Creatives know time is elastic. It’s intangible, invisible, amorphous, and socially constructed. The IRS, on the other hand, is more solid. Perhaps our urge to build bright things and break old molds causes the artist/writer to procrastinate on filing taxes, or maybe we resist because so many of us are flat broke. Either way, taxes are annual and they are compulsory.
Whether you still need to file or you know from recent efforts that you don’t know enough, we have some last-minute tips:
1. Harvest the goods
Procrastination is arguably part of a robust creative process but now is not the time – that was March. April 15 is just around the corner, so break the spell with manageable, tactile actions.
Dig through your papers and collect all relevant tax forms. If you freelance, you’re likely to have a number of 1099s – if you earn regular taxed wages as well, you’ll find a W-2 or two. If you won a prize, you’ll have a 1099-MISC – lucky you!
Round up or print out documentation for all other income adjustments (including investments, student loan interest, and unemployment). If you’re eligible for any tax credits, you are likely to already know but just in case, here are some guidelines. If your income is on the low side, you may qualify for an Earned Income Tax Credit.
If you keep receipts for writing-related expenses, collect them, even if they’re covered in poem scraps. If you don’t, make sure you can digitally access spending from 2016 through your bank account, debit card, and credit cards. I’m fond of a print version and highlighter but some online banking sites and accounting software, like Mint, will allow you to go back through purchases and tag them as tax-relevant.
You’ll also want easy access to the basics – social security number (you and spouse and kiddos), last year’s taxes, and your bank account number if you want to pay that way
2. Assess your status
The biggest tax question for artists and writers is whether your creative activity is a hobby or a business. There are nine considerations the IRS uses to make this determination. As you can see already from the first two, there’s room for interpretation all over the place:
*Whether you carry on the activity in a businesslike manner.
(Artist says define “businesslike,” poet says define “carry on,” fiction writer says, why not show the activity.)
*Whether the time and effort you put into the activity indicate you intend to make it profitable.
(Although everyone wants their art to be profitable, for many of us, this isn’t the case. Thanks goodness the IRS values our intention, our striving, our struggle, rather than assessing our actual profitability. As a wise accountant told me, “There’s no law against running a failing business.”)
Valerie Peterson at the balance has made very helpful modifications to these distinctions with writers in mind and Stephen Fishman at NOLO considers determinations for artists. Ultimately, the main concerns are whether you take your creative production seriously, extend considerable time and toil, look to make money, seek to improve, and (important) can back all this up with proper documentation.
If you decide your creative pursuit is a hobby, you can still claim certain things but you can’t claim more than the hobby earned you. For example, if you sold a painting for $750, you can only deduct up to $750 even if the painting depicts a Venetian sunset that required travel, lodging, and pasta exceeding $750.
3. Avoid pitfalls
Perhaps it seems imprudent to scare you before you’ve begun, but audits seem really terrifying. Be sure your numbers are correct and that you can support all claims you make — even if you’re in a hurry.
Evan Luzi of The Black and Blue has compiled a great list of potentially bad artist tax errors, that mainly involve not paying properly, not claiming properly, and not properly understanding important terminology. Internet intelligence offers similar counsel for musicians, photographers, freelancers in a variety of fields and, basically, all of us.
If you’ve never taken deductions for your creative business before, unless you can dedicate some good time in the next few weeks to carefully considering and tabulating, or you can make a last-minute appointment with a tax professional, you may wish to start your robust 2019 documentation process now and wait until next year to deduct. This, of course, does not mean you can get away with not filing.
4. Deduct for creative accumulation
There’s something really affirming about calculating artistic deductions, despite the effort required. Reviewing a year’s worth of income and spending can serve as a necessary reminder that you are actually, truly, working towards big creative goals. Buying books, traveling for your craft, creating professional self-promotion, broadening your network, improving your skills – daily steps make for notable annual investments in things that matter.
According to the IRS, a deductible business expense must be “both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.” Again, the language is flexible and accommodating. Artistic almost.
So what can you deduct? Basically, anything that contributes to the business of your art. If you’re a writer, this includes writing conferences, travel, journal subscriptions, office supplies, memberships, software, events. Writers and visual artists should consider these 50 potential deductions – and be sure to search out individualized ideas specific to your genre. Visual artists should also play close attention to inventory, equipment and depreciation.
Two pieces of good news – 1. You can thoughtfully and judiciously deduct business-related alcohol consumption that is not “lavish and extravagant.” 2. You can deduct creative submission, reading, contest, and fellowship fees facilitated by software like Submittable.
5. Consider office and beyond
If you have a home office for writing or a studio, you may want to consider claiming it. There are various things to keep in mind though, including the dedicated and exclusive use of this space for your creative endeavors. You will only be able to claim a percentage of your rent or mortgage, property taxes, insurance, and utilities if you work in your own living space regularly (and in the IRS-stipulated fashion, deserve to take advantage of this deduction). You can also deduct your office furniture and supplies (once), as well as a few other things like repairs. Artists with a studio outside the home may claim this space – and they should check out these additional creative tax ideas.
If you are certain (!) you won’t owe anything, you can extend until October 15 but don’t let the extra time lull you into a peaceful procrastinating dreamland. The best tax advice for artists and writers, recognizing complicated income structures (read 6 jobs) and expenditure irregularities, recommends early planning, good organization, diligent notation, and the seeking out of advice from tax professionals – they’d love to hear from you, after a brief vacation from tax season. Perhaps in May??
Disclaimer: This blog post is not meant to be official tax advice from Submittable, and we cannot be held responsible for people’s tax decisions. I am not an expert — I’m a poet for goodness sake, so don’t sue me.
A special thank you to CPA Kelly Sax for chatting with me.