In anticipation of Janet Ecklebarger’s upcoming talk “Everything You Ever Wanted to Know about the Schedule C* (*But Were Afraid to Ask): Income Taxes for Artists” on Wednesday, February 17 at Chicago Artists Coalition, CAC’s Education Assistant Rachel McDermott asked Janet a few key questions about income tax essentials for artists.
With your background of a practicing artist, can you share how you became interested in helping artists and creatives file their taxes.
I’ve always been fascinated by numbers and systems. I had planned to get my BFA in painting and drawing. Then I went up to the Fibers program to see about weaving my own canvases and was totally hooked! I loved the process, the counting, and the mathematics. I went on to get my MFA in the Fibers program at Cranbrook Academy of Art.
A few years after I graduated, I found myself at my tax preparer’s office, where I had already “test done” my own taxes. He said I was going to get “x” amount of money back. I had already come up with the exact same amount myself! I enjoy helping artists, musicians, and other creative types because they need a person that speaks their language and understands the practice of an artistic based business.
What is the most common mistake that artists make on their taxes?
The most common mistake artists make on their income taxes is not understanding how different types of income are taxed, meaning W-2’s vs. self-employment income. Sometimes people don’t file for years because they don’t think they have to, and then they get a big bill from the IRS.
What are some proactive planning ideas for keeping track of artists’ sales and deductible items for the year?
One of the best things artists can do to help themselves with their income taxes is realizing that they don’t necessarily turn off their business in “off” hours. An artist’s work life and creative life meld into one and you need to be cognizant to be “on” both financially and creatively.
How should artists factor in taxes when they are pricing their work?
There are two types of taxes in this question: sales and income.
You are supposed to collect sales tax, report it, and pay it to the state for ALL sales of artwork. The buyer is mostly responsible for this monetary payment, but buyers may not want to pay sales tax on a private transaction. You then might want to mark up your work by 10% to cover the 9.25% sales tax that the city of Chicago levies on sales.
Income tax is another matter. Because you are also taking deductions against your sale price, it isn’t as cut and dry. The best advice is to put 15-20% away to pay your income taxes at the end of the year. It will save you from a big surprise later!
When do you recommend that artists look for professional assistance with their tax forms?
If you become an S-Corp, which can reduce your self-employment taxes, you definitely want to hire a professional preparer. They will charge upwards of $500-600 to prepare just your corporate return, then an additional $300-400 to do your individual return.
If you have many brokerage accounts, stock sales, Schedule K-1’s from investments, owning multiple rental units, or multiple depreciable assets, you might be faced with a tax return too complicated to handle on your own.
Janet Ecklebarger earned her Master's degree from Cranbrook, in 1992. She has been working as a tax associate since 2005 and specializes in deductions for artists, musicians, and other creative types while also offering tax and accounting techniques for the right brained. She is a practicing artist who just moved to a 30-acre property in North Carolina and cannot wait to see how the second half of her life unfolds. gleandesign.com
Rachel McDermott is a recent graduate of the College of Charleston with a BA in Historic Preservation and Community Planning and a minor in Art History. Now based in Chicago, she is an Education Assistant at Chicago Artists Coalition and Studio Assistant at Argaman and Defiance.