HOW TO STAY ON TRACK & GET PAID

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.

YOUR DAILY RECORD-KEEPING SYSTEM

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.

What you’ll need:

• A packet of colorful file folders or a basic Personal Information Manager on your smartphone, computer or personal digital assistant (PDA).
• A notebook or legal pads to serve as a log or journal to keep track of your daily art-making and art-marketing activities.
• A small pocket notebook to keep in your car to track mileage and gas expenses.

How to start your system

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.

Keep track of assignments

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.

Pricing illustration and design

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:

• Usage (rights). The more rights purchased, the more you can charge. For example, if the client asks for a “buyout” (to buy all rights), you can charge more, because by relinquishing all rights to future use of your work, you will be losing out on resale potential.
• Turnaround time. If you are asked to turn the job around quickly, charge more.
• Budget. Don’t be afraid to ask about a project’s budget before offering a quote. You won’t want to charge $500 for a print ad illustration if the ad agency has a budget of $40,000 for that ad. If the budget is that big, ask for higher payment.
• Reputation. The more well known you are, the more you can charge. As you become established, periodically raise your rates (in small steps) and see what happens.

What goes in a contract?

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:

Commercial contracts

• A description of the service(s) you’re providing.
• Deadlines for finished work.
• Rights sold. Your fee. Hourly rate, flat fee or royalty.
• Kill fee. Compensatory payment received by you if the project is cancelled.
• Changes fees. Penalty fees to be paid by the client for last-minute changes.
• Advances. Any funds paid to you before you begin working on the project.
• Payment schedule. When and how often you will be paid for the assignment.
• Statement regarding return of original art. Unless you’re doing work for hire, your artwork should always be returned to you.

Gallery contracts

• Terms of acquisition or representation. Will the work be handled on consignment? What is the gallery’s commission?
• Nature of the show(s). Will the work be exhibited in group or solo shows or both?
• Timeframes. If a work is sold, when will you be paid? At what point will the gallery return unsold works to you? When will the contract cease to be in effect?
• Promotion. Who will coordinate and pay for promotion? What does promotion entail? Who pays for printing and mailing of invitations? If costs are shared, what is the breakdown?
• Insurance. Will the gallery insure the work while it is being exhibited and/or while it is being shipped to or from the gallery?
• Shipping. Who will pay for shipping costs to and from the gallery?
• Geographic restrictions. If you sign with this gallery, will you relinquish the rights to show your work elsewhere in a specified area? If so, what are the boundaries of this area?

How to send invoices

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.

Take advantage of tax deductions

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:

• the manner in which you conduct your business
• expertise
• amount of time and effort put into your work
• expectation of future profits
• success in similar ventures
• history of profit and losses
• amount of occasional profits
• financial status
• element of personal pleasure or recreation

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.

Figuring deductions

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!

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.

Whenever possible, retain your independent contractor status

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.

Report all income to Uncle Sam

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.

Register with the state sales tax department

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.

Save money on art supplies

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.

Save money on postage

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.

Send us your business tips

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.