Floating Boat Acrylic on canvas 170x126x3cm, by Alejandra Sieder. Photo courtesy of the artist.
How can you make filing your taxes as an artist as seamless as possible?
Artwork Archive shares our top tips for getting (and staying!) organized throughout the year so the second Tuesday in April will be just another spring day.
Here is what we recommend to cut down on stress during tax time.
Track Your Expenses Throughout the Year
Develop a sorting system for your receipts that you can reasonably maintain.
Most taxpayers who deduct business expenses know it’s a good idea to keep their itemized receipts in case of an audit for at least three years. What some don’t realize is that you can be sorting your receipts as the year progresses, even going as far as to digitize them in real-time by scanning them into an app, saving them in a folder on your computer, or documenting those expenses on Artwork Archive.
You can also presort and label these receipts as you generate them so you can see immediately how much was spent on materials or tickets in a given month. Spreading this labor out over the whole year prevents a backlog of work for the following spring. If doing this every day seems odious, consider if once a month or quarterly would be manageable for you.
Luckily, Artwork Archive makes it easy to not only track the expenses related to your art business like marketing expenses and studio rent but also track the individual production costs of each artwork. This means that you can now get a closer look at understanding the true cost of each painting, sculpture or installation so that you know how much to price and what artworks are most profitable for your business.
Want to learn more about how to get started tracking your art-related expenses? Watch this recorded webinar about how to track your art income, invoices and expenses with Artwork Archive
Get a Credit Card or Debit Card that is Only for Your Art Business
This is the financial equivalent of separating the food on your plate; separate your business expenses from other things you regularly spend money on like groceries and gas.
By keeping all your business expenses on one card, you will have an informal accounting of what you bought and when. It can also be helpful in remembering recurring auto expenses like utilities or web hosting that you might otherwise forget to track. Keep in mind, in the case of an audit, your credit card statement will not be sufficient—that’s what you need the itemized receipts for and keep track of them in a system like Artwork Archive.
A fringe benefit of using a credit card for business is you may qualify for additional perks or cardholder partnerships so make sure to shop around before selecting a card to use, especially if it has an annual fee.
Learn from Past Art Business Financial Mistakes
You don’t want to be surprised when you pay your taxes.
Instead, study your expenses and tax returns from years prior and learn from yourself: did you forget to track your mileage for work last year and miss out on that deduction?
Did you lose the receipts for meals you ate while at a residency?
Acquaint yourself with the kinds of expenses you regularly incur and try to check in regularly to keep yourself on track with your expense accounting.
A good way to get this done in seconds? Once you input your expenses on Artwork Archive, you can easily generate an income report for your annual report or any quarter. Take a look at the income report below to get an idea of how to categorize your income and get an idea of your profits and expenses.
Example of the first page of an income report on Artwork Archive.
Use One Invoicing System for All Art-Related Sales
As my high school art teacher loved to say, K.I.S.S. or “Keep it Simple, Sweetie!” Why do you have one invoice format for workshops you teach, another for commissions, and a third for direct sales to clients?
Artwork Archive has the option to generate invoices and get paid directly from the platform. You can even add your own branded header and options for online payment or partial payments. You can then use these templates to make your invoicing process easier and more professional
You can keep track of all your past invoices in the system, so you never have to dig around in multiple desktop folders. Plus, you can keep easily mark invoices as paid or keep up with partial payments with just the click of a button.
You can find out more about how to create an invoice on Artwork Archive here.
Example of an invoice on Artwork Archive.
Understand How to Deal with Profit Split Over Years
Artists are frequently caught between years when it comes to incurring expenses and seeing profits.
Rather than try to hold expenses and file them only when you’ve earned the income you intended to generate, file both in the year they happened even if they are different years. In a robust career, there is money going in and out so it’s natural that your sales will not neatly fall into a single calendar year.
Pay Attention to Your Projected Income
If you’ve been paying taxes as an artist for a couple of years, you should have some sense of what you’ll make in profits this year—and what tax bracket you will fall in as a result. With that in mind, plan out anything you’d like to do to offset what you owe the IRS at the end of the year.
Consider what kind and what amount of charitable donations you’d like to make, if you want to contribute to your IRA, and when receiving grants and awards, calculate what percentage of the prize you will need to pay as tax and set it aside. Being prepared to see some of your profit disappear makes it less stressful when it’s time to pay the government.
Want to start managing your art business expenses?
You can try Artwork Archive, the all-in-one platform for artists, free for 14 days. Artwork Archive is the leading platform for artists to manage their art business, including their artworks, expenses, contacts, and galleries all from the same place.
From inventory and consignment reports to sales and invoices, contacts management, and location tracking, Artwork Archive provides all the tools you need to get organized and manage your career.