Your lifestyle requires money! Achieve itll And account for it!!

 

Generally, the artist in business alone is operating under a Sole Proprietorship (one individual or a married couple). This is a common form of business structure. Also available is a General Partnership, a Limited Partnership or a Corporation.

 

In Washington state, registering a business is a onetime requirement. You do this by filling out a Master Application-Washington's basic business application provided by the Department of Licensing (Olympia: 360-753-4401). There is an application fee of S15. You will receive a Unified Business Identifier (UPI), a nine-digit number to be used to identify the business.

 

Registering your business will set into action the fOllowing registrations that do not require a fee:

• Tax Registration: You will be registered with the Department of Revenue if you produce or sell a product or provide a service.
• Industrial Insurance: If you employ one or more people, you must apply for this coverage. You can also order industrial insurance coverage for yourself You will be registered for this through the Department of Labor and Industries.
• Unemployment Insurance: If you employ one or more persons, you must provide this coverage for them. You will be registered for this through the Employment Security Department. If your spouse is on the payroll, he/she is not eligible for this benefit on the state or federal level. (Wash. Rev. Code 50.04.180).

 

SALES TAX

The Department of Revenue will provide you with a packet explaining how to report your taxes and your assigned reporting frequency. Not all your purchases are subject to sales tax when the article or material is purchased, if the purchase has a business purpose. For Imple, sales tax may not apply if it is:

• To be resold.
• To be incorporated into a new product being produced for sale.
• A chemical used to process a product which wi be sold. (Note: paints, polishes, washes all fall into this category)

 

An example: Daniel Smith, a Seattle-based retail store for art materials, requires the artist to complete a form which is entered into their computer system. When artist makes purchases, the UBI number is given a the sales tax is deleted from the purchase.

 

The sales tax on the original materials will be deferr until you sell it. You are responsible for collecting saI tax on the fair market value of your art when it is sol This UPI number will prevent you from paying saIl tax twice on the art you sell.

FORMS OF TAXABLE INCOME

• The fair market value of your art is generally th price to which a buyer and seller would agree Valuation is important when the artist realize: income in the fonn of goods or senices. This is particularly important to the artist who gives art. work in exchange for the services of professionals, such as lawyers, doctors and dentists. This is considered a sale and therefore taxable income. A third party evaluation may be necessa.ry for establishing value for IRS.
• Another form of taxable income is if your artwork is stolen or destroyed, and insurance reimburses you for the value. The insurance proceeds are taxable, as if a sale has occurred. But at least you can deduct your insurance premiums.

 

INFORMAL RECORDS AND FORMAL RECORDS

Start by learning a new set of "3 R' s" -record keeping, record keeping and (you guessed it) record keeping. IRS studies show that poor records, not dishonesty, are what cause most small businesses to lose at audits or fail to properly comply with their tax reporting obligations, with resulting fines and penalties. Being a self-employed artist, you should record business income and expenses. This can be tricky, however, until you understand what kinds of records back up deductions. For IRS, it's best to keep two types of documents - informal records and formal records.

All the papers you receive in the course of business: canceled checks, bank statements, bills, receipts. All activities in connection with your artwork, no matter how small the amount. A check alone isn't always accepted as proof by IRS so make sure you get an itemized bill or receipt whether you pay by cash or check.

 

Have a separate bank account to maintain accurate records, deposit all income earned through your art, and pay for all expenses out of that same account. If you personally support yourself by another business and your art expenses are too high, write yourself a check from your personal account as a loan and keep a record so this can be paid back when pieces sell. Better yet, write a fomtal loan statement for your records.

 

Formal records: These list or summarize income and expenses and should be kept by either single-entry or double-entry bookkeeping. Single-entry lets you list all your expenses as they're incurred so you can add them up at the end of the year. All you need to say about most expenses in this fomtal record is what they were and how much they cost. This can even be done in a simple pocket diary, however, more elaborate systems can be found at any stationery store.

PROFESSIONAL EXPENSES

Separate the billing statements or receipts by cateory, such as:

• Art materials and supplies
• Work space
• Office equipment
• Certain books and magazines
• Promotional e.\]lenses
• Telephone, POstage
• Premiums for art insurance
• Commissions of agents
• Legal and accounting fees
• Auto expenses

 

Put your documents into individual folders or envelopes. If you are ever audited, the IRS is most likely to zero in on business deductions for travel and entertainment and car expenses. Furthermore, the burden will be on you-not the IRS-to substantiate your deductions.

 

To ensure you're on the right track, it's a good idea to run your bookkeeping system by a savvy small business tax pro. With just a few hours of work, they could help you avoid the most common mistakes and show you how to dovetail your bookkeeping system with tax-filing requirements.

 

Classes to assist in record keeping as well as other business topics are sponsored by the IRS and Small Business Administration (SBA). Check their web page when you go on-line (www.sbaonline.sba.gov) for infonnation such as:

• Small Business Tax Workshop for New Businesses: SBDC, SIRTI Bldg., 665 N. Riverpoint Blvd., Spokane, WA 99202; 509-358-7890.
• In Seattle, seminars are held at Jackson Federal Building, 915 Second Avenue, Seattle, W A 99184-9902; 206-220-5776.
• In BC, the Canada-British Columbia Web site has a large data base of government programs:
• WWW.cbsc.org/bc

 

Business-oriented information phone numbers for NWSSA territory:

• Anchorage, AK: 907-271-4022
• Boise, ill: 208-0334-1696
• Portland, OR: 503-326-2682
• Seattle, WA: 206-553-7310
• Spokane, WA: 509-353-2800
• Vancouver, BC: 604-775-5525; 800-667-2272

IRA-KEOGB-THE EARLIER YOU START, THE BETTER

When you earn money with your artwork, you will pay Social Security taxes-Why not add to your future with tax-deductible retirement funds. The most important part of having a nest egg is not how much you can put aside, but how long you can put it aside. Your lifestyle requires money-face it! (Have you read this before?)

 

One area is which you, as an artist, can augment your prescnt income is the tax-sheltered savings plans. You cannot be too busy to consider these issues. The tax deferral benefits of the Keogh (for self employed), the IRA, and the Roth IRA are worth your investigation. With the IRA, contributions are tax deductible with taxes paid at withdrawal and with the Roth IRA, contributions are not tax deductible, however, the earnings are tax free. Do some homework-you can even establish your account with a discount broker (minimum charges) such as Charles Schwab so you can manage your own funds.

 

To find out where you stand today, a phone call could get you started. Call the Social Security Administration (1-800-772-1213) for Fonn SSA-7004. You will find out just how much you have paid in-and an estimate of the benefits you will have available when you start drawing on them.

 

DEATH AND DIVORCE - WHICHEVER COMES FIRST

 

Estate planning: Think about what could happen if you were out of the picture tomorrow.

 

Death can be one cause; disability due to accident or illness is a real possibility as well. No one should handle all the planning alone. Look over your studio or workshop and make an inventory. List your pieces with relevant infonnation that would be useful for valuation. Estate planning involves deciding how you want to distribute your assets, including your artwork, following your death ... and selecting the people or institutions to carry out your plans.

 

Whether your estate plan is complex or simple, you should have a w:i11 as part of that plan. Many states require, and it is generally a good idea, that an attorney draft your will. State laws differ on issues ranging from the details and Signing, dating and witneSSing, to the very defmition of words and phrases used in wills. This w:i11 can also include trusts and name trustees (persons and institutions).

 

Community property: This is an interesting law to deal with in Washington state. The following example of a Seattle artist caught up with it all can give you something to think about.

 

As the divorce started taking form, the division of property included artwork produced during the union. Several pieces of artwork had been sold during the 17-year marriage and the artist was represented by a gallery in Seattle. The courts required the gallery to take an inventory of the work assigned to it and give the total fair market value. At the time, there were over ten pieces of sculpture to be sold by the gallery. The artist, in order to keep control of the work, had to purchase the spouse's half of the sculptures. If you have multiple residences or studios in different states, the process is further complicated. Different states and provinces have different tax structures and rates. There could be a challenge to the location of your prinCiple residence for tax purposes. Talk to an attorney about how to prevent predictable problems. In fact, the last sentence is pretty good advice for most of your business decisions.

 

My focus for these five articles has been to intrigue the minds of stone carvers in areas they may not have considered-at least get you a little curiousll I hope I have accomplished this objective.

 

And now (after this article was written in July) on to ltalia where Tamara and I will be (were) working for the month of August with Mauro Berrettini and Claire MCArdle in Rapolano-a little hill town just outside Siena. But for now (watch me play this out as long as I can) I will say, arrivederci!

Patrizia

 

© 1998 Patricia Sekor

 

Resource list: Operating a Business in Washington State, Department of Licensing, Olympia, WA; Business Tax Seminars, Internal Revenue Service, Seattle, W A; Tax and License Infonnation, SBA, Seattle, WA; Art Calendar, November, 1997, Estate Planning, Laurel Lesser Zimet.