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.

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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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What Makes An Artist Special? Nothing, According to the IRS

Being poor for art has a shelf life. It’s important to be brave enough to sacrifice potential revenue and follow your dreams, but to make a career in the arts happen, eventually a sustainable income and lifestyle has to be secured. Part of getting there, is knowing how to handle your taxes. Learning the ins and outs of this part of your practice will help you get through the tough times and the boom times.

We’ve had our fair share of both over here at AFC, so we thought a few questions to an accountant might be useful not just for our readers, but for our own, self-serving purposes. In the following Q&A with accountant Hannah Cole, we tried to discern what, if anything was unique about artists taxes, how creatives can get the biggest tax breaks, and whether they should attempt to do their taxes on their own. The answers were eye-opening. 

AFC: Are artist taxes unique?

Hannah Cole: Not really. If you’re receiving money from your work as an artist, you are running a small business. As such, you file a Schedule C (aka Profit and Loss from Business), which is an attachment to your regular individual tax return.

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Can I Get a Tax Deduction For the Artwork I Donated? Short Answer, No

Here’s the scenario: Your friend at Charity X wants you to donate one of your paintings to their upcoming fundraising auction. You’re on the fence, but she mentions the tax deduction, and so you agree. After your painting sells at the event, you get a letter from Charity X, intended for your tax records, stating the price your piece sold for.

This scenario is misleading to the artist. The charity is implying that you can take a tax deduction that you are not actually entitled to.

I want to pause and say that I think most charities are doing good work and don’t intend to mislead artists. But many of them hope the rosiest possible scenario is true, and haven’t checked the facts.

So here they are.

Your painting is what the IRS calls a “self-created asset.” As such, the rules are clear: you can only deduct the cost of the materials. And let’s face it — for most artists, much of the value is in the labor — the materials by comparison are minor.

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