Life on the Ledger: How to Make Your Art Add Up

8/3/2019 Life on the Ledger: How to Make Your Art Add Up

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Lifeon the

LedgerHow to MakeYour ArtAdd Up


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To download the

outline for this talk

click here

presented by

Richard StreitfeldCPA

hosted by

Ignitiontransform your art passion into business

NOTE: Every situation is different and federal andstate tax laws are subject to change. Thispresentation is being made exclusively for

informational purposes and is not intended tosubstitute for obtaining tax or financial advice

from a tax or other business professional.
http://blissrequirescarefulplanning.files.wordpress.com/2011/09/lifeontheledgeroutlinefinalfinal1.pdfhttp://blissrequirescarefulplanning.files.wordpress.com/2011/09/lifeontheledgeroutlinefinalfinal1.pdf


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What Can Artists Deduct?If you are employed by others then your ability to deduct out of pocketexpenses is limited

If you are self-employed then you may deduct whatever expenses areconsidered reasonable and necessary to conduct your business

Are you employed by others or self-employed?


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Direct expenses would not likely be incurred if you were not in business:

paying subcontractors

studio rent

accountants

supplies

Indirect/shared expenses are for items you may pay for anyway but theynevertheless have a legitimate business purpose as well. For instance:

a cell phone may be personal and business

so might your home internet

Types of Expenses


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What is a business meal?

hint: Not your daily cup o Joe!

Must be with a client, employee, prospect etc unless out of town

Must include a bonafide business discussion


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Automobile TravelThere are two ways to deduct auto travel costs but

either way you must track yourbusiness mileage.

Based on mileage and the IRS Mileage rate for that year

Based on actual expenses of purchasing and maintaining a specific vehicle

If you do not keep a log, watch out if you are audited


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Home Office

ComplexitiesYou must have an exclusive space for business

It does not apply if you are running a loss

Computing it is not always worth the time and expense


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MinimizingAudit RiskShowing profit in 3 out of any 5 years

precludes an IRS challenge that

you are doing this as a hobby.

The Rule of Thumb is that


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Other ways to

show you are in business to

Make a ProfitKeep a log of galleries you have visited to represent you and record otheractivities not evident from tax return

Hire an artists representative

Establish a separate bank account for your activities

Keep good records!

Register as a DBA doing business as or fictitious name with your state or...

Establish a one-person LLC (Limited Liability Company)

Report any income, no matter how small

Track inventory and work in progress rather than deducting it all right away the matching principle


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ConsiderIncorporationif you have sufficient income to make it worthwhile


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KeepingRecordsI don't need to see every receipt


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Time FramesGenerally, the IRS has three years to audit your returns

IRS has six years if it suspects substantial underreporting of income

No time limit for fraudulent or non-filed returns!


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WhichRecordstoKeep

Anything related to taxable deductions keep records a minimum of threeyears

If you are self-employed, keep records for six years

A lot of stuff can be trashed!


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Financial Record-Keeping

BasicsYou need to have a system that you, or someone you hire, maintains

Reconcile bank statements if you want to catch mistakes yours or theirs

Separate personal and business, no co-mingling!


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Sales Taxes

No, Martha, its Not Your MoneyStates can be especially annoying, and each state has different rules

Internet sales rules: most sales made on-line are currently exempt

Separate billing for services may limit your exposure


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Should I be a

Sole Proprietor,form anLLCor Incorporate?


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Sole ProprietorshipYou are self-employed. There is no separation between the assets of thebusiness and those of the owner. Therefore the owners personal assets canbe used to satisfy business debts and liabilities. You are taxed through yourindividual tax return (Schedule C).


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Cheap!

No structure to maintain

Easy, especially if minimal income and activity

Pros

No legal protection of personal assets

Self-employment tax can be onerous

Tendency to forget to pay estimated taxes

Most likely to be audited

Cons


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Limited LiabilityCompany (LLC)This is a sole proprietor or partnership with legal protection. The proprietor ormembers liability for company debts generally only extends to theirinvestment in the company. The income or loss passes through the LLC and

is reported on the individuals personal tax return.


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Easy and cheaper formation than S-Corp

More flexibility than a c corporation regarding partners and changes inownership

One-person LLC no separate tax return needed

Pros

No difference in deductions or taxability from sole propreitor

No salary and withholding for owner so estimated payments needed

Multiperson LLC needs more forethought and written agreements, and theseare often neglected

Cons


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S-CorporationThis is also a pass-through entity except that it has a corporate structure.Again, your personal assets are generally not at risk. There are somedifferences from a multi-member LLC in terms of operations and taxation.


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It is a set and established structure

Ability to take distributions and limit reach of the nasty self-employment tax

Profits are not immediately subject to self-employment tax

Less likely to be audited

Can be a one-person owner

Pros

May be more expensive to incorporate and maintain

Some owners do not like being on payroll

More rigidity regarding who can be an owner and changes in ownershippercentages

Cons


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Other Entity Choices...


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C-CorporationIf you have venture capital or can afford additional and substantial ownerbenefits this may be an option. However you may be exposed to doubletaxation


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PartnershipMulti-member LLCs are essentially partnerships with more extensive legalprotection. While they have fallen a bit out of favor with the ascent of LLCs,there are some instances where they are still favored.


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Non-profitIf you qualify, have the time and money to invest in setting up, expectsubstantial contributions and grants AND are willing to share control with aboard of directors then this may be a good option.


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L3CNew. Hybrid for-profit and non-profit. Only available in a few states.


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fr

Rich Streitfeld CPA partner at

Aaronson Lavoie

Streitfeld Diaz and CoCertified Public Accountants1604 Broad Street

Cranston, Rhode Island

02905

phone:401 223 0205web:alscpa.com

email:[email protected]

peaceloveandbusinessplanning.com

For a glossary of accounting terms click here
http://www.financeforartists.org/glossary.htmlhttp://www.financeforartists.org/glossary.htmlmailto:[email protected]:[email protected]?subject=Life%20on%20the%20Ledgerhttp://www.financeforartists.org/glossary.htmlhttp://www.financeforartists.org/glossary.htmlhttp://peaceloveandbusinessplanning.com/http://peaceloveandbusinessplanning.com/mailto:[email protected]:[email protected]://www.alscpa.com/http://www.alscpa.com/

Life on the Ledger: How to Make Your Art Add Up

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