Money and Happiness: Artists' Superpower

Chicory, acrylic on canvas, 2016 by Hannah Cole. Courtesy of Slag Gallery, New York.

Artists Have a Superpower

I see all kinds of incomes in my tax practice, and the one thing it confirms for me is that, once past the basic human needs, money and happiness aren't related. I've been doing a lot of reading on the science of happiness lately, and also on the financial independence movement, (favorites: Mr. Money Moustache, Frugalwoods, and the Mad Fientist) and I've suddenly been noticing the strong thread of happiness science within the extreme-frugality movement. 

And I had a thunderstrike: artists have a superpower. We already know this. No one goes into art because their top priority is getting rich. And most artists do go into it because they feel a need, and they get things out of art that are more important than money. Things like connections, community, curiosity, continuous learning, challenges and projects, and engagement with the unknown. 

So this post is just a word of appreciation. 

But here are a few things you can DO with your money to help it grow and give you lifelong security. Because that is my particular passion project:

• Open a SEP IRA.

• A super basic (and funny) intro to low-cost investing, from Mr. Money Moustache

What's the Deal with Receipts?

Look at all these tax deductions! These are my actual studio tools.

Here’s the confusion: You keep hearing that the IRS requires you to keep receipts and documentation for all of your business expenses. So why is your accountant annoyed when you try to hand her your receipts?

Here’s the story. Yes, you are required to keep receipts and documentation to prove each and every one of the business expenses that you deduct. That is the law. And here is the actual gospel, from the IRS itself. And here is a comprehensive list of what New York considers to be legal proof of your expenses. In case it’s not clear - and I get enough questions from people to know that it isn’t - the reason that you need this documentation, besides being a good practice for your actual business anyway, is that should the IRS or your state decide to examine your tax return, this is the proof of expenses they will require you to show them in order for them to allow you to keep those deductions. If you can’t, then you have just lost your audit, you may have a bad experience, and you will owe them money. You need to save these receipts and documentation for 7 years.

So why is your accountant irritable when you hand over receipts? That is another story. Tax season is super stressful. Most people, despite their intentions, don’t get their tax documents organized until a few weeks before the tax deadline, so your tax accountant has a drinking-out-of-a-firehose situation from about March 1-April 15. A lot of inexperienced taxpayers with freelance income don’t realize that they have a fairly big job to do before they can get their taxes done - that is, they need to do their bookkeeping. They need to tally up their receipts and income, and put it into some basic expense categories. Here’s a beautiful chart to help you with that. If that’s intimidating to you, hiring a bookkeeper is a great idea. Your bookkeeper can help you put things in the right categories, teach you how to maintain your own books, answer your questions and set you up with a system that works well for you. A good bookkeeper is worth the money.

So keeping your books is a requirement if you run a business. And if you’re a freelancer of any kind, though you might not have realized it, you are running a business. My course The Ultimate Honest Guide to Understanding Artists’ Taxes is a great primer on the need for good books and records and gives great insight into what happens in an artist/creative worker audit. It’s one hour, and very worth it.

So showing your accountant your receipts says that you haven’t done your bookkeeping, that you probably don’t realize that you have a sizeable job ahead of you, and that you probably need some coaching about the basic tax rules.

This is totally understandable. You’re just a bespoke latex dog-costume designer, not an accountant! This might even be your first year freelancing. But your accountant is facing an immovable deadline with an obscene flood of work. So if she’s not keeping up with her loving-kindness meditation, she might get grumpy with you. As a person who was new at my arts practice once, and as a tax accountant, I’m advocating for understanding in both directions here.

So with that, here are some basic guidelines for you:

• Bookkeeping. If you have a system that isn’t working, pay a bookkeeper to look it over for you, or take a bookkeeping course yourself. Good bookkeeping is a question of habit. So schedule a regular time to do it.

• Saving receipts. The law says that if you can’t produce the receipt to prove it, it never happened, and you can’t deduct the expense. Your bank and credit card statements aren’t enough. For meals and entertainment, the documentation requirement is even stricter: the receipt must be accompanied by the name of the business contact you are meeting with, plus the reason for the meeting. A receipt alone will not suffice. Personally, if I don’t grab a pen and jot these things down at the moment I am handed the receipt, I will never do it. So that has become my personal habit – I write directly on my receipts, and the save them in a file folder.

• Some people are handy enough with their phones that they snap a picture of every receipt (many accounting softwares integrate a receipt-saving feature like this, and there are stand alone apps dedicated to it). I am not fast enough with my phone for this to work for me, but if you are, it is a great method for keeping your receipts.

• Keeping a calendar. In the days of Google calendar, you probably have one that is pretty good already. But you might not realize that this can be an important document to show your business activity in the event of an audit. Your calendar can be used to show the amount of overall time you spend on your arts practice — and that means everything from making the actual work to networking, marketing, and bookkeeping.  Your calendar can also show who you met with and for what purpose. This may corroborate other parts of your documentation, from travel expenses (your calendar shows the meetings you had set up in your travel location), to your meals expenses (meeting the strict substantiation requirement of who you met with and for what purpose).

• Maintaining important correspondence that shows your effort to grow your career. You may still snail-mail out old-school introduction packets to museums (and be sure to save those receipts if you do!), but you almost certainly reach out to art world people over email. In the days of searchable email, this is a lifesaver. If you use an email folder system, consider saving this correspondence into one place (ie. “gallery + museum correspondence 2018”), so that in the event of an audit, you can produce this important evidence of your businesslike intentions quickly and without having to rely on your memory.

• Maintaining your arts inventory. In Susan Crile’s drawn-out audit, her professional inventory system weighed heavily in her favor to prove that she was a professional artist and not a hobbyist. How do you track your art inventory? Having an up-to-date document that shows what you’ve produced and where everything is is an important tool in your arsenal.

• Tracking mileage. I went over the details of mileage tracking in my Miami travel expense post. But here’s a tip: go out and record your car’s odometer reading right now. And while you’re at it, set an alarm on your calendar to do this the first day of every year. Because tracking your business mileage means not only tracking the number of business miles you drove this year, you also must record your total miles for the year. By recording your odometer on day one, you have both your ending mileage for last year, and your beginning mileage for this year. Two birds. One stone.

MileIQ is one of several mileage apps that use the location detection on your phone to automatically record your mileage. Similarly to Xero Taxtouch, you swipe left or right to categorize drives as business or personal. You can also track the things people often don’t – volunteer miles driven (deductible at 14 cents/mile, if you itemize) and medical miles driven (ditto, but 17 cents/mile, with a high threshold before it’s useful). The free version doesn’t capture everything, so it’s useful to get the full version. And it’s a deductible expense! You can get a 20% discount by using this code: HCOL124A

DISCLAIMER: True tax advice is a two-way conversation, and your accountant needs to hear your full situation to apply the rules correctly in your case. This post is meant for general information only. Please don’t act on this alone.

Here’s the confusion: You keep hearing that the IRS requires you to keep receipts and documentation for all of your business expenses. So why is your accountant annoyed when you try to hand her your receipts?

Here’s the story. Yes, you are required to keep receipts and documentation to prove each and every one of the business expenses that you deduct. That is the law. And here is the actual gospel, from the IRS itself. And here is a comprehensive list of what New York considers to be legal proof of your expenses. In case it’s not clear - and I get enough questions from people to know that it isn’t - the reason that you need this documentation, besides being a good practice for your actual business anyway, is that should the IRS or your state decide to examine your tax return, this is the proof of expenses they will require you to show them in order for them to allow you to keep those deductions. If you can’t, then you have just lost your audit, you may have a bad experience, and you will owe them money. You need to save these receipts and documentation for 7 years.

So why is your accountant irritable when you hand over receipts? That is another story. Tax season is super stressful. Most people, despite their intentions, don’t get their tax documents organized until a few weeks before the tax deadline, so your tax accountant has a drinking-out-of-a-firehose situation from about March 1-April 15. A lot of inexperienced taxpayers with freelance income don’t realize that they have a fairly big job to do before they can get their taxes done - that is, they need to do their bookkeeping. They need to tally up their receipts and income, and put it into some basic expense categories. Here’s a beautiful chart to help you with that. If that’s intimidating to you, hiring a bookkeeper is a great idea. Your bookkeeper can help you put things in the right categories, teach you how to maintain your own books, answer your questions and set you up with a system that works well for you. A good bookkeeper is worth the money.

So keeping your books is a requirement if you run a business. And if you’re a freelancer of any kind, though you might not have realized it, you are running a business. My course The Ultimate Honest Guide to Understanding Artists’ Taxes is a great primer on the need for good books and records and gives great insight into what happens in an artist/creative worker audit. It’s one hour, and very worth it.

So showing your accountant your receipts says that you haven’t done your bookkeeping, that you probably don’t realize that you have a sizeable job ahead of you, and that you probably need some coaching about the basic tax rules.

This is totally understandable. You’re just a bespoke latex dog-costume designer, not an accountant! This might even be your first year freelancing. But your accountant is facing an immovable deadline with an obscene flood of work. So if she’s not keeping up with her loving-kindness meditation, she might get grumpy with you. As a person who was new at my arts practice once, and as a tax accountant, I’m advocating for understanding in both directions here.

So with that, here are some basic guidelines for you:

• Bookkeeping. If you have a system that isn’t working, pay a bookkeeper to look it over for you, or take a bookkeeping course yourself. Good bookkeeping is a question of habit. So schedule a regular time to do it.

• Saving receipts. The law says that if you can’t produce the receipt to prove it, it never happened, and you can’t deduct the expense. Your bank and credit card statements aren’t enough. For meals and entertainment, the documentation requirement is even stricter: the receipt must be accompanied by the name of the business contact you are meeting with, plus the reason for the meeting. A receipt alone will not suffice. Personally, if I don’t grab a pen and jot these things down at the moment I am handed the receipt, I will never do it. So that has become my personal habit – I write directly on my receipts, and the save them in a file folder.

• Some people are handy enough with their phones that they snap a picture of every receipt (many accounting softwares integrate a receipt-saving feature like this, and there are stand alone apps dedicated to it). I am not fast enough with my phone for this to work for me, but if you are, it is a great method for keeping your receipts.

• Keeping a calendar. In the days of Google calendar, you probably have one that is pretty good already. But you might not realize that this can be an important document to show your business activity in the event of an audit. Your calendar can be used to show the amount of overall time you spend on your arts practice — and that means everything from making the actual work to networking, marketing, and bookkeeping.  Your calendar can also show who you met with and for what purpose. This may corroborate other parts of your documentation, from travel expenses (your calendar shows the meetings you had set up in your travel location), to your meals expenses (meeting the strict substantiation requirement of who you met with and for what purpose).

• Maintaining important correspondence that shows your effort to grow your career. You may still snail-mail out old-school introduction packets to museums (and be sure to save those receipts if you do!), but you almost certainly reach out to art world people over email. In the days of searchable email, this is a lifesaver. If you use an email folder system, consider saving this correspondence into one place (ie. “gallery + museum correspondence 2018”), so that in the event of an audit, you can produce this important evidence of your businesslike intentions quickly and without having to rely on your memory.

• Maintaining your arts inventory. In Susan Crile’s drawn-out audit, her professional inventory system weighed heavily in her favor to prove that she was a professional artist and not a hobbyist. How do you track your art inventory? Having an up-to-date document that shows what you’ve produced and where everything is is an important tool in your arsenal.

• Tracking mileage. I went over the details of mileage tracking in my Miami travel expense post. But here’s a tip: go out and record your car’s odometer reading right now. And while you’re at it, set an alarm on your calendar to do this the first day of every year. Because tracking your business mileage means not only tracking the number of business miles you drove this year, you also must record your total miles for the year. By recording your odometer on day one, you have both your ending mileage for last year, and your beginning mileage for this year. Two birds. One stone.

MileIQ is one of several mileage apps that use the location detection on your phone to automatically record your mileage. Similarly to Xero Taxtouch, you swipe left or right to categorize drives as business or personal. You can also track the things people often don’t – volunteer miles driven (deductible at 14 cents/mile, if you itemize) and medical miles driven (ditto, but 17 cents/mile, with a high threshold before it’s useful). The free version doesn’t capture everything, so it’s useful to get the full version. And it’s a deductible expense! You can get a 20% discount by using this code: HCOL124A

DISCLAIMER: True tax advice is a two-way conversation, and your accountant needs to hear your full situation to apply the rules correctly in your case. This post is meant for general information only. Please don’t act on this alone.

Bio: Hannah Cole is an artist and Enrolled Agent. She is the founder of Sunlight Tax.

How The New Tax Bill Affects Freelancers

It’s 2018, and you are likely starting to think about your taxes. You may also be wondering what’s in the newly passed tax legislation (officially the “Tax Cuts and Jobs Act” or TCJA) and how it’s going to affect you. Here is some help, specifically targeted for freelancers and creative economy workers.

To be clear, the 2017 taxes you file in the next few months will be based on the rules you already know. In other words, the old tax laws apply to the 2017 taxes you will file this year. The TCJA applies to 2018 and beyond, so this is for your planning for the coming year.

When you file your 2018 taxes (next year), most people will get an initial tax cut (that will expire in 2026), but the wealthy get most of the benefit. People in high-tax and high cost of living areas and those with kids may see their taxes rise. New York City artists with children, this means you. There are a lot of nuts and bolts reasons for this, which is what the bulk of this article is designed to address, but it’s worth spelling out the rationale for these changes. Your taxes may go up because Republicans are targeting blue states in an attempt to force us to cut our spending. They are giving a large, permanent tax cut to corporations, and the majority of individual tax breaks to the top 1%. This cues up a big deficit that they will later point to when they try to cut social spending. By delaying talk of spending cuts, they hope we will all forget who created this deficit and why.

The Tax Cuts and Jobs Act is the biggest piece of tax legislation passed since 1986...Read more

Why Mid-Tier Galleries Leave New York

Monya Rowe Gallery, St. Augustine, Florida

As an artist who moved out of New York City, I’m not alone in finding new energy, inspiration and freedom. My move was from Brooklyn to Asheville, North Carolina. But when I noticed multiple long-established New York galleries also making such moves, it surprised me. Don’t galleries have to stay close to collectors?

According to four dealers I spoke to who had moved out of the city, the cost of operating a gallery in New York City was a major factor for everyone, though lifestyle was also a factor. Says Monya Rowe, of Monya Rowe Gallery “Sadly, NYC is killing itself with all the rent hikes.” Rowe ran a gallery in Williamsburg, Chelsea and the Lower East Side for 12 years before she relocated to St. Augustine Florida in 2015.

Read more...

Business and Personal Accounts: Keep ’em Separated

There are a million meaningful reasons to operate an arts business, from creating revelatory art experiences for the public, to a commitment to a tradition, to the love of making hand-crafted objects. But at the end of the day, if it is a business (and not, say, a non-profit), a major purpose is to make money to pay for the expenses of living. And if the purpose of the businesses’ earnings is to pay for our personal expenses, why then is it so important to keep the business financial transactions separate from our personal ones?

The reasons are simple. It protects you from tax trouble and legal trouble. And it’s the law.

Here is an example to illustrate the tax trouble scenario. 

Read more...

The Personal Finance Attitude Adjustment

In my last post, I outlined the basics of a personal finance plan. That article is the “what to do” where I answer questions about insurance, debt management, savings and investments. If you haven’t read it I suggest spending a bit of time with the post because it provides the foundation for getting your proverbial ducks in a row. This week, I’d like to get into the “how to do it” part.

Read more...  

A Personal Finance Cheat Sheet for the Overwhelmed

Money is the most powerful metaphor we have. For many people it represents their self-worth, their standing, their power and their security. In many ways artists are a little different—we have a life where we choose to value different things than the rest of society – freedom, both artistic and from societal norms, as well as intellectual independence. Our very existence can be seen as a challenge to capitalism. It’s why some people feel threatened by us—our choice to place a high value on things other than money might call into question their own choices and values.

So I understand why many artists may want to or feel as though they live outside the “regular” financial system. However, we all still must function within it. I have seen too many artists succumb to their own lack of financial knowledge and security – by giving up art, making outsized financial sacrifices (like homeownership, children, or secure retirement), and even becoming destitute. Money can be very emotional: not knowing how to manage it can make us feel out of control, anxious, overwhelmed, and ashamed.

But the flipside is wonderful. Taking some basic steps to control your money is empowering. It can prolong your career, help you meet personal and professional goals, and set your mind at ease.

I’d like to outline the most basic ideas of personal finance. There are tomes written on each single line below, and a million variations. But since feeling overwhelmed can cause paralysis, I want to assure you that the very basics of solid personal finance are universal.* Here they are.  Read more...

The Estate Tax: An Economic Justice No-Brainer

Economic inequality is one of our biggest problems as a society, and it’s ruining our health. But it’s hard to write headlines about something that gets incrementally worse every day, instead of making a dramatic, newsworthy entrance. Bernie Sander’s campaign struck a chord by focusing on income inequality, and Trump garnered popularity by addressing workers on the losing end of the economy (though, I would argue, not with actual solutions).

I wish I could write a column about the perfect solution to income inequality. But a problem with many causes, needs multiple solutions. A lot of opportunity exists within the tax code to address these problems. The current administration either views income inequality as a benefit to society that should be boosted through the tax code, or simply does not care about anyone outside the 1%. We know this, because virtually everything in Trump’s tax proposal is regressive and would worsen income inequality.

There’s no shortage of topics to tackle with regards to the proposal (if that’s what you can even call the incomplete bullet list the White House sent out) but I’d like to focus on what I think should be an economic justice rallying cry: The Estate Tax. Read more...

Set up For Your Best Year Ever: A Tax Day How-To

Here we are at Tax Day. Your taxes are filed. (They aren’t? Here’s an IRS extension form – postmark it today. You’ll need one for your state, too.)

Last year you vowed to get your stuff in order. Then suddenly the tax deadline was upon you, and you scrambled through the process, and weren’t as careful as you intended to be. You suspected you should have been paying estimated quarterly taxes all year, but didn’t, and now your tax bill is surprisingly high.

You meant to set some money aside in a retirement account, but that shocking tax bill meant you didn’t have any cash to do it.

You suspect that there were deductions you missed.

If you’re being honest, your books were a mess (if you’re thinking “I need to keep books?” go back and read this.)

Now that the time pressure is off, let’s take a look at how you can make this year better. Plus some discounts on apps that can help you.  Read more...

Charitable Deductions for You, Me and Warren Buffet

Here’s a fact that may surprise you: lower income people give far more to charity than people in the upper income brackets. And yet the laws for charitable giving bend over backwards to accommodate high-income charitable givers, and often don’t allow low income people to get a deduction at all.

The reason is that only people who itemize their deductions get to claim charitable deductions, and lower income households usually don’t itemize. Here’s a quick primer:

Every person filing taxes gets a personal exemption of $4050 for every taxpayer and dependant claimed on her return. In English, this means that everybody’s first  $4050 of income is automatically tax-free. If you are married with three kids, you only pay tax on any money you make over $20,250 ($4050 personal exemption x 5 people).That’s true for you, me, and Warren Buffett.  read more...

Some Real Numbers for Artists on the ACA Repeal

GOP Rep. Jason Chaffetz says that the American people may need to choose between a new iPhone or health care when trying to afford insurance under the new GOP bill that would replace Obamacare. Image via: istockphoto

When I went back to school for accounting, I never thought I’d get an education in healthcare. But the Affordable Care Act (ACA, aka Obamacare) forced tax preparers like me into learning about our healthcare system, because most of the credits and penalties are reconciled on the tax return. As an accountant for artists, I see the direct benefits of the ACA on my clients. I am required, per the ACA, to find out if my clients were covered by health insurance all year, and if not, I calculate the penalty for each month they weren’t. I record the premiums my clients pay, which can be a big deduction for a freelance arts worker. And I see the monthly subsidies that they get, because I reconcile them on the annual tax return (the “Premium Tax Credit”). I also calculate the 3.8% Net Investment Income Tax and the additional .9% Medicare tax for my very highest-income clients – these are the additional taxes on the top income earners that effectively pay for the subsidies provided by the ACA. This amount is only calculated on the very top dollars of their income and it hits a proportionately tiny slice of my clients.

Given this background, I have some insights on what the new Republican proposal, the “American Health Care Act” (ACHA, aka Trumpcare) would do to you, me, and our federal budget. It’s not good.  Read more...

The SEP IRA: A Lovesong

We freelancers pay a lot of tax. We don’t just pay an income tax rate of anywhere from 0 to 39% on our freelance income – we also pay a flat 15.3% self-employment tax, no matter what our income bracket. Without tax planning, this can be a huge bite.

As artists and cultural workers, our freelancer tax strategy is generally to reduce the amount of our taxable self-employment income as much as legally possible. Tax planning is hard, because it’s about saving small bits in many places. There are few silver bullets. But the closest thing there is to a silver bullet is tax-sheltered retirement savings. Read full article

Why Refusing to Pay Taxes is an Ineffective Protest of Trump

Frustrated with President Donald Trump’s first four weeks in office? So far, he’s rolled out a sloppy and disgraceful travel ban on Muslims (notably omitting countries he has business ties to), and used taxpayer money to pay for his sons’ jaunts to other countries to promote Trump family businesses. His presidency has been rife with conflict of interest but he has not released his taxes, so there remain few ways to prove it.

It’s not surprising, then, that a lot of talk has surfaced among artists and progressives about not paying income tax this year in protest of the Republican administration’s policies. Is this a good idea?

The short answer is, “No.” It is a very, very bad idea that’s not only misguided and dangerous, but will be absolutely ineffective.

As an expert on taxation, I have some insight on why this is so problematic. So, let’s look at some of these issues and talk about some ways to direct this energy that will make meaningful change. Read full article

Rent Too Damn High? Deduct Your Home Studio.

One of the best tax breaks out there is the home office (or home studio) deduction. In tax terms, this essentially turns a portion of your nondeductible personal expenses (your home) into deductible business expenses (a workplace). A lot of people are confused about the rules, and some people are scared to take the deduction at all because they’ve heard that it can be a red flag to the IRS. As long as you are following the rules correctly, there is nothing wrong with taking the deduction. And it’s a big one! So here is some help.

First, when can you claim a home office/home studio?

You have to use it both exclusively and regularly.

Exclusive use means that the space is a dedicated workspace – no kids watching TV in there after hours, no guests staying there. There is no wiggle room on this part.  read full article

The Nitty Gritty: How To Prepare for Filing Your Taxes

Nobody likes filing taxes. But thinking ahead and getting your documents lined up reduce the stress of the process. Here are some key ways to prepare yourself for tax season, and get you ready to sit down to your own tax prep software or deliver an organized package to your tax preparer.

1. Download a 2016 tax year organizer. There are many available online. Mine is here. This will be your guide and checklist, and will help you see what you still need, and tell you when you’re done. Follow this guide.  Every accountant has a horror story about someone who, in the attempt to save themselves time, doesn’t read the organizer carefully, and causes no less than six follow up phone calls to chase down the information. Believe me when I tell you that a busy accountant in the heat of tax season will charge you extra for that kind of hand-holding. If you want to save yourself time (and money) on the tax process, have these materials fully prepared before heading to your accountant. 

2. Put your receipts, 1099-MISCs, W-2s and all your other tax documents in a folder. This can be virtual or manilla. But keep in mind...read more

Getting Organized: Financial Resolutions for Artists in 2017

As we enter a the new year, let’s take time to think about the priorities in our arts practices, and in our personal lives. You may roll your eyes at the idea of New Year’s resolutions, but there is evidence that writing down your goals actually helps you achieve them. So grab a pen, and let’s put some intention into 2017.

In my interview with artist Susan Crile about her eight year ordeal defending herself in US Tax Court, there was a lot of discussion about keeping records to prove the profit motive in one’s art practice. It brings up a good question for most of us: how are we doing on our own record keeping? If the IRS sent an audit letter tomorrow, would you feel good about the shape that your records are in? If the answer is not good, don’t panic. Here is a list of what you will need, and some thoughts on how to improve your record keeping going forward.

• Good Bookkeeping. Bookkeeping is important to any business. Without tracking expenses and growth, there is no way to improve your practice. It’s impossible to argue that you are actively trying to turn a profit when you don’t track your income and expenses. 

read more

An Audit Nightmare Turned Artist Victory: An Interview with Susan Crile

Susan Crile in the Studio

American businesses sometimes lose money. Those losses actually create a tax shelter for other income. While the tax code explicitly provides this incentive for businesses – to encourage investment for growth, and to allow for unpredictable events – losses that go on for too long tend to draw scrutiny from the IRS.

If your arts practice loses money for more than a couple years, they may question the legitimacy of the business – specifically, the profit motive. Typically, they reclassify such a business as a hobby, and disallow the artist from expensing deductions past the point of their income from the activity. That’s bad news for any artist, but it was a near nightmare scenario for artist Susan Crile.

Crile spent eight years in tax court (from 2005-2013), defending her right to take losses. She is an accomplished artist by any measure. She has had over 50 one-person exhibitions, and her work is represented in dozens of museum collections, including the Guggenheim, the Metropolitan Museum of Art, The Hirshhorn, and the Cleveland Museum of Art. She is also a tenured professor of art at Hunter College.

However, despite this decades-long professional history, the IRS threatened to reclassify her art as a hobby, disallow her losses, and force her to pay over $80,000. In the end, Susan Crile won on the question of being considered a professional artist, and the precedent that her case set is that her day job was clearly judged to be a separate profession—not the reason for her art. But the judge did not rule on the allowability of her large deductions—that piece was sent to a settlement, and not all of the deductions were allowed.

In this interview, we discuss how she proved her case, what it took, and what she recommends for artists in a similar position.

Hannah Cole: First I wanted to thank you for putting yourself through what you have. You set a precedent that really helps other artists.

Susan Crile: I’m still recovering from it! I was very lucky that the law firm Cravath Swaine & Moore took it on pro bono, but my accounting was not taken care of pro bono. So I’m still getting my feet back from that.

HC: How did the audit start? I assume you got a letter in the mail and I want to know what went through your mind. (PSA to readers: an IRS audit always begins with a notice in the mail. If you receive a phone call announcing an audit, it is a scam.)

read more...

Your Miami Tax Guide: Yes, You Can Deduct That Pina Colada

After a few weeks diligently absorbing the dark, awful post-election news, I’m ready to turn my attention to fun, sun, and travel deductions for the Miami art fairs.

To review the basics, if you’re a professional artist with a profit motive, you’re reporting your income each year on a Schedule C (as part of your 1040 form), and the beauty in that is that it entitles you to list your income and your expenses. So as a self-employed person, you are paying taxes on the difference between those numbers (aka your “profit,” which is income – expenses), and not on the gross income you receive.

Travel expenses incurred in your arts business are one of the great deductions that you are allowed. A note of caution before you go expensing a bunch of luxury accommodations though: by law, your business expenses must be “ordinary and necessary” to qualify. This means that if the industry standard is a Motel 6, and you book the Ritz-Carlton, you may deduct only the Motel 6 amount. Further, travel expenses are a tempting area for tax abuse (along with meals and entertainment and home studios). If yours are out of proportion with the size of your business, or compared to your peers, you have an excellent chance of being audited.

Warnings aside, travel deductions are a great benefit, and here is how to make the most of them, in time for the Miami art fairs.

read more...

How Donald Trump's Tax Plan Will Affect Arts Workers: There's Bad Stuff Coming

It’s been a terrible week. Tuesday’s election of Donald Trump has already damaged  the emotional wellbeing of our country and its citizens. He will do much worse in the long term.

Most immediately, many of us are feeling wrecked. I include myself in that group. I had  envisioned taking my daughters to the inauguration of the first woman President, and assured them that a bully and an abuser would not be chosen by the American people. Not only will we not see the inauguration of the first woman President, but a bully and an abuser has been chosen by the American people. This is not the history I’d hoped my children would live through.

In the long term, it’s less clear what this means for us as a nation. There’s no way to predict the future, but if we want to see any kind of positive outcome we have to start organizing now. There are a lot of ways to participate. We can join protests, reach out to our neighbors. My weapon of choice, though, is to begin with the process of self-education. We can’t fight against powers we don’t understand. As a tax expert, I intend to help.

With the upcoming push for regressive tax legislation, it’s important to understand what’s being proposed and how it will affect us both as individuals and in the professional field in which we’ve invested our lives. Some of these changes may have a profound impact on both the high and low ends of the art market and non-profit sectors, so we need to be prepared.

Tax reform – specifically, supply-side theory-based tax cuts for the wealthy and for corporations – is the one thing that Trump and Congress currently agree on. Our House Speaker Paul Ryan is a self-proclaimed “tax wonk,” (and he has already announced his plan to privatize Medicare). Trump’s plan has shifted over the course of the election, and his campaign speeches contradict his proposed policies. He has suggested that he would let Ryan take over the detail. There’s some bad stuff coming.

The details will shift as the President-elect and Congress hammer out their differences, but for now, let me provide an outline, and my assessment:

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Tax Shelters for the Working Artist

What is a tax shelter?

The term “tax shelter” may conjure offshore accounts and shell companies, but in fact it is just a way of reducing your taxable income. Abusive tax shelters are illegal, but there are many legal ones that are actually set up by the US government to encourage Americans to set aside money for important things, like health care, child care, college, and retirement. I want to discuss a subset of these tax shelters, the Flexible Spending Accounts (FSAs) and the Healthcare Savings Accounts (HSAs) which came up in my previous piece on artist taxes. These accounts allow you to set aside up to a certain dollar amount tax-free to pay for qualified expenses. What you set aside gets subtracted from your taxable income, reducing your overall tax liability. Many of these programs have open enrollment periods in November, so just in time, here is a primer on this group of tax shelters for the working artist.

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