the taxman and the artist

So.
A few weeks ago, I took my receipts, pay stubs, and pages and pages of handwritten notes to an accountant to see about filing taxes as a freelance illustrator. It was my first time doing this and I was nervous the accountant would take one look at my stack of tattered papers and tell me to go play with my paint-by-numbers kit, or something. (I was wondering myself if this wasn’t just a glorified hobby). He didn’t laugh. He sat me down, walked me through my first Schedule C, gave insights into a few deductions I had not thought of, and complimented me on my record keeping. I had spent more than I had earned, but the IRS expects that in the first few years of freelancing/independent employment.  I have the next few years to see if I can close that gap and start making a profit. *gulp*

Which will, of course, bring its own set of challenges.

For this post I reached out to a few people who are making a living as writers, artists and freelancers, to get their input on the subject: Much appreciation to Robert Jackson Bennett, James L. Sutter, Steven J. Scearce, Lisa A. Grabenstetter, Evan Jensen, and Jacob Ruby for sharing their expertise.

I’ll start with a cautionary tale from Robert Bennett:

“When I got my advance for my first novel, my feeble hope in the justice of the monetary world assumed that I’d be losing, like, 10%. Or maybe 15%. My father in law is a smart man who is also a retired lawyer who specialized in government payments to the individual – IE, Medicare and taxes. He does his whole family’s taxes, and since I got my first contract when I first started dating the girl who would be my wife, he offered to do mine, too.

My feeble hope got a little bruised when my then-girlfriend-later-wife later asked, rather frantically, if I had kept any receipts. I had none, of course. I then got unsettling reports that her father had been staying up all night working on my tax return. He had been seriously putting in overtime – for little old me, who had always been below the poverty line on all my taxes before. I was used to getting money back from the government. Not giving it.

Finally he sat me down and said he’d looked at it a lot, and he’d figured out exactly how much I had to pay. He told me to be ready, and to be calm about this.

He took out a post-it note, and wrote down a figure.

(You know it’s bad when they have to write it down – it’s as if the number is the name of Hades, and to speak it out loud invokes a number of terrible ills.)

I looked at the number.

There were four digits to the number.

And most of them were higher than 5.

To writers, and artists of all kinds, tax season is a circling shark. It is waiting to strike – and it is going to strike. You have to be prepared for this. You have to consider your yearly budget in advance, and take taxes into account. Because if you don’t, you will get your fucking teeth kicked in. I can promise you that.”

Heheh, scared yet?  Steven James Scearce put it this way:

“Taxes. Yes. Very simply. Save all your receipts for everything you can manage. Hire a tax/accountant person who understands the unique needs of the small, home-based business person (‘cause that’s what we are), and pay them to keep you out of trouble.”

It would be easy to stop right there with that bit of advice (none of the individuals I approached are accountants). However, if you are interested, here are some additional tidbits from folks who have been around the block a few times:

Lisa Grabenstetter revealed that there are various cities that have been designated as art districts:

“If you live and work in one, then any income made off of your art is tax exempt. Maryland has several and I know there are a few other states that do this, DC for one, Rhode Island, and Louisiana I believe. Ohio lets you count revenue that charities gain from any artwork you’ve donated to them as a charitable donation now. It’s more common outside of the US that tax accommodations are made for artists, but wherever you live it’s worth checking into.”

Lisa, Jacob Ruby, James Sutter, and Evan Jensen weighed in on all the many things that are tax deductible: miles on your car; “research” like books, movies, video games, exhibits, and comic book collections;  The clothing and personal products you need to look nice and shiny for client meetings; conventions, retreats, workshops, training (all the food/lodging/travel/etc expenses those incur); promotional stuff; software, hardware, (there are even ways to calculate the deductions of costlier pre-purchased tools like your computer or your car based off of depreciation.) If you have a home studio/study you can deduct the percentage of rent/mortgage/utilities based on the size of the studio. Even if it’s only the few square feet your desk occupies in the corner of your bedroom, as long as it’s your dedicated work spot, it counts. However, if you do most of your work from, say, the kitchen table, or the bed, or the couch, it’s best to just let that deduction slide. An alternative to meticulous record keeping is to just take a standard deduction. After a few years of doing this you’ll have a better idea which works best for your situation.

While “it’s a Tax Deduction” might be tempting as justification for spending, James Sutter had this to say:

“I’d point out that, while writing purchases off is great, it’s still means you’re spending money–and if you’re a professional writer [or other creative], you probably don’t have a lot of that, right? I’ve never bought into the “spend to save” bit–I’d rather pay slightly higher taxes and have a nest egg than avoid taxes by making a bunch of big purchases and end up in debt.”

I’m trying to keep that in mind as I balance out which conventions I’ll attend, new software I’m tempted by, an aging laptop, etc.

A big decision that must be made is if you will file quarterly or end of year.  Evan Jensen recommended:

“While you’re supposed to file quarterly taxes based on estimates of income, we all know freelancing isn’t usually reliable in that way. But, if you can estimate and pay quarterly, do so.”

James Sutter went on to explain:

“Unlike the money you get from your day job, which likely already has taxes taken out, money you make from writing contracts doesn’t get taxed ahead of time…if you made a significant amount of money–a novel sale, a game book, lots of little bits for a single company…get ready, because that money you made is going to disappear fast.  As an independent business, you get whacked for a significant chunk of the cash you make by writing (I think it’s something like a third), and it all happens at once, because you haven’t gradually paid out of each paycheck the way you probably do with your normal wages. I was astonished the first time I found myself facing thousands of dollars of taxes just for writing. And to add insult to injury, because the government normally makes you file quarterly and considers it a special favor to let you pay all at once at the end of the year, you may be penalized with an underpayment fee.”

(There are ways around this, James is able to avoid underpayment fees by having a little extra taken out of his wages throughout the year.)

While talking this all out with an accountant may be optimal, that is also an additional expense. Balance that out with how comfortable you are with the additional tax forms. I was glad to have had professional assistance this first time around but do hope to eventually be filling out my own schedule C’s.

And there you go. Some suggestions, some advice, some tidbits of information you may or may not have had before. If you have some of your own PLEASE share them in the comments section! That would be much appreciated.

Now, go create something awesome. And keep your receipts.

by Gavin Aung Than. click image for full comic

Thank you Gavin Aung Than, ((and Erika Holt, too <3))

********

Robert Jackson Bennett’s 2010 debut Mr. Shivers won the Shirley Jackson award as well as the Sydney J Bounds Newcomer Award. His second novel, The Company Man, is currently nominated for a Philip K. Dick Award as well as an Edgar Award. His third novel, The Troupe, arrived in stores on February of 2012. His website is robertjacksonbennett.com and you can follow him on twitter @RobertJBennett

Steven James Scearce works as a freelance ghost writer.  He also is the creator of the science fiction web series Unknown Transmission. His printed work appears in a number of anthologies including Rigor Amortis, Cthulhurotica and In Situ. He has just completed his first novel-length manuscript, a horror story called Cottonwood. His website is stevescearce.com and you can follow him on Twitter @ShinkaiMaru5.

Lisa Grabenstetter  is a freelance illustrator who was raised by trees. As a youngster, she had great hopes of becoming a Paleontologist and her love of dinosaurs and other monstrous and winged things continues to show up in her work. She draws inspiration from artists of the symbolist movement, from art nouveau, and from contemporary fantasy and comic book illustrators. Her work is primarily in ink, graphite, and watercolor. Her website is magneticcrow.com and you can follow her on twitter @magneticcrow.

Jacob Ruby is an artist by education and a freelance 3D illustrator/animator by trade who spends most of his time forging darker thoughts into twisted stories. His work appears in a number of magazines and anthologies including Black Static, Rigor Amortis, IN SITU, Fish, and Slices of Flesh. He recently completed his first novel, a young adult horror story called The Arrival. His website is jacobruby.com and you can follow him on Twitter @JacobRuby.

James L. Sutter is the author of the novel Death’s Heretic, which Barnes & Noble ranked #3 on its list of the Best Fantasy Releases of 2011. He’s also the Fiction Editor for Paizo Publishing and co-creator of the Pathfinder Roleplaying Game campaign setting. You can find him at jameslsutter.com or on twitter at @jameslsutter.

Evan Jensen is a freelance illustrator whose repertoire includes hedgehogs, children’s books, roleplaying games, alien rabbits, collectible card games, treasure hungs, genre magazines, and paperback fiction. He drinks coffee, tea, and thaumaturgic elixirs. His website is fathomlessbox.com and you can follow him on twitter @eimhinart.

Trackback URL


  • Lisa just blew my mind. There are areas you can live where money made from the arts is TAX EXEMPT?? That’s an instant 30% pay raise!

    • Lisa & I are suspiciously lucky to live in Annapolis, one of MD’s Arts District cities. Every penny we make from work done in our studio/home is deductible. Anything made from an onsite or outside the studio job isn’t necessarily, unless that location is also an Arts District. : ) But, we only need to have MADE the work in our studio… so off-anywhere gallery shows are still gold.

  • Tax prep. Find out if you can get your accountant to do everything, but odds are strong s/he will say “Don’t bring me a bunch of receipts.” 

    Get into the habit of filling out your tax-prep spreadsheet when you get your receipts.  It will save you time now.  Sort the categories of your expenses too.  Keep a list of expenses if you’ve bought things on a card so you know where to find details on your statements. 

    Consult Nolo books about small businesses, as Galen mentions.  Take notes.

    Get a log to track your expenses.  (That’s one I learned about from Nolo.)  Probably a time log too, because the IRS will want to know time spent per week or month freelancing.

    Attend panels at cons about freelancing.  Tobias Buckell does great ones. 

    James is right.  Consider purchases.  Budget your monies very carefully as a freelancer. 

    • Galen Dara

       thank you, Anne, for these suggestions!

  • Christie Yant

    I’ve started setting aside 30% of everything I make from my writing. I don’t make enough off it to file quarterly, but at the end of the year I want to have it when the bill comes due. I have an account for just this purpose. I’ve also started a spreadsheet to track things like the expenses listed above. 

    Thanks for taking this subject on, Galen–it’s important information. None of us want to have Robert’s experience! (Though you might be surprised how many of us have.) 

    • Galen Dara

       you’re welcome!

      I’m still working out the best ways of keeping records myself, last year was a learning experience, i’m doing it slightly different this year. The idea of a second account for ‘tax funds’ is intriguing.

  • Pingback: SF Tidbits for 4/6/12 - SF Signal – A Speculative Fiction Blog()

  • Mercedes

    You just made me smarter! And less fearful. Thank you!