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5 Essential Tax Tips for Independent Creators

“We love doing taxes!”, said no one ever. That said, all artists are entrepreneurs. While the creative process should be your core focus, understanding and managing your financial obligations is a crucial aspect of sustaining a thriving artistic career.

As we move into tax season, here are 5 key tips to ensure you’re meeting both your tax reporting responsibilities and getting the most from your hard-earned income.

#1: Separate your finances

To make your accounting more efficient and streamline the tax filing process, it's vital to separate your business and personal finances.

Designate a dedicated business account to track income and expenses related to your artistic endeavors. This separation not only simplifies tax reporting but also enhances financial clarity, making it easier to assess the overall health of your creative enterprise.

#2: Record all transactions

Sometimes it can be challenging to determine what constitutes income. That’s why it’s important to track everything, as cumbersome as it may be.

Gifts received by sponsors are often taxable, especially if they are products in exchange for services (e.g., promotion of product). “Donations” from various fundraising activities like Kickstarter are also considered revenue.

On the other hand, crypto and non-fungible tokens (NFTs) are considered property. Selling them usually generates a capital gain or loss, which will be taxed depending on your government’s tax policy.

#3: Track your expenses

Creators and artists can benefit from various tax deductions tailored to their industry.

Deductible expenses may include art supplies, equipment, software subscriptions, professional development, and even a portion of your home used as a dedicated workspace.

While expenses should not be excessive, any “ordinary and necessary” expenses of your craft can and should be deducted!

#4: Plan and set aside cash for estimated taxes

While in some jurisdictions, having a full-time job means that your estimated taxes are withheld (i.e. not paid to you so that they can be paid to the government), freelancers have to set aside what’s needed for taxes themselves.

As such, you should plan to allocate an appropriate amount of your income towards estimated taxes (which may include things like self-employment tax to cover social security) in order to avoid unpleasant financial surprises.

#5: Consider setting up an entity

Creators who run their own businesses are often independent contractors. One strategy you may want to consider is setting up an entity for the work that you do. This can help to protect your personal assets from your business assets and even make you eligible for certain tax savings or grants.

In the US, S Corporations and Limited Liability Companies (LLCs) are common for smaller businesses. If you are looking to scale your creative practice into something larger where you could consider taking in external investment, first off — congratulations! Secondly, if doing so, a C Corporation may make sense.

Closing thoughts

While most of us dread having to deal with taxes and even talking about money, let’s not underestimate its significance and make it a part of our overall creative journey! After all, if you think about it, effective financial planning too is like a great work of art, where every brushstroke matters.

By taking these steps today you can better position yourself to continue pursuing your creative passion tomorrow.

Artist Grants & Opportunities

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Other Opportunities

• HUG Artist Rebecca Rose curates a variety of opportunities from exhibitions to financial grants. Learn more here.

This Week’s Art Drops

Did you know that these are just 8 of hundreds of art drops on HUG? Get a full list of this week’s art drops from HUG here.