Running your own art shop is a fulfilling experience. It brings people joy, and you get to work in the field that you want to. It can also be profitable at times, and if you are making money off your art, there are some things that you need to know and learn about when it comes to tax time.
Artists vs Non-Artists
One of the first things that you need to consider when you are running an art shop and trying to determine the amount of taxes you have to pay is whether or not you are also the artist or simply operating a gallery and studio to sell the work of other people. If you are strictly the owner of the shop, and you pay a commission for the art you sell, the majority of your taxes will be fairly straightforward and consistent in terms of having the same expenses and the same sort of income. Artists that also own their own shop and sell their own products will take into consideration other potential incomes and various operating expenses including the expenses that go into creating their art.
There are many types of income. Whether you are an artist that runs and operates their own shop, or you are simply selling the art commissioned from other artists, you will typically fall under the self-employed category, requiring you to pay self-employed income taxes. You can get the amount of your income by easily taking the total amount that you have earned through payments, and subtract the expenses associated with them. This is important because when you are employed by a company, they are already deducting the tax with every paycheque, as opposed to when you are self-employed, and you have to do the tax deductions yourself at the end of the year, as all payments do not make these deductions. The amount you pay will vary and is dependent on your income throughout the year.
The income you earn can change in terms of name or title, but can be known as a “business income,” and if you are the artist, may also qualify as “freelance income.” If neither of those options is available, they should fall under “other income.” Your final tax formula will be the income generated by your business, minus the cost of your goods sold, operating expenses, property use expenses, the cost of tax preparation, and amortization of equipment. Don’t forget to include the cost of your taxes at the end of the year, as this still qualifies as another business expense. If you have an accountant doing your taxes for your shop, or company, you are able to use that as a business expense.
Calculating Your Income
Depending on your job and role, you may find you have multiple sources of income. If you are an artist, you will have different streams of income coming in, and not just the money coming in from the art shop. You may be commissioned to do certain freelance work for your services and not specific products or pieces you sell out of your store. You may also teach as an artist, whether out of your gallery and studio, or online. Additionally, if you run a physical store, you may take different methods of payment, or clients may pay you directly to your personal account as opposed to your business accounts. Keep all your contracts and receipts stored, saved, and organized for you to be able to easily access at the end of the year when you need to do your taxes.
Depending on where you have your art shop set up, you will include a list of the expenses you have associated with your business. The costs associated with your business can be written off as operating expenses. This also includes those that are working out of their home. It is important that you keep your studio or home gallery separate to prevent audits from deeming your space ineligible. If you are operating your shop out of your home, it will be calculated as a percentage of your home for the space that you use. You will also need to calculate your various expenses, whether you are working from home or in a studio. This includes rental fees, utilities, insurance, management fees, mortgage, and property insurance, transportation, and maintenance.
Creating and selling art can be fulfilling to the individual, as well as the community the person is a part of. Amongst all the excitement and joy of running your own art shop, just don’t forget the financial aspect and to properly do your taxes. If you stay organized, it won’t take much time at all.