Elizabeth of EllaFae Art and I hosted our first free class on Tuesday - No Use Crying Over Spilt Receipts: Prepping for Tax Time as a Creative. I have to say if you weren’t there, you missed out! We enjoy sharing our experiences, but we LOVE how conversations about “boring” topics like prepping for your taxes can turn into a safe place to ask questions and share knowledge for everyone in attendance.
Tax time can be an overwhelming time for many creatives. I know many of you have gotten a lot of well meaning advice from people who don’t understand how your creative business works. So, I thought for this week’s blog I would list a few of the highlights from this class for anyone that missed it.
W-2 vs 1099/Self-Employed
You are a W-2 employee if your employer is withholding tax from your paycheck
You generally cannot write off expenses for employment that you receive a W-2 (with very few exceptions)
You are Self-Employed if you are responsible for tracking all of your income and reporting it to the IRS yourself.
You may receive a 1099 for work that you do for another Self-Employed person or Business
You may be called an independent contractor, gig worker, or contract employee
You need to track all of your income, even if you did not receive a 1099 for it.
You should also track your expenses so that you can write them off on your taxes.
What is a Write-off anyway?
Write-offs are expenses that you incur during the course of your self-employment work and can be deducted (written-off) from your income for tax purposes.
Write-offs are deducted from your income, NOT deducted from the tax you owe.
Ex. Jill makes $10,000 selling her art in 2023. She has $1,000 in expenses. Those expenses reduce Jill's taxable income.
Mileage: What counts?
You can write-off certain miles driven for self-employment and the rate for 2023 is $ .655 per mile.
You can write off miles from your primary work location to other locations
Mileage to your gallery openings, spoken word performances, or mural projects all count if you have a separate primary work location.
Example: Betty has a home beat making studio. She does most of her self-employed work here, in a closet she converted just for this purpose. Every time Betty drives from her home studio to an event or a work lunch or a collaborative recording space, she can write that mileage off.
Let’s do some math: Betty has a project with another artist. She is driving from her studio to a recording studio 5 miles away from her house.Betty can writeoff $6.55 in mileage for every day she drives to the recording studio.10 miles round trip x $.655 mileage rate = $6.55
You need to have an actual log for the business miles you’ve driven and KEEP that LOG with your other tax paperwork for 7 years in case you are audited!
If you use Google maps, it can help you verify your mileage log as long as you have Auto Delete turned OFF
Expenses to Remember
Tax prep and Bookkeeping fees
Professional Development
Ex. Business coaching, figure drawing classes (for visual artists), sewing class (for a fiber artist), DJ classes (for a musician)
Must be for your practice/business
Apps
Ex. Procreate, Illustrator, Photoshop, Zoom, Canva, Spotify, Amazon Prime
Must be for your practice/business
Additional Data/Cloud Storage
Websites & Professional Email
Retreats
Ex. Lodging, classes, meals, etc
Studio/Office Decor
Ex. Furniture, office supplies, art!
Sorry, you
These expenses must be reasonable and incurred during the normal course of your work.
Sorry, you can't write off that pedicure you got after standing all day at a market. The IRS doesn't believe that's normal and necessary.
Didn’t File A Previous Year’s Taxes?
File your 2023 taxes! It is not required that you file past years in order to file this year.
You can still go back and research your income and expenses from previous years.
If it is not possible/too difficult to find your past year income and expenses, you can pull your previous year 1099 forms via the IRS website and file your taxes with that information to get caught up.
The IRS does payment plans!
I know that this is a lot of information and I hope it is helpful. This isn’t every creative's strong suit, but it is MINE. If you’ve got questions, please reach out to me or book one of our consultation options here.
❤️- Esther
Check out our classes HERE.
Have a specific question(s) for Elizabeth or me? Book a 15-minute "Ask us Anything" Consultation available HERE.