Identify and Categorize Your Tax Deductions

Imagine you and your sweetie taking a long weekend in the surrounding countryside. This isn’t a business
trip — it’s just enjoying a nice bed-and-breakfast and the chance to indulge in some serious canoodling. Along the way you drop in at a couple of galleries and visit the local art museum, where you buy some art books at the museum shop. Sunday night you drive home a few hundred dollars poorer but richer in memories.

But are you really a few hundred dollars poorer? Probably not. Visiting art museums is a professional expense since you are a professional artist. So the entrance fee is a tax deductible business expense (not your sweetie’s unless he’s an artist also). Any art books you buy are deductible as professional reading.

With a little planning you could
 turn even more of the trip into a professional expense, but even if it
 is mostly a pleasure trip, there are also some deductible expenses along the way.

Many business expenses are obvious: the cost of materials used to make 
art, studio rent, framing and display costs. But I find artists miss many other legitimate expenses. Often this is because art is such an everyday part of their life that they fail to recognize certain expenses as business-related.

A deduction many artists miss is their insurance. Do you purchase insurance on your studio or have a special rider on your homeowner’s policy to cover your home office/studio? Those are deductible expenses. Health insurance and long-term care insurance you purchase are also deductible.

Any money you spend to let the world know what you do and what you 
offer is deductible advertising. This includes business cards, postcards with reproductions of your work and artist registries.

Most anything you spend learning
 to be a better artist is deductible: master classes and seminars, research trips (travel expenses and meals), professional reading (this magazine) and so on.

Criteria To Keep In Mind

Deductions Include:

■ Insurance for your home office/ studio

■ Health insurance and long- term care insurance you purchased

■ Research trips

■ Professional reading such as art books and magazines

■ Museum entrance fees

Now that you’re excited about tax deductions you have been missing, I must issue a couple of warnings.

A tax-deductible business expense must meet three criteria:

■ First, it is money you spent on your business (obvious but true).

■ Second, it is a typical expense
for a business like yours (e.g., a good camera).

■ Third, the expense isn’t lavish.

Lavish is a slippery concept, but generally it means lavish in comparison with other people at your level in your line of work. Your membership fee
to local art museums is reasonable. Buying a $30,000 camera to take photos of your work for Etsy is over 
the top. My advice is to track all of the professional expenses you already have but are not deducting.

Many of your expenses will be difficult to categorize, especially when you look at the official categories on the IRS Schedule C tax form. After all, where should you enter the cost of an entry fee to a juried show? And what about those professional training expenses? Where do they go? Aha, you exclaim, triumphantly flipping to Page 2 of the Schedule C — Here is a section (“Part V – Other Expenses”) where you can dump all of this stuff. And that makes sense because a lot of these expenses don’t fit anywhere else.

But be careful about lumping a lot of costs under the title “miscellaneous” or some other innocuous — and non-descriptive — label. If you paid only one entry fee, then subsuming it under miscellaneous makes sense. If you paid three or four entry fees, it’s better to have a line item that states “Entry fees for shows” in Part V, and list the total costs there.

If a significant portion of your total expenses is found in Part V, try to be as detailed as practical when using descriptive labels. Yes, you will have a miscellaneous category under Other Expenses (double ambiguity?). But as much as you can, use this only for one-off expenses if you don’t want to attract the attention of the IRS. Although no one enjoys paying 
taxes, remember that you’re doing so because you earned money from your art, which means people liked your work enough to give you money for it, which is the good news.

This is a complimentary copy of an article in the October/November 2014 issue. Click here to get the whole issue. Click here to subscribe to Professional Artist, the foremost business magazine for visual artists, for as low as $32 a year.

Robert Reed is a holistic financial
 planner (PartnershipFinancial.com). He
 is the author of Your Art Is Your Business (yourartisyourbusiness.com). He lives in Columbus, Ohio, with his wife, the author Lisa Klein. He enjoys playing classical guitar and is steadily improving (as measured on a geological time scale).

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