There’s a fine, confusing line between the “hobby” artist and “self-employed” artist–especially in the eyes of the IRS.
If you’re an artist with a substantial practice and record of sales, you want to be considered a self-run business. It will save you more in the long run on tax returns.
Hobby artists can claim tax-deductible expense on their generated income, but it will be considered under miscellaneous itemized deductions on Schedule A, which are deductible only to the extent that they exceed of your adjusted gross income. So, no income = no tax deductions. Also, hobby losses cannot offset other incomes.
However, if the artist is making, or plans to make, honest profit and carries on like a business, the IRS probably considers their work as a business. In this case, the artist might be able to deduct the full amount of their expenses by filing a Schedule C, including net loss. That amounts to much more savings over time than someone considered a hobby artist by the IRS.
How does an artist know where they fall?
Do they keep records of their receipts, invoices, funding, overhead and material expenses, etc.?
Do they intend on turning profit in the near future? Do they have the knowledge to do this?
Do they depend on the income their art can generate?
Do they run an online store, such as on Artsy?
Do they have employees, such as assistants?
If you’re an artist undergoing the switch to bona fide business, make sure to keep track of all expenses such as studio fees, shipping, framing, materials, utilities, insurance, repairs, and business travel. Document every source of income including sales, commissions, grants, awards, consignment, and wages for artwork. Keep track of your unsold inventory. Spreadsheets and accounting apps help you see and improve your business practices while proving your intent to earn a profit (should you ever be questioned).
We recommend those who are new to converting their practice to a business to consult an accountant who is specifically knowledgeable about the arts or find a workshop* specifically for filing taxes as an artist to learn how to do it yourself.
*The Leeway Foundation has an upcoming workshop that will also provide a live Youtube live stream.