Note: The author is not a tax professional, just an artist and small business owner relaying her own personal experiences. For professional tax help, visit your nearest Certified Public Accountant (CPA). First published on another site, moved here and updated in 2020.
If you’re reading this article, it’s probably tax time! Or perhaps you’re super on top of things and planning ahead for when that time comes. As a small business owner or artist, what are your obligations, and what can you expect? What is the best way to get all these calculations and paperwork done? And of course, everyone’s biggest and most favorite question – what sweet, sweet tax deductions are you able to take as an artist to lower your taxable income?
If you’re reading this at tax time, we’re going to assume you’re in a bit of a last-minute panic mode right now, so we’ll give you the use-right-now tips first. But please do save a link to this article (perhaps by pinning the image at the top?) to read for later, as well, as the second half has the sorts of tips that will help you avoid precisely this panic for next year.
If you’ve got the budget and the idea of doing your own taxes stress you out, by all means, go see a CPA right now! The sooner the better. They’re all crunched for time right now, but they can help you file for an extension so that you can get through things at a pace that allows you to be completely thorough.
But you’re probably here because you’re looking for some other solution – of course you know that going to a bookkeeper or an accountant is the easiest way to get this done professionally. But for whatever reason (probably mostly money, or you’re a control freak who needs to do everything themselves), you want to do this yourself.
So, what are the best things you can do on your own RIGHT NOW to get your taxes straightened out?
1. Get Everything Organized
Are ALL of your income and expenses recorded in one easy to read file, or a series of neatly organized files? If yes, you’re a step ahead of the game. If you’ve got a pile of some 1099’s and a box of receipts and that’s it, you’re going to have some more work to do. Don’t procrastinate any more – just dive in and get to work. Reading this article should be the very last thing you do before you start actually making sure you’ve got all your income and expenses recorded.
You’ll need your records for:
- every sale you’ve made
- every service you’ve provided that you’ve received money for
- every time you provided a service /made a sale / etc and a business issued you a 1099
- basically every time anyone gave you money for anything in your business
And then you will want your records for:
- anything you ever spent money this year on that had a business purpose
When can you start? You should ideally be tracking everything throughout the year, but starting January 1st, you can start really making sure you’ve got good records for the prior year. You’ll need to wait a while longer to file, though, as a small business owner, as you need to wait for any 1099’s that may come. Technically people who’ve subcontracted with you and are paying you as “nonemployee compensation” need to mail them out by January 31st (new as of 2017), but you’ll want to wait until mid or late February to really get started with your filing, so that you aren’t stuck getting someone’s late-mailed 1099 after you’ve already filed, triggering an audit.
Start working on your expenses first – you’ve got a bit more control over those, as no one but you is responsible for filing with the IRS about them.
2. Track Your Mileage
Mileage is one of the biggest deductions you may be able to take, especially if you travel a lot in the name of your arts based business.
Have you been tracking your mileage all year? Awesome! Then this should be easy.
If you haven’t, here are ideas for mileage that you can probably reconstruct so you can write it off:
- Expense-related mileage
Go through your expense receipts again. For each of the things where you had to drive somewhere to get/do the thing on the receipt, that was a legitimate business use of your car. So use Google Maps to figure out how far that roundtrip drive was.
- Income-related mileage
Go through your income. Did you have to drive somewhere to earn that income? Then you should write the mileage for that trip off.
- Meeting-related mileage
Have you had regular meetings with other people in your industry, to discuss business? Or perhaps you drove yourself to a regional conference, panel discussion, or networking meeting? Do you have records of where and when those happened in your calendar? Write off the mileage for each of those trips.
- Promotion-related mileage
Do you go around your area to drop off promotional materials on a regular basis? How often? Where do you go? Do you have records of those trips? Write that off too.
3. Track Your Meal Expenses
- Traveling for work
If you’re away for substantially more than a normal work day (think 8 hours), and you’re traveling outside your normal business service area, your meals while traveling are 50% deductible. You can either save receipts, or use IRS guidelines for meals per diem in the area you’re working in.
- Meals for business purposes
If you meet with a current or potential customer or client, or an employee, that meal is also 50% deductible, as long as you discuss business during, immediately before, or immediately after the meeting.
- 100% deductible meals
The food for company-wide events where all employees are invited 100% deductible, as is food purchased for work-specific purposes – ie buying people lunch so they stay to keep working, getting donuts for the whole office, etc.Here’s the IRS publication that will explain everything. But also, Turbo Tax will guide you through it very carefully.
- Don’t go nuts
Remember… while 50% of the non-food part of entertainment for clients used to be deductible, that is no longer the case as of 2019. Also, you can’t deduct the cost of alcohol.
4. Home Office Deduction
Do you have a dedicated space where you sit to do your business and/or art, and nothing else? If yes, cool – you can easily write that off! If not, definitely consider the merits of making such a space. Having an office space / studio that is big enough for you to truly get all your work done in / keep all your supplies in / etc is important not only for tax purposes, but also for the increased efficiency and work/life balance you’ll find you get from having a place you “go to work” that you can close the door on or at least step away from when the work day is done.
If you’re using a good online tax preparation program, it will guide you through what does and does not count as home office space, what percentage of your living space that makes up, and which expenses to remember to include – everything from utilities like heat and electricity to whole-home and just-office repairs are covered. There’s a lot to this, so let your tax prep program be your guide. ….which brings us to #5.
5. Use An Online Tax Preparation Program
Using an online tax preparation program will help guide you through this, helping make sure you don’t forget anything. I have used Turbo Tax for years, and it has always served me well. You will not regret paying for the version that guides you through deductions step by step – the money it costs will be saved in the long run if you have any significant income from your arts based business.
This article is not a review of all the different online tax prep programs you can use, but you can find that on Nerdwallet.com, Reviews.com, and PCMag.com, if that’s what you really are looking for. These links reliable are sources, pop-up-ad free, and pretty useful. But if you just want to skip to my own personal conclusion – just shell out the money for TurboTax Self Employed if you have made a decent amount of money and have any significant expenses to report.
6. Remember to Take Key Deductions
We talked about mileage, meal, and home office deductions, because they are some of your biggest ones that don’t automatically have a dollar amount and receipt associated with them in your records already. Many of the other deductions do have dollar amounts already associated with them, but you might forget to track down the receipts and add them to your total without reminders. So here are some reminders!
Do people work for you who aren’t your employees? People who come to help you do particular tasks at particular times, just when you need the extra hands? You should be issuing them a 1099. If you didn’t do it this year, make a vow to yourself that you will next year. Otherwise, you’re basically paying them under the table and can’t write off what you’ve paid them – so you’re stuck paying what should be their income tax bill. Oh, and you’re also paying their social security and medicare…at the 2x self employment rate! You do not want to do this… and if you do want to pay their social security / medicare and help them withold taxes…maybe you should consider the merits of hiring them as employees rather than contractors.
If you rent an office or studio space, this will be an obvious thing to write off. But if you pay to rent booth or table space at different art shows, festivals, pop-up shops, etc, that is also rent. Don’t forget to write it off.
You can write off both your art supplies and your office supplies. Keep the categories as distinct as possible. Where there is overlap (printer paper, your favorite pens and pencils, etc), err on the side of putting them in the category that is currently smaller, and then continue to do that in the future.
Write off your business cards, your banners, and your signage. Write off your website hosting, and any social media ads you run (although we’ll discuss whether or not you actually want to be doing that in another article soon). If you print brochures to promote your business, be sure to write that off. Think of all the ways you spread the word about your business, and consider any associated costs.
Don’t forget to write off all the important and expensive communication connections that keep your business going. You need internet access and a cell phone for sure. Be careful if you’ve got a family plan for your phone – you can most likely write off the main plan, and your own line, but definitely not the lines for family that does not work for the business. Consider the merits of getting a plan that is 100% for your business to keep it simple.
- Mailing Stuff
If you send your work through the mail, your mailing expenses will be a huge deduction for you. I like stamps.com best, so far, for purchasing postage online, since it tracks your expenses for you and generates easy-to-read reports. Unfortunately, if you buy postage directly at USPS.com, or in person at the post office, there is no automatic system for creating expense reports. You can save all the receipts and add things up manually, but it sure isn’t easy.
You can write off everything that you actually need to get business done. If you legitimately needed it to run your business, write it off. If it feels like a questionable stretch to say it was for business….it probably is – better to err on the side of caution.
What are some steps you can take to make this all go easier next year?
1. Have a System For Tracking Income and Expenses
If you’ve gone through this year without a system for tracking your income and expenses, you’ve already realized how important it is to implement this for next year. A lot of people like to use a cloud-based accounting software solution – here’s a review of a bunch of those, and which are best for different types/sizes of businesses. However, if you don’t want all of your financial information on the internet, you might want to consider a local-only solution. There are still a few non-cloud-based accounting software options out there, and then, of course, there is the infinitely-customizable, non-sexy option of tracking everything in spreadsheets, ie Microsoft Excel or Apple Numbers. When using these, do keep in mind that you’ll want to save at least a backup copy of your files in the universal .csv format in case you switch programs / operating systems in the future.
(This author still, to this day, uses an Excel spreadsheet, and sees no reason to pay extra for anything else.)
2. Use Your Accounting System Faithfully
Putting the receipts in a box and not bothering to input them into your organizational system until tax time is not helpful. It’s better than not saving your receipts, but just barely. Make a point to track your income whenever you receive it – within 1 business day at the most. You can use an app on your phone to track physical receipts, and make a Receipts folder in your email to track all digital ones. You can also just have a place you always faithfully put paper receipts, like a particular pocket of a purse/walllet/backpack/briefcase, and make a point to process them with some frequency (shoot for weekly, but at least you’ll have to do it whenever the pocket gets too full).
3. Consider Hiring a Bookkeeper
If tracking everything yourself seems just too tedious for you to bother with, and you’ve got both bigger/grander things to worry about and the time to pay someone else to sweat the small stuff, hire a bookkeeper. They will take care of properly inputting and categorizing everything you hand them. The thing is, you have to remember to hand them everything – so you still need to have and share the records, even if you’re not the best at organizing them.
Hopefully you feel better prepared to go and take care of your taxes!