenses were higher or equal to your gross income?
From HR Block: You will end up filing a Net Operating Loss (NOL). You qualify for an NOL if the loss you have incurred was caused by deductions from:
Trade or business
As an employee
Relocation or moving
How many years in a row can you report a loss without losing your business status?
The IRS’s 3 out of 5 rule states, “An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year.” If you want to continue to file taxes as a business, you need to show a profit, even a small one, in at least three years of returns. This is the IRS’s current list of nine determinations if an activity is a business or hobby:
Whether the activity is carried out in a businesslike manner and the taxpayer maintains complete and accurate books and records.
Whether the time and effort the taxpayer puts into the activity show they intend to make it profitable.
Whether they depend on income from the activity for their livelihood.
Whether any losses are due to circumstances beyond the taxpayer's control or are normal for the startup phase of their type of business.
Whether they change methods of operation to improve profitability.
Whether the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business.
Whether the taxpayer was successful in making a profit in similar activities in the past.
Whether the activity makes a profit in some years and how much profit it makes.
Whether the taxpayers can expect to make a future profit from the appreciation of the assets used in the activity.
If you don't make any income as an emerging artist, are you still considered a hobbyist?
If you haven't made an income from your art but can prove that you are trying to, you are considered a business in its earliest stages. If you don’t make a profit in the first three years, yes, you could be declared a hobby by the IRS.
Is there a max deduction you can take for your business expenses in any given year on your Schedule C?
From Turbotax: The IRS allows new businesses to expense things such as machinery, tools, fixtures, computers, software, and vehicles used in your business as start-up costs. In 2022, a business can expense up to $1,080,000 of these kinds of assets during the tax year. The amount you can expense is reduced if you purchase more than $2,700,000 in eligible property during the year.
If you qualify for a qualified income deduction, you can deduct up to 20% of your business’s net income on your tax return, according to NerdWallet. See if you qualify for this deduction here.
You can stay up to date about taxes for artists by joining our newsletter, where will we send you more common questions—such as if you should be filing your taxes quarterly or if annually will suffice. Then, download Artwork Archive's Free Guide to Finances and Taxes for Artists to learn more about what you can deduct and how to stay on top of your income and expenses.
Suzy Kopf is a multidisciplinary artist, college educator and arts writer. She has been an invited speaker on career development topics at the College Art Association, The CUE Art Foundation, Artists Thrive Conference, and the Maryland State Art Council, among others. She is a regular contributing writer for BmoreArt, as well as Baltimore Magazine, Johns Hopkins Magazine and the Baltimore Museum of Art and specializes in profiles on creatives, art business practice and exhibition reviews. Her work has been shown throughout the US and Canada and she has been the recipient of numerous residency fellowships including Kala, The Studios at Mass MoCA, Playa and VCCA.