Here then is a brief set of links to get you started with registration in New England, New York and California.  We will be expanding the list of states – and links to more details within those states – as we move forward.

Thank you to Somerville, Mass  jeweler extraordinaire Karen Christians who urged me to develop this list and has posted it on her wonderful website.

The following is Part II of an excerpt from “Peace, Love and Financial Planning — An Illustrated Guide to Money”, by E. Larson Gunness, a local financial planner (and friend).

Click here for Part I

Note: “You” is the narrator in the book, who is working for a local accounting firm, and has just met Art, a new (artist!) client in distress because he has not filed his taxes for a couple of years. Any resemblance between the fictional “Rich” and myself must be purely coincidental!

Rich Responds — Part One

Art goes silent. He seems exhausted but relieved, as if he’s confessed to a great burden he’s been carrying… for two days. Rich leans back in his chair, props his elbows on the armrests and interlocks his fingers.

“Well, Art,” Rich begins. “That’s quite a story.”

Then you watch Rich as he applies his wisdom and experience to the situation of Art.

“You will not go to jail, even if it will improve your artistic career. The IRS is not out to punish people but to bring them into compliance and have them pay what they owe. You may face penalties if it turns out you owe – but we do not even know that yet. Relax. Sit in the massage chair.

Our plan is to reconstruct your finances for the last two years as best we can. It will not be precise but at least we will be able to file, get you on the right path going forward.

Do you have a copy of your last tax return, three years ago?

What kind of records can you come up with for your income? Can you or did you get a statement from Katya (the gallery owner) ?

Do you have a separate bank account for your painting income?

Do you have copies of your bank statements? I know it’s a long shot but that might shed a light on your business activities. (You have a business, you have income, you have income tax.)

We need to get a sense of how much you made from non-gallery sales.”

Stay out of jail — FOREVER! Attend my free May 6 webinar, Business Basics for Start-Ups , sponsored by Social Enterprise Greenhouse. Click here for information

Rich Responds — Part Two

Rich continued. It was kind of impressive to see how many ways he could think of to help Art. Art was clearly becoming relaxed, really relaxed.

“You are allowed and expected to deduct your professional expenses and only pay taxes on your “net”. Going forward, you will need that separate bank account AND a tool to help you track your income and expenses (e.g. Quickbooks). Going back, do the bank statements have copies of the checks? Did you pay anything by credit card?

Other expenses – we can deduct your roundtrip business mileage to NYC. How many times did you drive there? Supplies? Courses? Memberships?

Is your studio part of your residence? We may be able to take a “home office deduction” if it qualifies. Or was the studio a separate location?

What % of your phone do you use for business?

Do you pay health insurance? That is a deduction.

What is your best projection for this coming year’s sales?

You should plan to save between 30% and 35% of each art sale for taxes, and we will set you up on an “estimated tax plan” for next year.

Learn more in person May 14, in Warren, RI: The Business Of Art: Tax And Accounting Basics For Working Artists And Designers Sponsored by Gallery Night Bristol Warren. Click here to register

Art is Calmed

The meeting with Art is now almost done. The information will be compiled into filings with the IRS.
.
“Not to worry,” Rich says. “It is possible that you may incur a fine. But, at least you’ll be up to date. At least you are trying to do the right thing.

“And from now on,” Rich continues, “you will do this regularly, right? You’ll pay quarterly estimated taxes on self-employment income and file your annual return, either with or without my help?”

“Right,” cries Art.

“Because, they’re your taxes and your responsibility. The money you owe in taxes isn’t yours, even if it’s in your hands for a few weeks or months… got it?”

“Got it!”

This is copyrighted material, text and illustrations reprinted with permission of the author. The entire book — glossary, case studies and more can be found online. It’s a hoot (and helpful too!).

Boston artists: I will be at the famed Artisan’s Asylum in Somerville, May 21 to present Life On The Ledger, How To Make Your Art Add Up click here for details

Summary Of My May Presentations

May 6 – Webinar Business Basics For Start-Ups at Social Enterprise Greenhouse click here

May 14 – Live lecture in Warren RI: The Business Of Art sponsored by Gallery Night Bristol Warren. click here

May 21 – Live lecture Somerville MA: How To Make Your Art Add Up at Artisan’s Asylum.
click here

The following is an excerpt from “Peace, Love and Financial Planning — An Illustrated Guide to Money”, by E. Larson Gunness, a local financial planner (and friend).

Note: “You” is the narrator in the book, who is working for a local accounting firm.

Art Comes in for a Meeting

One day, a person named Art comes in, looking for help. You know Art, have known him for a while.

Rich calls you to sit in on the meeting and take notes. You’re a bit bashful when you step into the conference room and are introduced to someone you know from the outside world.

But Art doesn’t seem to recognize you. He just sits down facing Rich. But, you tell yourself, Art’s Art and he can be a bit goofy at times.

You watch him. He seems uncomfortable. In fact he seems downright rattled. As you take out a clean sheet of paper, you reflect that it’s been a couple of years since you’ve seen him. Last you heard, he was still the prodigious prodigy, cranking out quality piece after quality piece. After so many years selling all those high priced paintings, he must have quite a bit of money by now.

Rich begins the conversation with small talk, apparently trying to get Art to relax. But Art will have none of it. Art never did go in for nice-nice.

Art Explains

“I DON’T WANT TO GO TO PRISON,” Art blurts out, to which Rich visibly flinches.

“Uhm, say more,” Rich says

Art leans back in his chair and looks around the room, examining everything except for Rich. At that moment, Art appears like nothing so much as a stray dog, cornered and frightened. For a moment, you’re not sure what’s going to happen next. Anything seems possible.

Then Art closes his eyes and goes quiet for a moment. When he opens them again, he’s regained his composure. He draws a breath and launches into his story. He speaks spasmodically and fast. You struggle to keep up with your notes. Rich just sits back and listens, occasionally picking up his pen to jot down a brief note.

“I don’t want to go to prison,” Art says again. Only this time, he says it in a calm, even tone, firm with resolution.

“I’ve always done well with my painting. It’s the only thing I ever do, only thing I’ve ever done. I can’t say that I do a good job or bad, because it’s all I do. I paint.

And people have always seemed to want my paintings, which used to amuse me. I mean I paint all the time anyway, so if someone wants to go through and buy from the piles of canvas I have in my shed, then so be it.

But I don’t see it that way now. Wasn’t too long after I got out of art school that I realized I need to eat. And I’m not trained to do any other kind of work.

“So I met this woman At one of my local shows. Her name’s Katya and she owns a big swanky gallery in Manhattan. Well, long story short, she got all excited about my work and said she wanted to help me sell my art through her gallery.”

Art Meets Katya

“So for the past two years, it’s been pretty simple: every couple of months or so, I send a few paintings to her. Well, at first I just threw them in the back of my car and drove them down to her, but when I asked her to help me unload one time in the rain, she got all freaked out and since then she’s insisted that I take them to the UPS store to have them packed and shipped. I keep telling her it’s an expensive way to ship, but she says she can afford it, so I let her have her way.

Anyway, for a while we went on like that. I’d send her the paintings. A few days later I’d get a check in the mail. I’d cash the checks, spend some of the money, put the rest in my stash, and send her more paintings. It was all good.

Then last October, she decided to stop selling my paintings for a little while. She said she wanted to let anticipation build, that people were coming in looking for my work and she wanted to play hard to get or something in order to do a big show around my work in a year or so.

Katya said she felt bad that she had to disrupt my cash flow. I didn’t tell her that it didn’t matter to me, that I never spent a lot of the money I got from her checks anyway.

So she gave me a job down at her gallery. I go down there every other week. I do whatever needs to be done, like hanging pictures, sweeping up, painting walls, or whatever. Then at night I crash at her brother’s place, which is fine because he’s I guess living in Europe so I get his loft all to myself. Then after the week’s up, I drive up to my studio again and sleep and paint some more.

I was feeling pretty good about things. I have this super cush job. I get to live in this apartment in the middle of New York. There’ll be a big showing of my work some time soon.

I remember thinking: “What could go wrong?”

Art Receives a W-9

“Well, basically the same day I asked myself that question, I came back to my studio, and there was this letter waiting for me from Katya’s office. Inside it was this form called a W-9?

Rich nodded, like yes, he’s heard of them. Then gestures for Art to continue.

“The next time I saw Katya, I asked her what I was supposed to do with that form and she said I should give it to my accountant when I do my taxes this year. She said it’s kind of like the 1099s I “always turn in (here, Art adds air quotes around ‘always turn in’). I played it cool, like I knew what she was talking about.

That was three days ago and I haven’t slept since. The whole conversation sent me into a sort of panic because I haven’t dealt with taxes, basically… ever… as far as I know. I kind of thought I didn’t need to deal with that because every gallery I’ve ever sold through was in charge of paying the taxes ….. so I didn’t know I was supposed to pay those taxes too.

So now I’m in big big trouble. But I’m prepared to face whatever awaits. And after my time has been served, I’ll start all over again, as an upstanding citizen.

Who knows? Prison might even improve my paintings. Heck, might even make them more valuable.”

Art goes silent. He seems exhausted but relieved, as if he’s confessed to a great burden he’s been carrying… for two days. Rich leans back in his chair, props his elbows on the armrests and interlocks his fingers.

“Well, Art,” Rich begins. “That’s quite a story.”

In the Next Installment: Rich Responds!

This is copyrighted material, text and illustrations reprinted with permission of the author. The entire book — glossary, case studies and more can be found online. It’s a hoot (and helpful too!).

Q: I’ve never made a dime even though my art hangs in all the major museums. Now I am told the tax people could reclassify my activity as a hobby?
–P. Picasso, penniless in Paris

A: Well monsieur, I cannot speak for how the socialist French tax their artists. In the United States there is an expectation that one is in business to make a profit. A good rule of pouce (thumb) is to show a profit in three out of every five years to avoid an IRS audit. However, a recent court ruling gives artists much more leeway than traditional businesses, and I have clients who have never shown a profit and still walk the boulevards in peace. Then again, if you French didn’t take such long vacations maybe you’d earn a bit more, n’est pas?

Q: I was told to organize as an LLC to save on taxes. But maybe I didn’t hear this correctly.
–Ludwig LLC, Bonn

A: Herr Beethoven I cannot speak for the bureaucratic Germans. Nevertheless an LLC — Limited Liability Company – is only that, it does not provide any specific tax breaks. It is simply a sole proprietorship with a legal schild (shield), which may be important to you. In some states there are annual franchise fees to contend with (RI and Mass, $500).

Here in the U.S. we do not overtax our citizens just to provide silly fringe benefits like health insurance. If your income is sufficient you may save some taxes by incorporating as an S-Corp, see my artikel.

(By the way L, I am told that Streitfeld is derived from the German for battlefield. So I know something about schilds– and wait till you hear the story of my boys’ names.)

We can help you incorporate.

Q: I write for a living, do I have to pay estimated taxes?
–Fyodor Dostoyevsky, Leningrad

A: F. it really depends on how many rubles you make. If you have a job as an employee you may simply increase your withholding; or, come on, your babushka supports you, so let her take more taxes out of her paycheck. In the United respecter of sovereign countries* States the IRS does not care how you pay — withholding, estimated, through a spouse (if you file jointly).

Then again your new documentary Pennies from Amazon may not yield you much income, or perhaps you can claim a loss. Then your taxable income goes down.

* with periodic exceptions

Q: I make and sell sculptures for a living, and I hear Rhode Island is a safe haven for sales tax on artwork.
–Michael Angelo, Roma

A: Indeed. Starting a year ago sales of “original and limited sales of art” in Rhode Island became exempt from sales tax.. However, you still must apply for the exemption and continue to submit monthly reports, even if you owe no tax. Note that consumables (e.g. candles, soaps) and mass-produced items (e.g. sold in a bookstore) would not qualify. Rhode Island State Council on the Arts has an excellent guide as well as links to the registration forms.

You may want to download yourself from that chapel ceiling before you download the forms.

Q: Which vegetable do strangled painters covet?

A: An artichoke

I give live talks and webinars on self-employment for a wide variety of professionals, including artists. Contact me for samples and availability.

CROWDFUNDING IS ALL THE RAGE!

Banks (still) aren’t lending, the government is broke (or broken) and venture capital is highly competitive. How then to start a business in 2013? Crowdfunding says “Ask my friends (and their friends).” It goes against everything we are taught to believe in a hyper capitalist society. We give only when there is a return –a dividend, a tax break, a stake in the growth. Enter crowdfunding – Kickstarter, Indiegogo, RocketHub and others are proving this notion wrong in a Big way. While by no means a sure-fire method to raise funds for a business venture, there are success stories, some of them in the millions of dollars. And taxes are the last thing the founders are thinking about while they are consumed with starting the business and pitching it for crowdfunding. Until. They. Win.

See the full article at crowdsourcing.org