You're required to report income from all sources on your tax return, including income from sale of your artwork. You can write off the costs you incur to create your art and run your art business as tax deductions. The amount you can deduct and the forms you fill out depend on the nature of your art activities.
Hobby or a Business?
How you file your taxes as an artist depends on whether you engage in your art as a hobby or a business. According to the IRS, a business is an activity intended to generate a profit and a hobby isn't. If you're trying to make a profit or expect to make a profit from your artwork, you can classify it as a business. However, if you aren't putting in time or effort to make the sale of your art a profitable endeavor, the IRS may consider it a hobby. The IRS considers several factors when deciding whether an activity is a business:
- Whether you depend on the income from your art.
- If you've changed operations in an attempt to make your art profitable.
- If you've made a profit from art in the past.
- If it's likely you will make a profit in the future.
As a general rule, sale of your art is a business if you've made a profit for three of the last five tax years.
Taxes When Your Art Is a Business
Self-employed artists who qualify as a business report art revenue and expenses on Schedule C. Report sales revenue and other art revenue on line 1 of Part 1. On line 4, report the direct costs you incurred to create the art that you sold. This usually includes the cost of the canvas, wood or paper that you're painting on, the paint itself, varnish, pencil, charcoal and frame.
In Part 2, deduct all the ordinary and necessary costs you incurred to run your art business. Nolo.com notes that potential business expenses for artists include:
- Mileage expense for business travel, to visit classes or galleries, or to pick up art supplies.
- Half of meal or entertainment expenses incurred for business purposes.
- Rent paid to art galleries.
- A home office deduction if you create your artwork in your home and meet the requirements.
- Office supplies such as pens, paper and postage.
- Professional dues or fees.
- Educational expenses.
- Advertising, legal and accounting costs.
- Fees paid to agents.
Taxes When Your Art Is a Hobby
If your art is considered a hobby, you can still deduct expenses that you incur to produce art that you subsequently sell. Unlike businesses, however, your expenses can never exceed your hobby revenue. For example, if you had $1,200 of hobby revenue during the year, you can only deduct a maximum of $1,200 in hobby expenses even if you incurred more costs than that. You have to itemize your expenses -- meaning you can't claim the standard deduction -- if you want to deduct hobby expenses.
Report earnings from your hobby on Form 1040, line 21, labeled Other Income. Report hobby expenses on line 23 of Schedule A, labeled Other Expenses. All the expenses noted under art business expenses such as cost of goods sold, advertising and mileage expenses can also be hobby expenses.
If you're employed as an artist, you can write off unreimbursed mileage expenses, supplies, tools and home office expense as unreimbursed employee expenses on Form 2106.