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Top 5 Tax Tips for Artists

This guest blog post was written by Amy Smith, Co-Director and Finance Director for Headlong Dance Theater.
 
Artists! I know you are busy, you are broke, you are overwhelmed. Every day I talk to artists who feel undervalued by our culture, who are burdened by student loan or credit card debt, and who are worried about how to make ends meet. 
 
But it’s tax time, and you know what that means: It’s time to find that box of receipts and start adding up your deductions, and file your returns to the IRS, State and City. Here are my top 5 tax time tips:
 

1. Don’t under-deduct for fear of audit.  Your chances of audit are tiny, actually, and you should be deducting all the expenses related to your art practice on your Schedule C.  The IRS defines appropriate deductions as those that are “ordinary” in your line of work and “necessary” to your work. So if both those things are true, deduct it!

2. Figure out a system that works for you for tracking expenses. Many artists have a separate checking account they use for art expenses to make tax time easier. Many use Mint.com or Quicken or Quickbooks, or the old receipts in a box system. Find the system that works for you and keep it up.

3. If you have a lot of self-employed/1099/independent contractor income, consider paying quarterly estimated payments each quarter. If you are a costume designer, or visual artist selling your work directly to customers, or dance artist getting grants and commissions, you may end up owing the IRS because you have a significant “net profit” on Schedule C each year. In these cases, I recommend going to www.irs.gov and setting up automatic quarterly withdrawls from your bank account, or at least setting aside 15-25% of your SE income into a savings account so you won’t get stuck at tax time with a bill you cannot pay.

4. Don’t forget about the City taxes! They want a piece of your self-employment net profit as well.  Because of recent tax reforms, the Business Income and Receipts Tax (BIRT) only taxes you if you made over $75,000 in a year, so most artists I know will not have to pay that. But you still have to file your BIRT return, and you also need to file the Net Profits Tax (NPT), which taxes you at about 4% of your “net profit” on Schedule C. Go to www.phila.gov/revenue for more info.

5. If you made less than $53,267 in 2015 you might be eligible for the Earned Income Tax Credit, or EITC. EITC is a refundable federal tax credit available to working, low-to moderate-income individuals and families. “Refundable tax credit” means you get the money no matter what.  It’s not a loan, it’s not a subsidy like Obamacare, you’ll never have to pay it back. It’s just money in your pocket to spend on your art, or your rent, or whatever.

Here’s the deal: You have to be between the ages of 25 and 65.  If you are single and have no children, you have to make less than $14,820 to qualify for up to $503. From there, the benefit goes up if you have children and depending on how much you make. If you are married with three children, you have to make less than $53,267 to qualify for up to $6,242.  
 
But first you have to file your taxes! I always recommend you learn how to do it yourself, but if you need help, there are more than 25 locations across the City where you can get your tax done for FREE by IRS-certified tax preparers. Deadline to apply is April 18, 2016. For more information about free tax prep and the EITC, visit www.youearneditphilly.com or call 215.686.9200.
 

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