Taxes for Lash Artists

I know literally when talking about taxes, I am still confused at times and needed some professional help.

Not claiming to be an expert on this matter, so I would suggest to seek an advise to someone who knows this topic very much.

How important is to know the in and outs of taxes for us lash artist? I have no idea about this when I am starting and nobody discusses this during my classes and training.

You might think that your are just working at home and you don’t need to know about taxes, then you might start checking this online.

It’s very much important to know how IRS looks at an any businesses.

I will be sharing you what information I got and hopefully you will this helpful and beneficial.

In the United States, you will need to file both state and federal taxes, as well as 1099 forms. If you collect money for goods, you will need to charge and file sales taxes, which differ from state to state. You may also be required to charge and file city taxes. If you have employees, you will need to know the laws for handling employee taxes. If you are overwhelmed or uncertain, consult an arts accountant.  

Most visual artists are considered “self-employed” in regards to filing their taxes. In a legal and taxpaying sense, this means that your “business” as an artist, and you as an individual taxpayer, are one and the same. There is no legal separation, such as one would have in a corporation, partnership, LLC, or other legal entity. The artist usually files a “Schedule C” as part of his or her regular 1040 income tax form, which is where you report your art income and expenses.

The artist may file a form 8829 for the home office (studio) deduction and will also be required to pay self-employment tax (Schedule SE) on his or her net income (profit), as well as federal income tax. All these forms are part of the year-end 1040 income tax filing. As a self-employed artist, you will usually be required to pay estimated quarterly taxes using Form 1040-ES if your Federal tax liability is over $1,000 for the year.

For the IRS, deductible business expenses are:

Incurred in connection with your trade, business, or profession.

Must be “ordinary” and “necessary.”

Must “NOT be lavish or extravagant under the circumstances.” 

Clearly, these guidelines are not an exact science. The artist has a large group of basic expenses that easily fit the above criteria: travel (hotel, meals, etc.), vehicle and transportation costs, equipment, art supplies, home studio expenses, legal and professional fees, gallery costs, and commissions, etc. Below are some of the more complex and contentious deduction areas.

IS BEING AN ARTIST A BUSINESS?

For tax purposes, to comply with the IRS, an artist must consider if their art practice is a business or a hobby. Artists often have financial losses—overhead exceeds the profit brought in by the sale of the artwork. When does the tax code determine an enterprise to be a business as opposed to a hobby?

Hobby

Although you must claim the full amount of income you earn from your hobby, hobby-related expenses are generally deductible only to the extent of income produced by the activity. Therefore, if you do not generate any income from your hobby, you cannot claim any deductions. Furthermore, even those hobby expenses which can be deducted are subject to an additional limitation—they are considered miscellaneous itemized deductions on Schedule A, which are deductible only to the extent that they exceed 2% (at this writing) of your adjusted gross income. By contrast, if your activity can be classified as a bona fide business, you may be able to deduct the full amount of all your expenses by filing a Schedule C. In short, a hobby loss will not cut your overall tax bill because the tax law stipulates that you cannot use a hobby loss to offset other income.

Business

As a business you can deduct a net loss from other income you earn, such as wages and salaries. How does the IRS determine whether your activity is a hobby or a for-profit business? The IRS outlines these nine criteria:

Whether you carry on the activity in a business-like manner.

Whether the time and effort you put into the activity indicate you intend to make it profitable.

Whether you are depending on income from the activity for your livelihood.

Whether your losses from the activity are due to circumstances beyond your control (or are normal in the start-up phase of your type of business).

Whether you change your methods of operation in an attempt to improve profitability.

Whether you have the knowledge needed to carry on the activity as a successful business.

Whether you were successful in making a profit in similar activities in the past.

Whether the activity makes a profit in some years, and how much profit it makes.

Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

The primary determinant is your ability to make a profit at what you are doing. If your efforts result in a profit in three-out-of-five consecutive years, your activity is presumed not to be a hobby by the IRS. You may have to prove to the government that you have made a genuine effort to earn a profit, so keep meticulous business-related records and conduct yourself in a business-like manner. 

You need to keep track of the following expense items:

  • Travel expenses
  • Office rental (whether at home or not)
  • Commissions or payment to managers or employees
  • Equipment used in your trade
  • Auto insurance and repairs
  • Supplies and materials
  • Special clothing or safety equipment for your work
  • Legal and accounting fees or services
  • Bank fees
  • Studio rent and expenses
  • Utilities, including phone/Internet
  • Entertainment and meals related to your business
  • Business fees
  • Equipment rental
  • Publications, periodicals, and other research materials
  • Fees for workshops and seminars
  • Membership or association dues
  • Shipping or mailing
  • Repairs or maintenance
  • Insurance
  • Advertising
  • Sales taxes

You need to keep track of the following income items:

  • Proceeds from the sale of your work
  • Income from rented or leased work
  • Wages or salary paid for work as an artist, including honoraria, commissions, fees, and stipends
  • Grants, awards, and fellowship funds
  • Copyright royalties for published or distributed works
  • Advance payment for work to be completed in the future

Sales taxes

You should have the following information for each item:

  • Date
  • Amount
  • Buyer

Reason for the income or expense/description

Check number, invoice, tracking number, or indication of other form of payment

I know you are now overwhelmed with the information here, it's too hard to understand. If you can, I would highly suggest getting an accountant to deal with all your taxes concern. 

IRS website are also helpful with information you might be needing.