Filing taxes is no fun. Things get especially complicated for artists, who usually work multiple jobs on top of their practices. To combat the form-phobia associated with tax season, Chicago Artists Coalition hosted a workshop titled “Income Tax Essentials for Artists + Creative Producers,” with tax expert Janet Ecklebarger on February 26th. In the two and a half-hour session, Ecklebarger taught a group of 20-something artists how to navigate the paperwork and become knowledgeable, independent tax filers.
Ecklebarger, who has worked as a tax associate since 2009 specializing in deductions for creatives, guided us through the process of filling out a number of forms associated with self-employment — including Schedule C (Profit or Loss from Business), Schedule SE (Self-Employment Tax), Form 8829 (Expenses for Business Use of Your Home), and Form 4562 (Depreciation and Amortization) — in an intensive and lively session.
Born and raised in Chicago, Ecklebarger lived here for 47 years before moving to North Carolina, where she set up her own tax accountancy practice. Inquiries — both personal and more general — from the audience members were sprinkled throughout the talk, as well as in a significant Q+A portion at the end. There were a range of practitioners in attendance, including photographers, graphic designers, sound engineers, soft sculptors, and medical illustrators.
Each year, Ecklebarger spends three months working as a tax accountant and nine months on her creative work. During her talk, she made clear that she loves both doing people’s income taxes and teaching people how to do their own. She emphasised that she didn’t want anyone in the room to become her client. Rather, she wanted to help us feel confident in doing our taxes ourselves.
“Financial confidence is so powerful,” Ecklebarger told us.
The kinds of forms
Ecklebarger began by introducing the types of forms we could expect to encounter.
The basic form is the W2. You will receive a W2 from any job that paid you as an employee, not as a contractor, in the previous year. You cannot write off any expenses incurred in this form of work.
More relevant to artists and creatives is Form 1099. You should receive a 1099 for all self-employed or contract work for which you have earned above $600, such as Airbnb hosting, receiving honoraria, selling work, or writing an article as a freelance journalist. The employer must send you a 1099 reflecting the transaction by January 31 of the following year.
Ecklebarger described Schedule C as “the lifeline of all independent contract work.”
“The minute you start making money in any way outside of W2, you become a sole proprietor, which means you can deduct expenses as it relates to your income,” Ecklebarger told the crowd. This means that your practice, if it earns money (in the form of grants, selling artwork out of your studio, teaching as an independent contractor, and so on and so forth), is automatically a sole proprietorship — a business. The Schedule C is where you deduct its expenses.
A separate Schedule C should be filed for each kind of self-employed practice you find yourself in. For example, dog walker-related expenses and sound engineer-related expenses should be filed in separate Schedule Cs. However, if photography is your practice and you both sell photographs out of your studio and do wedding photography, you can put those expenses on the same form.
Once you have a Schedule C, you yourself can obtain 1099s and issue them to people you have paid over $600 for contractual services — for example, paying a freelance lighting assistant — in that financial year.
Down to business
Ecklebarger told the crowd that the IRS uses the following nine factors to judge whether a business is truly a business. Your practice must be seen to match these points in order for it to be eligible to claim expenses on a Schedule C (otherwise it is categorized as a ‘hobby’):
- The business is carried on in a professional manner.
- There is an effort to make a profit.
- Time and effort is extended by the taxpayer who claims the business as a business.
- There is an expectation that assets may appreciate in value over time.
- Previous successes and failures.
- Profit and loss history.
- Amount of occasional profit (as a general rule, for three out of the past five tax years, the business must show a profit).
- The financial status of the taxpayer (the IRS may be more lenient towards someone who’s working other jobs to support the business).
- Elements of personal pleasure or recreation (if the business seems mostly for fun, rather than with the intention of profit, it may be categorized as a ‘hobby’).
Though there are no hard and fast rules, it is worth keeping in mind the above points when you choose to call your practice a business. It is also worth opening a separate bank account and keeping a separate credit card for business expenses. You do not have to have a business account, but separating yourself from your work is beneficial to proving you conduct your business in a business-like manner. Ecklebarger also highly recommended storing business correspondence in a separate file.
From sole proprietorship, you could choose to become a Limited Liability Company (LLC). An LLC is the same as a sole proprietorship, except that your personal liability is separate to your business liability. The next step up is to become an S Corporation, at which point your business completely separates from you as an entity — you file a separate tax return (which will cost you $1500), you conduct board meetings, and so on and so forth.
Ecklebarger warned of the dangers of putting your life in the hands of automated tax software. “TurboTax is dangerous because it just asks you questions and then spits the form out the other end,” Ecklebarger said. “Don’t just accept what it’s filled in for you, check everything again, because in two years the IRS is going to call you and say it’s all wrong.”
She recommended a number of apps for keeping track of expenditure and mileage, including Shoeboxed (travel and expense reporting), Certify (travel and expense reporting), and MileIQ (mileage reporting). The IRS may request receipts from up to seven years ago. In that amount of time a receipt may fade completely, so it pays to keep a digital record.
The GOP tax bill
As we neared the end of our lengthy and rigorous workshop session, Ecklebarger took a moment to go over some of the changes that the 2017 GOP tax bill has put into effect, but she emphasised that it depends on our individual situations whether the bill is a boon or a bust. Overall she described the changes as “randomly put together,” but described the 2025 expiry as “sooner than we think.”
Keeping in good form
The IRS is currently two years behind on their paperwork, Ecklebarger told us. They have suffered so many staff cuts, and are so busy catching up, they are no longer able to answer calls or field questions. This means any mistakes made now, expense receipts not retained, et cetera, will come back to haunt you in two years. Filing taxes and recording expenses as an artist can be complicated and – if forms aren’t your thing – incredibly boring. But the benefits of being thorough are high.
“If you figure that every dollar you spend and put on this form puts 25 cents back into your pocket, it’s worth it to keep proper records,” Ecklebarger said as we concluded the workshop. “The best thing to do with these forms is to be honest,” she said.