Artist Tara Leaver in her studio apron. Photo credit Ian Kingsnorth
You had a profitable year and as a result, you are paying taxes as a self-employed artist this year.
First off, congratulations! Now, you may have some questions about how to file as an artist and as a business.
A common question artists ask in this position is if they should self-employment taxes quarterly or annually.
A lot of profitable self-employed people don’t realize they should be paying quarterly to avoid underpayment penalties. When you’re employed by someone else, they withhold money from your paycheck each payroll to give to the IRS; when you’re self-employed, the IRS expects you to pay that portion of all earnings for yourself and they would like it spread out over the year, not all in April. This is because if you don’t pay out quarterly you might spend that money on something else throughout the year and not have it to pay your taxes, yikes.
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.
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.
Artwork Archive is here to help with some other common questions artists have about the difference between filing quarterly or annual taxes.
As a self-employed person, am I required to file quarterly or can I choose to pay annually?
According to the IRS: You must file an annual income tax return if your net earnings from your self-employment were $400 or more in 2022. If your net earnings from self-employment were less than $400, you still have to file if you meet any other filing requirement listed in the Form 1040 and 1040-SR instructions.
You will need to pay quarterly if you meet any of the additional criteria:
You expect to owe more than $1,000 after subtracting withholding and tax credits when filing your return, or
You expect your withholding and tax credits to be less than:
90% of your estimated tax liability for the current tax year
100% of the previous year's tax liability, assuming it covers all 12 months of the calendar year
The IRS calls paying quarterly according to these regulations, “Safe Harbor Rules.” Safe Harbor is a term applied to a lot of elements of the law but with taxes it basically means that by estimating and paying what you believe you owe you will avoid penalties for underpayment.
Turbotax reminds us that the 100% requirement increases to 110% if your adjusted gross income exceeds $150,000 ($75,000, if you're married and file separately).
It can be hard to determine if you made money as an artist during the year, especially if you have multiple sources of income unrelated to your self-employed art business. For this reason, many artists continue to pay annually because they aren’t making the majority of their income on their art sales. As TurboTax explains, “If you are self-employed, you need to account for both halves of the self-employment tax because you are both the employee and employer [...] you can deduct half of the amount you pay in self-employment tax from your income on your Form 1040.”
How, where, and when do I need to make my quarterly payments?
You can pay the IRS directly and securely online on January 15th (of the following year), April 15th, June 15th and September 15th or you can mail quarterly checks. Check with your state for their filing requirements but most have a way to pay online as well. Keep good records of your online payments.
I am filing self-employed taxes for 2022, but I haven't been paying quarterly taxes. Should I expect to pay a penalty?
A lot of artists wonder if they can backpay all their taxes at once. And, you might be wondering if there is a penalty if you are off by a certain percentage of payment of your estimated quarterly taxes.
Yes, you will be penalized if you underpaid or did not pay your quarterly taxes as a self-employed person who owes more than $1,000 after subtracting withholding and tax credits when filing your return.
However, the IRS will waive the penalty if you:
Didn’t pay because of a casualty, disaster, or other unusual circumstance or
You retired (after reaching age 62) or became disabled in the current or prior tax year and:
You had a reasonable cause for not making the payment
Your underpayment was not due to willful neglect
Penalties vary by circumstance but can range between .5-.25% on top of the total you owe according to Keeper. As a self-employed person with a consistently profitable business, you should get used to paying quarterly taxes.
If I was unemployed for a time and then started to be self-employed, should I still pay quarterly?
You need to report whatever income you made to the IRS, however it was made. If you’ve only been self-employed for part of the year but expect to hit the threshold of 1K in profit, you should start paying quarterly mid-year, as soon as you’re profitable, according to TurboTax.
What if I've been paying taxes quarterly to the IRS but not to my state?
It is likely you will owe a late penalty to your state, this will vary depending on where you live and how much you owe. It is best to pay as soon as possible and not wait til the April filing date as you may owe a higher percentage the later your payment because penalties include interest.
How do you know if, in the first quarter of the year, I'm at the $1,000 mark?
If you’ve been self-employed for a few years and have other records to look at, you can pay ¼ of what you paid in taxes for 2022 for each quarter of 2023. Or, if you are newly in business, you can add up your profits and expenses and see if you’re on track to exceed 1K by the end of the year (you’d be at $250 taxable profit by the end of the first quarter).
What happens if I have another job outside of being a self-employed artist?
If you are an employee with a W2 in addition to being self-employed, you might be wondering if you have to pay quarterly taxes if you have extra money withheld from a W2 to cover the self-employed taxes.
While you are one person and one taxpayer, these are separate tax concerns. Your employer who is giving you a W2 is paying the quarterly taxes on your position for them. If your self-employed business is making more than $1,000 after subtracting withholding and tax credits, you need to pay quarterly taxes for your business.
What else do I need to know about filing quarterly taxes as an artist?
Do the quarterly payments have to always be the same amount, or can you pay more than one quarter, less another quarter if, for instance, you had no income for the first quarter? Or, if you only make money in one quarter of the year, say with holiday markets?
You do not need to make equal quarterly payments, but most people do them in equal amounts throughout the year. According to TurboTax, here are some circumstances where you might pay different amounts:
If you had your previous year's overpayment credited to your current year's estimated tax payments.
If you don't figure out your estimated payments until after April 15 when the first one is typically due.
If you unexpectedly make a lot of money in one quarter.
Keeper has a great chart as part of this article which explains Annualized Income. Annualized income allows freelancers or self-employed people to calculate different quarterly payments according to their seasonal income. So, if you make less money in the spring you can pay less money in taxes in the spring, and so on.
Join us next time for a breakdown of what you can actually, honestly, deduct as a visual artist.
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.