A smart artist’s guide to income taxes
If you know you need to figure out your taxes, but your first instinct is to save it for another time—stop, and stick around a bit longer.
Aren’t taxes the biggest, scariest business issue you have to deal with every year? Then why do we, as artists and creative thinkers, tend to put off tackling this crucial topic?
In my experience as a small-business money mentor, too many artists and creatives shy away from financial topics because traditional money advice doesn’t suit creative brains. We don’t think traditionally. We don’t hold traditional jobs and we certainly don’t conform to traditional values.
I say “we” because I’m also a creative thinker. Before I owned an accounting firm, I worked in the film industry as an actress and director. Back then, I really struggled with money. Once I committed to turning my finances around, however, I surprisingly fell in love with the power of accounting. It turns out that a little financial knowledge goes a long way in supporting a career in the arts.
Once you change the way you think about money and taxes, all other business topics become a lot easier to adapt to your creative brain. It takes time and persistence, but it is possible, and I hope this guide will help get you moving in that direction.
— Katherine Pomerantz, Money Mentor & Accountant
A quick note before we get started…
This guide will be most relevant to creative freelancers, hobbyists, and small business owners in arts-related industries. It will discuss only the US tax code as outlined in the US Tax Cuts and Jobs Act of 2017.
In writing this guide, I hope to make tax planning a little more understandable and interesting. However, it includes only general information and is not intended as advice or personal recommendation. The tax law is very specific, and articles can’t be personalized for individual readers; therefore, your situation will vary from exactly what’s discussed here. Before taking action on the information in this guide, it’s in your best interest to consult with a Certified Public Accountant or other licensed professional for personalized advice on taxes, legal issues, financial planning, and investments.
The most frustrating thing about my job is creatives who say “good enough” when it comes to taxes. Often these artists feel they are too stressed, confused, or busy for proper tax planning, but paying too much money in taxes can hurt you both personally and professionally.
This is doubly true for freelancers and small business owners who don’t have the advantage of a steady salary or company benefits. Us fringe workers must always consider where our money is headed, because it’s up to us to provide our own healthcare, plan for retirement, and save towards personal goals. The more money we have left after taxes, the more we can grow our lifelong savings, and the sooner we start, the better off we’ll be. Tax planning thus becomes the first part of a holistic and healthy financial plan for our entire lives.
Editor’s note: For help with financial planning, refer to Lewis Weil’s TCI guide focused on personal finance, interest, and investments.
There are pretty clear personal benefits to good tax planning, so why am I specifically focusing on business taxes in this guide? It’s because businesses get the best tax advantages. It’s in the government’s best interest to prioritize business this way, because new businesses create new jobs, and new jobs equal new employees who pay income tax. Furthermore, new businesses create new products, which means new sources of sales tax. Businesses also buy licenses, patents, and property that can be taxed, too.
Thus, the more a business grows, the more tax money governments make. This is why the US government offers such generous tax breaks to small business owners: they want you to have leftover money to grow your business and invest.
This is also why the US tax code can be complicated at times. The government wants to give special tax breaks to help those who need it most, so they’ve created rules for nearly all business-related expenses and special circumstances (which can be based on a person’s age, location, industry, income level, health, etc).
These special tax breaks are called tax deductions. They reduce the amount of tax you owe by reducing your taxable income.
Here’s how tax deductions work, in the most basic sense:
- Find your total yearly income by adding up all the money you earned in one year
- Subtract your qualified tax deductions
- Total yearly income - qualified tax deductions = taxable income
Tax brackets and rates, explained:
The way our tax system works, people who earn more money pay a higher percentage of their income to taxes. Tax brackets refer to ranges of income levels, and based on how much annual income you make, these determine what percentage of your taxable income will be owed to the government come tax time. You can think of tax brackets as thresholds—once you pass a certain income level, any money earned past that threshold will be taxed at a higher rate. However, money earned before meeting the threshold will be taxed at the lower bracket’s rate. (Read more on tax brackets and tax rates here.)
Because different portions of your income will be taxed at different rates, calculating how much tax you owe can feel like a complicated formula. But hang in there—it gets easier the more you familiarize yourself with it.
To find out how much tax you owe, you’ll need to multiply each portion of your taxable income by its equivalent tax bracket. Many people think that if their taxable income amount puts them in the 22% tax-rate bracket, for example, then they must pay 22% of their total taxable income to taxes. However, in reality, you’d only pay 22% in tax on the income in the 22% tax bracket.
Let’s say my total income was $50,000 in 2018. This means my income would be portioned out into the following tax brackets:
You must pay 10% on income up to $9,525:
- $9,525 x .10 tax rate = $952.50 owed in 10% tax bracket
You must pay 12% on income between $9,526, and $38,700:
- $38,700 - $9,526 = $29,174 of income in the 12% bracket
- $29,174 x .12 tax rate = $3,500.88 owed in 12% bracket
You must pay 22% on income between $38,701 and $82,500:
- $50K (my income) - $38,701 = $11,299 of income in the 22% bracket
- $11,299 x .22 tax rate = $2,485.78 owed in 22% bracket
Add taxes owed from all brackets together:
- $952.60 + $3,500.88 + $2,485.78 = $6,939.26 in total taxes owed
Remember, these tax brackets are for 2018 only. You need to use the tax brackets for the current year when doing your own calculations.
If I qualify for any tax deductions, however, then I first subtract those deductions from my total income. Doing this reduces my taxable income, and therefore helps me owe fewer tax dollars.
The standard tax deduction:
No one pays taxes on their full income because everyone qualifies for something called the standard tax deduction. This is an automatic deduction the government gives to make tax filing simpler for most people, since it allows you to still benefit from reducing your taxable income, without itemizing all of your personal expenses. (If you don’t know what your standard deduction will be, use this calculator.)
In 2018, the standard deduction for a single individual was $12,000. The only time you don’t just use the standard tax deduction when filing your personal taxes is if your total personal deductions come out to more than the standard deduction. Then, you will need to itemize your personal tax deductions and practice proper bookkeeping all year long in order to save even more money come tax time. Most people will fall under the standard tax deduction, however, which helps keep most people’s taxes simpler. (Don’t worry—we’ll go over a list of most common personal tax deductions later, as well as tips for tracking these expenses with proper bookkeeping methods.)
Come tax time, the goal is to save as much tax money as possible, and this is why you might want to make your art practice into an official business. Simply put, qualifying for business tax deductions will make your tax savings bigger. This is because businesses actually get to take deductions from their taxes twice. First, they will reduce their total business income with business tax deductions. Then, they will apply individual tax deductions to their business’ taxable income, therefore reducing their taxable income a second time.
Let’s do another example, imagining I made $50,000 of total income as a business in 2018:
Take that $50,000 in business income and subtract your qualifying business tax deductions. (More on what deductions you may qualify for later.)
Let’s assume I had a total of $10,000 in qualifying business expenses for things like equipment, mileage, my home office, and advertising
$50,000 (total income) - $10,000 (qualifying business expenses) = $40,000 in taxable business income
Now, here’s where the tax savings come in: I still get to treat that $40,000 with the standard personal deduction from above:
- $40,000 (taxable business income) - $12,000 (standard personal tax deduction in 2018) = $28,000 (my personal taxable income)
Using this new taxable income, I can calculate my total owed taxes by portioning it out by tax brackets, as we learned how to do earlier:
- $9,525 * .10 = $952.50 owed in 10% tax bracket
- $28,000 (my taxable income) - 9,525 = $18,478 (total income falling in 12% tax bracket)
- $18,478 * .12 = $2,217.36 owed in 12% tax bracket
Now, add the totals from both tax bracket together:
- $952.50 + $2,217.36 = **$3,169.86 total owed in taxes
So with $50,000 in income, without any deductions, I owed $6,939.26 in taxes (from the previous example). When treating myself as a business and reducing my taxable income through deductions, I only owed $3,169.86 in taxes. Can you see how tax planning matters now?
Note: This calculation is for federal income tax only. Self-employed persons also owe self-employment taxes for things like medicare and social security. A portion of your self-employment tax is deductible, however, and will further lower your taxable income.
One more reason to file as a business…
If you only file as an individual, and not as a business, you simply miss out on too many tax-saving opportunities. The biggest of these tax deductions is the “business loss deduction.” This happens when a business claims more expenses than it has income, or shows a loss for that tax year. This loss becomes an additional tax deduction. You can actually make negative dollars in your business, and deduct that loss from your nonbusiness income (i.e. from the wages earned at your full-time job, or from your spouse’s wages if married). This is an extra tax deduction individual taxpayers can’t claim at all!
Calculating a business loss deduction takes extra legwork, so I don’t have room to go into all the details here. If you think you might qualify, however, consult IRS Publication 563 for all the nitty-gritty details. I also think this blog article gives a good overview.
Many artists wrongly assume they don’t qualify to file as a business because their creative side project, hustle, or hobby doesn’t make much money. However, while there is a rule that a business must show a profit three out of five years, there is no rule about how much profit you have to show. Furthermore, a business can’t actually control whether or not people buy their products, and due to some favorable court rulings for artists, showing the intent to make a profit may be enough to qualify for the tax breaks listed in this guide.
So, this is the best news of all: to qualify as a business, you simply need to decide you’re in business and then try to make as much money as possible. Chances are, you’re already doing that. To file as a business, simply attach a Schedule C to your individual tax return, claim your business tax deductions, and the IRS will automatically treat you like a sole proprietor, i.e. business owner.
Claiming business tax deductions does invite more scrutiny from the IRS, however, so if you would like to play it safe in the eyes of the government, here is a checklist for making your business official. The Creative Independent also provides this wonderful guide for starting a new business written by Kelly Bethke. Even if you’ve been “in business” for years, it’s worth your time to revisit these steps as having a written business plan, the proper licenses, and an official business bank account will keep you in good standing with the IRS.
Tax forms might seem like a jumble of numbered documents, each one more complicated than the next, but hopefully this overview will help you make sense of which forms you actually need to fill out and/or make sure you receive based on your situation.
No matter what type of business entity you decide to set up and file as, you must always file Form 1040 - US Individual Income Tax Return. This is the holy grail of tax documents, which everyone must file. The deadline to file this form every year is usually April 15th.
Once you start a business, you will need to attach several additional forms to Form 1040 in order to report your business income and expenses.
If your business entity is something other than a sole proprietor or single member LLC, then you will have an additional business return to file as well. However, in order to keep this guide as brief as possible, I will only go over tax forms for sole proprietors. Unless you specifically went through the process of setting up an LLC or corporation, then you are automatically a sole proprietor. As mentioned earlier, there is no setup required to file as a sole proprietor—simply attach the appropriate forms to your 1040.
Before I start listing out tax forms, you may be wondering about the best way to prepare and file your taxes. The easiest option for most will be to e-file. If you feel comfortable preparing your taxes yourself without guidance from any software or advisors, then you can use the IRS Free Fillable forms online. I highly recommend using software like TurboTax or TaxAct, however, as these programs are automatically updated with new tax laws and can save you tons of research and math. Both do state filings as well. If filing online isn’t your thing, then you can print your tax forms and simply mail them in.
In addition to filing your federal taxes with the IRS, you will need to file taxes with your state. I can’t go into details on those here, because state taxes and deadlines vary widely depending on where you live. The best way to find your submission guidelines is via your state’s secretary of state website (you can just google your state’s name plus “secretary of state” to find yours).
Without further ado, here are the most common FEDERAL tax forms business owners must prepare, in addition to your 1040:
|Form||Title||What to Report||Who Files||Due Date to IRS|
|Schedule C||Profit or Loss from Business||Used to report income or loss from a business if you are taxed as a sole proprietor||You do, attached to your 1040||April 15|
|Schedule SE||Self-Employment Tax||Used to figure out the taxes you owe annually on self-employment earnings over $400 as a sole proprietor||You do, attached to your 1040||April 15|
|1040-ES||Estimated Tax for Individuals||Used to figure out and pay quarterly estimated tax, which self-employed individuals must do four times per year.||You do, every quarter||April 15, June 15, Sept. 15, Jan.15|
|1099-MISC||Miscellaneous Income||A business files this form for everyone they paid at least $600 to, who is not an employee.||Payee files to IRS and State. You should receive a 1099-MISC from every client who paid you more than $600 at the beginning of the year. (NOTE - you do not send a 1099-MISC for expenses paid by credit card. See 1099-K below)||January 31|
|1099-K||Payment Card and Third Party Network Transactions||Credit cards and payment services like Visa, Paypal, Stripe, etc. use this form only when they send you gross payments exceeding $20,000||Payment processor files to IRS and State; you should receive your statement in the mail from the company, and attach it to your 1040||January 31|
|W-2||Wage and Tax Statement||Wage and Tax Statement Reports wages (i.e. money earned through a full-time or part-time job, and not through freelance work), healthcare benefits, tips, social security, Medicare, withheld taxes, etc. of employees||Employer/payee files and sends you a copy; you attach it to your 1040||January 31 to SSA; April 15 to IRS|
You may not need to file every form on this list‚ or, you may need additional forms. For more information about which forms you need to file, see Publication 583.
A few notes on the above tax form table:
You may need more than one Schedule C if you make money through multiple types of businesses. If you have your regular freelance work, for example, and also take on a side hustle (like driving for Uber or walking dogs), then you need to separate the expenses for each and file more than one Schedule C.
The due dates above are the LAST POSSIBLE DATE to file, but it’s a good idea to get your taxes done early. Set a calendar reminder for yourself, or even block out time now to get them done for next year. Otherwise, you may be penalized for filing late.
You now have a list of common tax forms, but what information and documentation will you need to sit down and complete them?
Here’s a checklist of what to gather when you’re ready to file your taxes:
- Last year’s tax return
- W-2 form from your employer (if you’re an employee, vs. a contractor or freelancer)
- 1099-MISC forms for any non-employee work you did (i.e. all freelance gigs) where you made over $600. Clients should send these out to you in January/February; if you haven’t received a 1099-MISC from a client by early February, reach out and ask for one
- 1099-G for unemployment income and certain taxable grants
- 1099-K receipts from credit card transactions (via payment processors like PayPal or eBay) if you were paid more than $20,000 for work via a credit card or other payment processor
- Total of all cash income (any non-W-2 or non-1099 income you received; this includes personal checks, PayPal, etc.)
- Other income (from gambling, prize winnings, jury duty, unemployment benefits, social security, etc.)
- Alimony income if you are divorced and these are required
- Interest payments made, and all taxes paid on home
- IRA/health savings account contributions
- 1098-E student loan interest (if you’re paying off student loans)
- Education expenses if you pay tuition for college, or another type of tuition
- Child care expense information (including the child care provider’s address, phone number, and federal ID number)
- 1098 mortgage interest if you own a home and are making mortgage payments
This list includes the most common tax forms and documents, but you likely won’t need everything on this list, and you may even need additional documents not listed here. Consult with your tax preparer if you have one, or refer to www.irs.gov for more information about which tax forms and documents apply to your situation.
You should receive tax documents (a W-2 if you’re employed, 1099-MISCs from clients who paid you over $600, and 1099-Ks from payment processors that processed $20K worth of payments to you) from those who paid you by mid-February the following year (i.e. the year after the calendar year during which you worked for them). Keep track of who should send these documents to you, and call the issuer/client immediately if you’re missing any by mid-February. It is up to you to make sure you receive the appropriate forms at your correct address.
Likewise, compare the totals on all forms against your own records. If you find mistakes, have the company issue any necessary corrections immediately. You are responsible for paying taxes on what’s reported to the IRS, so corrections need to be addressed quickly to ensure you don’t overpay.
Additional files to have in order:
All the deductions you want to report—such as total costs for home office expenses, mileage, or supplies—should be documented with receipts, bank and credit card statements, and your record of scheduled activities.
Have records of your donated cash, clothes, and other items.
(See the “keep a daily calendar” section below for more on best bookkeeping practices to ensure you have the above in order at tax time each year.)
Reporting income is usually tricky for artists, because many of us work as freelancers or side hustlers, and this means we get income from many different sources. Unfortunately, how that income should be reported depends on several things, and it’s up to you as the recipient to make sure your clients and/or employers are reporting your income correctly.
If you are an employee (with federal, state, and local taxes withheld from your paychecks), then you should receive a W-2 form from your employer at the beginning of the calendar year, reporting on last year’s earnings. If you receive a W-2, you do NOT file a Schedule C for that income. You also cannot claim business deductions on this income.
On the other hand, if you receive a 1099-MISC, then you acted as an independent contractor and you CAN report business deductions on a Schedule C. (“Independent contractor” is just a fancy term for freelancer, side hustler, and any other work done by non-employees.)
Clients are required to issue you a 1099-MISC only if they paid you over $600 during the course of the year and only if they paid you via cash, check, Venmo, or ACH deposit. If you were paid via a credit card or payment processor like PayPal, then that income should not be reported on a 1099-MISC. Instead, third party payments are reported on a 1099-K. This form is filed by third party companies that process payments (like FreshBooks, PayPal, Stripe, Square, all credit card companies, etc). Receiving this form in the mail at tax time is much less common than receiving a 1099-MISC, because the required threshold is much higher; you must receive at least $20,000 worth of total payments AND at least 200 separate payments via the same payment processor, in the same calendar year, before a 1099-K is required. This includes all payments sent through via that payment processor, from all customers or clients. If you meet this threshold, then the payment company will send you a copy of your 1099-K.
Because 1099-Ks are filed by these third party payment processors, while 1099-MISCs are filed directly by your clients, you must keep good records of your income and double check all 1099-MISC forms to make sure that no credit card or third party payments are reported. If a client paid you by credit card and mistakenly included that payment on a 1099-MISC, when it should have appeared on a 1099-K, then this income could be double reported to the IRS and increase your taxes owed. (Generally, you cannot accept payments from a third party processor unless you have an account with that payment processor. So, if you’re not sure how a client paid you, you can check your online dashboard or monthly statement from your payment processor. Money received from a third party processor will also have the name of that processor on your bank statement.)
Another word of caution: Even if you don’t receive a 1099-MISC or 1099-K, you must report all your income to the government. You owe self-employment taxes as soon as you earn your first $400, which you’ll note is well below the $600 threshold for receiving a 1099-MISC. This applies to any odd job you work, even if you’re paid in cash. (The only exception is any money you receive as a gift, unless the amount exceeds the tax exclusion amount which, as of 2018, was $15,000.)
Although it is pretty unlikely you will be caught if you do not report cash income, it is still illegal to hide income from the government.
The only way to make tax time easier is to prepare all year long. Keeping good records and having excellent bookkeeping habits will also help you remember and prove every possible deduction, ultimately saving you the most money.
If you really want to make tax time easier, then set daily, weekly, and monthly bookkeeping reminders and stick to them. Doing things like immediately documenting receipts for business-related expenses, promptly invoicing clients, and paying bills and logging the amounts at a set time each week will help you stay on top of your tax-related bookkeeping all year long.
An exploration of best bookkeeping habits:
Keep a daily calendar
Logging your business-related expenses and travel each day is a great way to prepare for tax season. This way, if you get audited, you have clear records indicating where and how your business expenses were incurred. This is especially true for calculating your business mileage deduction—one of the biggest and most overlooked tax deductions for business owners. (Keep reading to the “artist-specific tax deductions” section of this guide for more details.)
Keep any receipt you think might be a deduction
Note that the IRS does NOT accept credit card or bank statements as documentation, so you will always need an actual receipt to prove each deduction. You won’t need to show these receipts unless you are audited, but keeping your receipts organized all year long will save you a lot of time when preparing your tax return. It will also prevent you from forgetting deductions that are rightfully yours to claim.
The window of time you’ll need to keep these receipts on hand varies, but the IRS’s minimum is seven years, so be sure not to delete your files until at least seven years have passed since the receipts’ tax year.
The simplest way to keep track of deductible business expenses:
- Take a picture of the receipt for any business-related expense (or a screenshot of the confirmation email—don’t forget to show the amount paid, date, and time)
- Upload this photo to a cloud-based storage tool like Google Drive, Evernote, etc.
- Title the receipt with the type of business expense, date, and amount
- Add additional info, such as what was purchased, why you purchased it, and where it was purchased from
- Keep your receipts ordered by deductible tax categories (more on these later)
- Log the total amount of the expense so it’s easier to add everything up come tax time
Make bookkeeping an easier habit to stick to:
If the idea of keeping track of all your receipts feels exhausting, you might consider using an accounting software like Quickbooks Online (QBO) to organize your tax deductions and receipts for you. Like the Google Doc method from above, QBO lets you take pictures of receipts and attach them to transactions within the app. Unlike Google Docs, however, QBO can also send invoices and collect payments, save client data, and automate a lot of your tax calculations. QBO starts at $5/month and can save you a lot of time, especially if you’re fully self-employed or running a side hustle in addition to full-time employment. Wave offers similar time-saving automation and is free, although I tend to prefer the support I receive with Quickbooks.
If you’re interested in using QBO or Wave, I highly recommend reaching out to a Quickbooks ProAdvisor or your accountant to train you and make sure the software is setup correctly. This will prevent mistakes and save you cleanup time.
Note: While accounting software will fill things in automatically for you, it’s still important to make sure you keep good records and double check everything before you file. Mistakes that a computer program makes still fall on you to correct. As always, reach out to a licensed tax professional if you need further help.
Now that you know how to calculate your taxable income, what forms you need to file, what documents you should have on hand, and how to stay organized for tax time, let’s drill into specific business tax deductions that you may be eligible for as someone earning non-employee income through your creative work. In general, every business expense has an accompanying tax deduction, but only if that business expense is necessary and common to your industry.
Deductions that are common to artistic businesses:
This includes hosting, domain name registrations, plug ins, subscriptions to services like SquareSpace or Wix, and any fees you pay to designers or developers.
Until January 2023, any physical item you purchase for your business can be completely deducted under new bonus depreciation rules. For example, a musician may buy a new amp for his guitar, a new computer for editing, or a new camera for taking photos of their gigs.
Printer paper and ink, envelopes for headshots, resumes, applications, etc.
Business cards, direct mailings you print and send, Facebook or Google ads, or a social media assistant you hire would all count as advertising-related expenses.
Professional classes, workshops, conferences, etc.
Industry-specific classes count as deductions too, as long as the class is related to a specific gig you have booked OR is considered continuing education. Martial arts classes count if you are cast in a martial arts film, for example, but only AFTER you are cast and it becomes part of your job requirements.
Online forums or job boards, conferences, festivals, etc.
Anything you do in pursuit of new work is deductible. This includes postage and submission fees. A performer might post their headshot with companies like Actor’s Access, Casting Networks, and Back Stage. A writer might submit to playwriting competitions or film festivals. A freelancer might pay for access to a job board, etc.
Any magazine or publication related to your industry is allowed. Actors could easily claim Backstage, Variety, Hollywood Reporter, etc. but probably not Crochet Today, for example.
Anytime you meet with a colleague or potential employer to discuss business, write off 50% of that coffee, meal, drink, etc. You can also deduct 100% of meals while you travel, or meals that you buy for your employees.
You can deduct gifts up to $25 per person, per gift. You could give your agent tickets worth $300, for example, and write off $25, or you could give the entire talent agency those tickets, and deduct $25 per 10 employees for $250 dollars. The receivers must clearly be business associates, however.
Your agent should give you the amount of total commissions paid, but go through your check stubs and double check their total.
Unions dues, or other professional organizations
Home office (or home studio) deduction
You can deduct part of your mortgage or rent if you have a home office or studio. To meet home office requirements, you must:
- Have no other place to do work (like a co-working space or outside office)
- Have the space portioned off from your living space. Ideally it would be a stand-alone place, such as a converted garage or separate room.
- The space must be used exclusively for business (i.e. receiving clients, storing equipment or inventory, or serving as a workplace).
The IRS is very strict about the last two points listed above. If you keep a futon in your office in case a guest drops by, that room becomes a guest bedroom, not an office. If only a portion of one room is used for work, I recommend putting up a divider (or at least having a divider on hand in the event you get audited and need to prove exclusive use).
The home office deduction is massive, because it not only allows you to deduct part of your rent or mortgage, but also a percentage of your utilities.
Business use of cell phone, internet, and cable
You may deduct a percentage of your phone bill, but you must keep a log of business calls to justify how much of your total bill you can write off. Similarly, you may expense part of your internet bill if you work at home. Keep track of the hours you work at home, and then calculate the percentage of hours you work in a 24-hour period. Deduct that percentage from your daily internet bill. This is still available even without a home-office deduction.
Rent of office or storage space
This applies to you if you rent an office outside of your home or rent a storage facility for business supplies/equipment. Similar to a home office deduction, if part of the space is personal, then make sure you separate the business storage from your personal storage and only deduct the business portion.
Professional costumes and clothing
This is one category that often raises red flags with the IRS, so you should avoid expensing clothes unless you can clearly define how they are business related. In general, anything considered “street wear” (i.e. normal clothing) is off limits unless it is part of a required uniform. For example, a pair of steel-toed boots count if you’re a stagehand if they are required safety equipment.
Makeup, hair, and nails
In general, nothing in this category is a legitimate business expense. However, there is one exception: You can deduct expenses directly connected to a new role as an actor or model. For example, if you need a military buzz cut for a new role you were cast in, you can expense the initial haircut. Any subsequent cuts to maintain this look are not expensable, though. Similarly, if an actress is told to get a manicure for a commercial, that’s deductible.
This category again encourages extra scrutiny by the IRS, so make sure you carefully document how each expense was business-related, and simply avoid it all together if you have any doubts.
Gym membership and other physical training
These expenses are ONLY deductible if you are a dancer or a stuntman. It does not apply for actors, and it does not count as a health expense.
Business miles and expenses
You can’t deduct your normal business commute (i.e. if you drive to and from the same place of work regularly, that’s not deductible). You can, however, deduct driving between two job sites in the same day, your medical and charity miles, and all taxis, Ubers, Lyfts, and public transportation you used to get to business-related events. Running an errand related to almost any other business deduction counts as well. Keep receipts, and keep a log of your miles including where you went, who you saw, and the reason for your visit.
Come tax time, there are two ways to deduct the traveling you do for business: the “actual expenses” deduction, and the “standard mileage” deduction. If you want to deduct the actual expenses of your vehicle, keep a record of all fuel costs and maintenance done on your car.
If you use your vehicle for business and personal mileage, however, the standard mileage deduction is easier to calculate and can be tracked with a simple mileage log (this prevents you from needing to keep detailed records every time you fill up your tank with gas, have an oil change, etc).
Travel for work
Any trip you take for business that requires you to be away from home for substantially longer than a day’s work, and you need sleep or rest to continue performing that work, can be expensed. Conferences, out-of-state job interviews, festivals, and competitions are all legitimate business trips. Keep all receipts for any planes, trains, rental cars, Ubers, or public transportation you used, as well as for lodging, and any other fees associated with your trip.
The IRS generally gives you a standard meals allowance on business trips, so don’t worry about your meal receipts unless you also treated some colleagues. Then that becomes a meals and entertainment expense, and you can deduct their portion of the check.
Note: you can only expense travel you were not otherwise reimbursed for. If a company paid you back for your airfare and meals, don’t get greedy and ask for this money twice by filing with the IRS.
Theatre tickets, Netflix, movies, concerts, museums, cable bill, etc.
This one is highly industry-specific. Performers, designers, and technicians can deduct certain shows or movies if they have an educational or research purposes for viewing them. In this case, keep a log of what you saw, the date, and why you were watching to claim the deduction.
The same applies for artists visiting museums or exhibits. Keep the appropriate tickets and programs, and make notes about why viewing was beneficial to your business or the educational value you gained.
Payroll tax and self-employment tax
If you hire employees (for whom you withhold tax and send a W-2 each year), then you can deduct the employer portion of their payroll taxes. You can do the same of the self-employment taxes you pay on yourself.
These personal tax deductions are also common for business owners, and can help you save more than the standard tax deduction. If the total of your personal tax deductions is greater than the standard tax deduction (which, as we covered earlier, is $12,000 in 2018), use form Schedule-A to itemize the following deductions and further reduce your taxable income:
This is no longer a business deduction as of 2018, but you can still claim them on your personal income return as long as you donated to a charity recognized by the IRS. Recognized charities will be listed as a 501(c)(3) Organization. If you’re not sure if your favorite charity qualifies, be sure to ask them.
This applies to medical expenses that you pay for out of pocket. Anything reimbursed through insurance, for example, does not count. These expenses could include health insurance premiums, copays, dental costs, eye exams, prescriptions, glasses, contacts, and even an ankle brace if the purchase was prescribed by a doctor. The mileage to and from these appointments is also deductible.
Note: Over-the-counter items are not deductible.
If you own your own home, you should receive forms from your mortgage holder with the amount of home mortgage interest and the mortgage insurance premiums you can deduct. You can also deduct real estate taxes up to $10,000.
Other state and local taxes
Common examples include state income tax or sales tax. This amount is included in the $10,000 real estate tax cap.
If you have specific questions this guide didn’t address, here are a few of my favorite tax resources:
This is the fastest source for new updates to tax laws. You can also find copies of every tax form, as well as detailed instruction booklets for every line item. Note that the information on the IRS website is organized well, but includes a lot of detail. I find this website most helpful when I have a specific tax question I need confirmed. Otherwise, you could get lost under the sheer amount of information included.
Freshbooks in an invoicing and bookkeeping software designed with freelancers and artists in mind. As such, their blog is a great general resource for learning about taxes. I think they have the best collection of easily digestible accounting blog posts around.
If your business pays sales tax, then you need TaxJar in your life. Not only is their app great (it tracks, files, and pays sales tax for you), but their blog includes the best sales tax guides I’ve ever seen. They are also fast with sales tax updates (and we can expect many sales tax updates in the next few years with the 2018 supreme court ruling that opened internet retailers up to sales tax law.)
Quickbooks is the biggest player in accounting tech, and I highly recommend Quickbooks Online for a comprehensive tool to manage your business finances. Even if you don’t use Quickbooks, their help articles are a good resource for how to classify business deductions, and for more complicated questions like how to handle inventory, report your cost of goods, depreciate your car, etc. These articles will be more jargon-heavy than Freshbooks, but the information is more specific and can help with advanced tax and accounting questions.
After all this information, you still may not feel as excited about taxes as I do. That’s okay though—the more you become familiar with how to do your taxes, and the more energy you spend improving your bookkeeping system, the more you’ll save and the less stressed you’ll feel. That’s why I love what I do.
Also, know that you don’t need to act on every piece of information included in this guide all at once. Feel free to bookmark this link, re-read sections as you need help with them, and act on the information in pieces, as you feel ready. I promise that implementing just one piece of knowledge you gained today will make your taxes easier this year, and for years to come.
Actress-turned-accountant Katherine Pomerantz has capitalized on her artistic background to create the Chaos Money Framework, a tax service for creative entrepreneurs. Her financial expertise has been featured by Buzzfeed, Discover Card, and the Popcorn Finance podcast. Katherine’s unique perspective on money allowed her to open her own accounting firm in less than a year with no previous financial experience. Now, her firm has global reach as she’s helped everyone from expats to international start-ups create profitable businesses of their own. Connect with her at bookkeepingartist.com.