As you launch your artistic career, be aware that you are actually starting a small business. It is crucial that you keep track of the details, or your business will not last very long. The most important rule of all is to find a system to keep your business organized and stick with it.
Every artist needs to keep a daily record of art-making and marketing activities. Before you do anything else, visit an office supply store and pick out the items listed below (or your own variations of these items). Keep it simple so you can remember your system and use it on automatic pilot whenever you make a business transaction.
Designate a permanent location in your studio or home office for two file folders and your notebook. Label one red file folder “Expenses.” Label one green file folder “Income.” Write in your daily log book each and every day.
Every time you purchase anything for your business, such as envelopes or art supplies, place the receipt in your red Expenses folder. When you receive payment for an assignment or painting, photocopy the check or place the receipt in your green Income folder.
Whether you’re an illustrator or fine artist, you should devise a system for keeping track of assignments and artworks. Most illustrators assign a job number to each assignment they receive and create a file folder for each job. Some arrange these folders by client name; others keep them in numerical order. The important thing is to keep all correspondence for each assignment in a spot where you can easily find it.
One of the hardest things to master is what to charge for your work. It’s difficult to make blanket statements on this topic. Every slice of the market is somewhat different. Nevertheless, there is one recurring pattern: Hourly rates are generally only paid to designers working in-house on a client’s equipment. Freelance illustrators working out of their own studios are almost always paid a flat fee or an advance against royalties.
If you don’t know what to charge, begin by devising an hourly rate, taking into consideration the cost of materials and overhead as well as what you think your time is worth. If you’re a designer, determine what the average salary would be for a full-time employee doing the same job. Then estimate how many hours the job will take and quote a flat fee based on these calculations.
There is a distinct difference between giving the client a job estimate and a job quote. An estimate is a ballpark figure of what the job will cost but is subject to change. A quote is a set fee which, once agreed upon, is pretty much carved in stone. Make sure the client understands which you are negotiating. Estimates are often used as a preliminary step in itemizing costs for a combination of design services such as concepting, typesetting and printing. Flat quotes are generally used by illustrators, as there are fewer factors involved in arriving at fees.
For recommended fees for different services, refer to the Graphic Artists Guild Handbook of Pricing & Ethical Guidelines (www.gag.org). Many artists’ organizations have standard pay rates listed on their websites.
As you set fees, certain stipulations call for higher rates. Consider these bargaining points:
There are no hard-and-fast rules for pricing your fine artwork. Most artists and galleries base prices on market value—what the buying public is currently paying for similar work. Learn the market value by visiting galleries and checking prices of works similar to yours. When you’re starting out, don’t compare your prices to established artists but to emerging talent in your region. Consider these factors when determining price:
As you establish a reputation, begin to raise your prices—but do so cautiously. Each time you graduate to a new price level, it will be that much harder to revert to former prices.
Contracts are simply business tools used to make sure everyone agrees on the terms of a project. Ask for one any time you enter into a business agreement. Be sure to arrange for the specifics in writing or provide your own. A letter stating the terms of agreement signed by both parties can serve as an informal contract. (See “Negotiating the Contract” in the Articles & Interviews section.) Several excellent books, such as Legal Guide for the Visual Artist and Business and Legal Forms for Illustrators, both by Tad Crawford (Allworth Press), contain negotiation checklists and tear-out forms, and provide sample contracts you can copy. The sample contracts in these books cover practically any situation you might encounter.
The items specified in your contract will vary according to the market you’re dealing with and the complexity of the project. Nevertheless, here are some basic points you’ll want to cover:
If you’re a designer or illustrator, you will be responsible for sending invoices for your services. Clients generally will not issue checks without them, so mail or fax an invoice as soon as you’ve completed the assignment. Illustrators are generally paid in full either upon receipt of illustration or on publication. Most graphic designers arrange to be paid in thirds, billing the first third before starting the project, the second after the client approves the initial roughs, and the third upon completion of the project.
Standard invoice forms allow you to itemize your services. The more you spell out the charges, the easier it will be for your clients to understand what they’re paying for. Most freelancers charge extra for changes made after approval of the initial layout. Keep a separate form for change orders and attach it to your invoice.
If you’re an illustrator, your invoice can be much simpler, as you’ll generally be charging a flat fee. It’s helpful, in determining your quoted fee, to itemize charges according to time, materials, and expenses. (The client need not see this itemization; it is for your own purposes.) Most businesses require your Social Security number or tax ID number before they can cut a check, so include this information in your bill. Be sure to put a due date on each invoice; include the phrase “payable within 30 days” (or other preferred time frame) directly on your invoice. Most freelancers ask for payment within ten to thirty days. Sample invoices are featured in Business and Legal Forms for Illustrators and Business and Legal Forms for Graphic Designers, both by Tad Crawford (Allworth Press).
If you’re working with a gallery, you will not need to send invoices. The gallery should send you a check each time one of your pieces is sold (generally within thirty days).
To ensure that you are paid in a timely manner, call the gallery periodically to touch base. Let the director or business manager know that you are keeping an eye on your work. When selling work independently of a gallery, give receipts to buyers and keep copies for your records.
You have the right to deduct legitimate business expenses from your taxable income. Art supplies, studio rent, printing costs, and other business expenses are deductible against your gross art-related income. It is imperative to seek the help of an accountant or tax preparation service in filing your return. In the event your deductions exceed profits, the loss will lower your taxable income from other sources.
To guard against taxpayers fraudulently claiming hobby expenses as business losses, the IRS requires taxpayers to demonstrate a “profit motive.” As a general rule, you must show a profit for three out of five years to retain a business status. If you are audited, the burden of proof will be on you to validate your work as a business and not a hobby. The nine criteria the IRS uses to distinguish a business from a hobby are:
If the IRS rules that you paint for pure enjoyment rather than profit, they will consider you a hobbyist. Complete and accurate records will demonstrate to the IRS that you take your business seriously.
Even if you are a “hobbyist,” you can deduct expenses such as supplies on a Schedule A, but you can only take art-related deductions equal to art-related income. If you sold two $500 paintings, you can deduct expenses such as art supplies, art books, and seminars only up to $1,000. Itemize deductions only if your total itemized deductions exceed your standard deduction. You will not be allowed to deduct a loss from other sources of income.
To deduct business expenses, you or your accountant will fill out a 1040 tax form (not 1040EZ) and prepare a Schedule C, which is a separate form used to calculate profit or loss from your business. The income (or loss) from Schedule C is then reported on the 1040 form. In regard to business expenses, the standard deduction does not come into play as it would for a hobbyist. The total of your business expenses need not exceed the standard deduction.
There is a shorter form called Schedule C-EZ for self-employed people in service industries. It can be applicable to illustrators and designers who have receipts of $25,000 or less and deductible expenses of $2,000 or less. Check with your accountant to see if you qualify.
Deductible expenses include advertising costs, brochures, business cards, professional group dues, subscriptions to trade journals and arts magazines, legal and professional services, leased office equipment, office supplies, business travel expenses, etc. Your accountant can give you a list of all 100-percent and 50-percent deductible expenses. Don’t forget to deduct the cost of this book!
If you freelance full time from your home and devote a separate area to your business, you may qualify for a home office deduction. If eligible, you can deduct a percentage of your rent or mortgage as well as utilities and expenses like office supplies and business-related telephone calls.
The IRS does not allow deductions if the space is used for purposes other than business. A studio or office in your home must meet three criteria:
• The space must be used exclusively for your business.
• The space must be used regularly as a place of business.
• The space must be your principle place of business.
The IRS might question a home office deduction if you are employed full time elsewhere and freelance from home. If you do claim a home office, the area must be clearly divided from your living area. A desk in your bedroom will not qualify. To figure out the percentage of your home used for business, divide the total square footage of your home by the total square footage of your office. This will give you a percentage to work with when figuring deductions. If the home office is 10 percent of the square footage of your home, deduct 10 percent of expenses such as rent, heat, and air conditioning.
The total home office deduction cannot exceed the gross income you derive from its business use. You cannot take a net business loss resulting from a home office deduction. Your business must be profitable three out of five years; otherwise, you will be classified as a hobbyist and will not be entitled to this deduction.
Consult a tax advisor before attempting to take this deduction, as its interpretations frequently change.
For additional information, refer to IRS Publication 587, Business Use of Your Home, which can be downloaded at www.irs.gov or ordered by calling (800)829-3676.
As a self-employed “sole proprietor,” there is no employer regularly taking tax out of your paycheck. Your accountant will help you put money away to meet your tax obligations and may advise you to estimate your tax and file quarterly returns.
Your accountant also will be knowledgeable about another annual tax called the Social Security Self-Employment tax. You must pay this tax if your net freelance income is $400 or more.
The fees of tax professionals are relatively low, and they are deductible. To find a good accountant, ask colleagues for recommendations, look for advertisements in trade publications, or ask your local Small Business Association.
Some clients automatically classify freelancers as employees and require them to file Form W-4. If you are placed on employee status, you may be entitled to certain benefits, but a portion of your earnings will be withheld by the client until the end of the tax year and you could forfeit certain deductions. In short, you may end up taking home less than you would if you were classified as an independent contractor.
The IRS uses a list of twenty factors to determine whether a person should be classified as an independent contractor or an employee. This list can be found in IRS Publication 937. Note, however, that your client will be the first to decide how you’ll be classified.
Don’t be tempted to sell artwork without reporting it on your income tax. You may think this saves money, but it can do real damage to your career and credibility—even if you are never audited by the IRS. Unless you report your income, the IRS will not categorize you as a professional, and you won’t be able to deduct expenses. And don’t think you won’t get caught if you neglect to report income. If you bill any client in excess of $600, the IRS requires the client to provide you with a Form 1099 at the end of the year. Your client must send one copy to the IRS and a copy to you to attach to your income tax return. Likewise, if you pay a freelancer over $600, you must issue a 1099 form. This procedure is one way the IRS cuts down on unreported income.
Most states require a 2–7 percent sales tax on artwork you sell directly from your studio or at art fairs, or on work created for a client. You must register with the state sales tax department, which will issue you a sales permit or a resale number and send you appropriate forms and instructions for collecting the tax. Getting a sales permit usually involves filling out a form and paying a small fee. Reporting sales tax is a relatively simple procedure. Record all sales taxes on invoices and in your sales journal. Every three months, total the taxes collected and send it to the state sales tax department.
In most states, if you sell to a customer outside of your sales tax area, you do not have to collect sales tax. However, this may not hold true for your state. You may also need a business license or permit. Call your state tax office to find out what is required.
As long as you have the above sales permit number, you can buy art supplies without paying sales tax. You will probably have to fill out a tax-exempt form with your permit number at the sales desk where you buy materials. The reason you do not have to pay sales tax on art supplies is that sales tax is only charged on the final product. However, you must then add the cost of materials into the cost of your finished painting or the final artwork for your client. Keep all receipts in case of a tax audit. If the state discovers that you have not collected sales tax, you will be liable for tax and penalties.
If you sell all your work through galleries, they will charge sales tax, but you still need a sales permit number to get a tax exemption on supplies.
Some states claim “creativity” is a non-taxable service, while others view it as a product and therefore taxable. Be certain you understand the sales tax laws to avoid being held liable for uncollected money at tax time. Contact your state auditor for sales tax information.
When you send out postcard samples or invitations to openings, you can save big bucks by mailing in bulk. Fine artists should send submissions via first-class mail for quicker service and better handling. Package flat work between heavy cardboard or foam core, or roll it in a cardboard tube. Include your business card or a label with your name and address on the outside of the packaging material in case the outer wrapper becomes separated from the inner packing in transit.
Protect larger works—particularly those that are matted or framed—with a strong outer surface, such as laminated cardboard, Masonite, or light plywood. Wrap the work in polyfoam, heavy cloth, or bubble wrap, and cushion it against the outer container with spacers to keep it from moving. Whenever possible, ship work before it is glassed. If the glass breaks en route, it may destroy your original image. If shipping large framed work, contact a museum in your area for more suggestions on packaging.
The U.S. Postal Service will not automatically insure your work, but you can purchase up to $5,000 worth of coverage. Artworks exceeding this value should be sent by registered mail, which can be insured for up to $25,000. Certified packages travel a little slower but are easier to track.
Consider special services offered by the post office, such as Priority Mail, Express Mail Next Day Service, and Special Delivery. For overnight delivery, check to see which air freight services are available in your area. Federal Express automatically insures packages for $100 and will ship art valued up to $500. Their 24-hour computer tracking system enables you to locate your package at any time.
The United Parcel Service automatically insures work for $100, but you can purchase additional insurance for work valued as high as $25,000 for items shipped by air (there is no limit for items sent on the ground). UPS cannot guarantee arrival dates but will track lost packages. It also offers Two-Day Blue Label Air Service within the U.S. and Next Day Service in specific zip code zones.
Before sending any original work, make sure you have a copy (digital, photocopy, slide, or transparency) in your files. Always make a quick address check by phone before putting your package in the mail.
If you’ve used a business strategy we haven’t covered, please e-mail us at [email protected]. We may feature you and your work in a future edition.
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