How Income, Profit, and Loss Works for Artists

tax tips | August 10, 2017 | By Susannah McQuitty

A sketch of a confused artist painting a dollar bill

You’re an artist—small business and freelance terms may fly over your head, but you know that in order to share your work with the world, you’re going to have to keep good records and plan for your finances.

We’re going to talk about how you can use the system to your advantage and knock out this whole “starving artist” thing for good. It all starts with understanding the basics of income, profit and loss.

Does your art income affect your tax rate?

Gross income is the total amount of money you earn from sales before you subtract income taxes, bills and business expenses.

Whenever your income grows, you should double-check how your new income amount affects your tax bracket. Your tax bracket determines the tax percentage on your earnings, so the more money you make, the higher your tax percentage on certain amounts of your income.

While your art sales could bump you up to the next tax bracket, you’ll only pay the higher tax rate on the amount that exceeds your current tax bracket.

A doodle of a glass jar with brushes and pencils sitting on a stack of dollar bills

Profit and loss from art sales

The next step is to calculate the money you spent to produce your art. For example, you could add up the amount you spent on paint, paintbrushes and canvases. These are categorized as business expenses, and once you add them up, you’ll want to compare your deductible business expenses to your income.

If you made more than you spent, the difference is called a profit (income – expenses = profit), and your profit is what will be taxed. If you spent more money than you made, the difference is called a loss, and in most cases that loss will reduce other unrelated taxable income that you report (income from a day job or a part-time gig, for example).

Doing your taxes as an artist

Your income and expenses from your art may qualify you for  tax breaks (yay!); however, if you start making a decent amount of money you’ll also “qualify” for new responsibilities, such as paying quarterly estimated tax payments (less yay).

Over the year, make sure to keep good records of all your income and business expenses. When you file your taxes next year, you’ll report this business info on Schedule C, Profit and Loss from Business, in order to determine your net income subject to income taxes and self-employment taxes.

When you file with 1040.com, we’ll ask you about your small business information and use your answers to complete the forms—which makes the whole process that much easier so you can get back to doing what you love.