1800accountant.com: For a writer, artist, actor, model, or musician, thousands of dollars in taxes can often ride on a single question: is the artist a professional or an amateur? At first glance, it might seem like an easy question to answer — but there are some surprising twists in the rules, especially in state and IRS rules on tax deductions.
6 comments:
I personally never even knew that artists can earn tax audits from being considered professional or amateur. Can you possibly say someone doesn't earn something because they are enjoying their work too much? Who has the right to judge wether the work needs to be fun or non-enjoyable? I do believe however that its important to make clear rules and regulations, so artists have a clear idea of what is amateur and professional and under what circumstances they can receive compensation.
I agree with Keith's comment that whether or not someones work is enjoyable should have nothing to do with tax audits. Artists are not the only people who enjoy their jobs and they work hard to make a living that way. I think that if an artists is able to support themselves through their work some years, they should be considered professionals. All types of businesses can have off years and that doesn't necessarily make the people running them amateurs. The idea of artists being required to have made a profit in three of the last five years to make costs related to the activity deductible seems pretty reasonable.
I've been thinking about this topic for quite a bit of time and what does it mean to be a professional. In our world most of the time, once you are getting paid for your work then you are considered a professional. It seems like it is a good general rule of thumb but of course it doesn't really work for the artist community at large. I know how theatre works but I've often wondered about classifying other artists in other mediums. Theatre has the benefit of being a little more clear cut so that's good for us. I do wish there were more tax classes for artists to take because I don't know of many who actually know what they are doing there.
I don't understand how the IRS can say de Mars is not a professional artist when art is all she does for a living. If she's willing to make $20,000 a year on her art and not work a day job, it seems that it should be her choice to claim art as a profession and live on the little money she makes from it. How does the IRS expect her to get all of this money that she now suddenly owes them? It's unfortunate that the accountant she has been going to wasn't more educated on tax laws regarding artists. It seems like it might be worth it for artists to go to accountants who have specialized knowledge in the tax laws that apply to them. While I do feel for de Mars, I think that her story serves as a great example of the reality of why artists need day jobs. As great as it may be for an artist to do nothing but their art, it's just not realistic in today's society. What if deMars were to have a medical emergency? How would she support herself? The burden of her medical debt would fall to others. Others should not have to provide for her because she chose the life of a starving artist. There are logical points to be made on both sides of the argument here, and I'm not sure exactly where I stand, but I do know that I will certainly be looking into tax laws more before I graduate!
I think this article is definately more applicable to (non-entertainment) visual artists. As others have posted, the entertainment industry is usually very clear about when work is professional. For a lot of us, this is defined by whether or not a contract is signed, or a 1099 form is filed.
In this particular case, I think it is worth noting that (while illegal) de Mars could have potentially conducted all of her business without even notifying the IRS, and probably would have gotten away with it. Perhaps the IRS should divert some of their auditing resources to efforts to educate citizens and simplify the process of paying taxes for artists who have specific or complicated financial situations regarding taxable income and expenditures.
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