Webster: Schedule C for artists — made simpleWritten by Jules Webster | | firstname.lastname@example.org
2010 was a good year for many artists and designers in Toledo. Although the economic downturn was unkind to some in our field, others saw their sales and the demand for artwork and art-related services (graphic, Web, and sound design; event promotion) increase beyond expectations. When you reach the point where your hobby or side job becomes a regular form of work for profit, you are required to file a Schedule C with your 1040 tax return.
Many people aren’t comfortable taking on the responsibility of converting their primary form of artistic expression into a “for profit” entity, and are even more uncomfortable keeping business records and filing paperwork with the appropriate government agencies. I felt the same way until I sat down with a certified public accountant who explained how the IRS categorizes types of deductible expenses for sole-proprietors. Most artists are sole-proprietors, and the paperwork required for this type of business is relatively simple. Even if you take in only slightly more money than you spend on art materials and supplies used in art production, you can significantly reduce the amount you owe in taxes or increase your return by keeping accurate records of your expenses and deducting them from the amount of your taxable income.
Each artist and business is different; consult a professional CPA who can assess your situation and help prepare your tax return. The more organized your records, the smaller the fee for preparing your return. Print or download the two-page Form 1040 Schedule C and related instructions at www.irs.gov and familiarize yourself with the documents. Most artists will list their expenses in 10 or fewer categories in Part II: Expenses of Schedule C and itemize large or miscellaneous purchases in Part V: Other Expenses.
For ease of preparing your year-end taxes, keep a running total (which you tally and record at the close of each month) of how much your business spent in the following deductible categories. The number listed next to the expense category title corresponds with numbers found on Schedule C. Assume that all receipts being counted are ordinary, necessary and generally accepted within your business field.
- O 8-Advertising. The cost of print ads, design services, website production, TV and radio commercials, postcards and printing for all promotional materials.
- 9-Car Expenses. Keep a log of all miles driven for business purposes. This does not include the miles driven to and from home to your office or main workplace. It’s usually better to record your mileage and be reimbursed at the set mileage rate than claim itemized car-related costs. Keep a tab of tolls and parking fees incurred because of your work.
- 17-Legal and Professional Services. Fees paid to lawyers and accountants who prepare business documents.
- 18-Office Expenses. Pencils, pens, paper, ink, Post-its, file folders, envelopes, tape, etc. This category also includes money spent on postage and package delivery. It does not include office furniture or computer equipment, which are listed on Form 4562 and depreciate over several years.
- 20-Rent. The amount paid for office/ studio space.
- 22-Supplies. A broad category which includes all merchandise and materials purchased for resale or consumed during one year’s production. It also includes professional equipment with a useful life of one year or less such as paint brushes and dust masks.
- 23-Taxes and Licenses. Keep records of the sales tax paid to the state and government fees related to starting or operating the business.
- 25-Utilities. Total cost of utilities for your workplace. Does not include home phone or cellular lines, unless the phones were added on top of current “base” coverage and used for the business.
- 27-Other Expenses. This is the sum of all business-related expenses that don’t fit into other categories. These expenses are itemized in Part V and can include, but are not limited to: computers and related equipment, credit-card processing fees, tuition for classes/training in your field, selling expenses (juried show and craft fair booth fees), professional photographic services and a plethora of other things. File copies of all miscellaneous or questionable expenses and have your tax professional help you decide where to account for each.
More info on the Schedule C and helpful tips will be continued in the next Star.
Jules Webster is owner of Shine Ceramics and Shine 419, a division of the business created to promote Toledo’s vibrant creative scene. Visit www.shineceramics.com or e-mail email@example.com.