How the New Tax Cuts and Jobs Act Impacts the Art World

Under the new tax laws, the wealthiest will have even more incentive to make charitable donations, while the average middle class family will have less.

The tax law changes passed in 2017, officially the Tax Cuts and Jobs Act (TCJA), represent the largest change to the tax code in 30 years. With so many changes, Hyperallergic wants to address — in this and future articles — how the legislation will affect the art world.

One area in particular that impacts almost everyone in the art world — from artists, to collectors and patrons, to cultural institutions — is charitable giving.

read more here…

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!  

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!

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

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...