This one is for my US artists. It may be informative for those from other countries as well, since many countries have similar laws. But I am only familiar enough with the laws of my own country to give you such specific advice.
Have you ever sold a piece of art to anyone, anywhere, at any point in your life?
If yes, then you’re a sole proprietorship.
Seriously. You don’t have to fill out any paperwork, open a storefront, or tell the government anything… if you accept money in exchange for an item, you’re a sole proprietorship.
Let’s not get into whether you’ve held a yard sale or let your friend buy your old sofa for a fifty…. let’s just stick to art.
THE US GOVERNMENT THINKS YOU ARE A PROPER BUSINESS.
That might totally blow your mind because you’re thinking you haven’t even started yet and that art market 3 years ago where someone bought an original from you for $10 does not count because you had no idea what you were doing. Am I right?
But yep, you’re an official business. And that means you’ve got to play by the rules. Because if you don’t, the IRS is going to come to your door – and they’re not coming for cookies & a studio tour.
The two most important things to do once you’ve sold a piece of art and become a fancy sole proprietor are to separate your business expenses and get a DBA (if you need one).
Let’s start with the DBA because it’s simpler. DBA stands for “doing business as” and it’s just a little piece of paper you file with your state (you can probably go to a local office or file it online though) to say that you’re using a pretend name as the title of your business.
So if your business name is pretty much your actual name like:
Laura C George
Laura George Consulting
Laura C George Studios
then you don’t need a DBA.
But if it’s anything else like:
Consulting for Fine Artists
The Business of Art
Bushel & Peck (I’m telling you – this could be anything!)
then you better fill out that DBA – STAT!
YOU CAN GET IN A GOOD AMOUNT OF TROUBLE IF YOU ARE GOING ABOUT SELLING YOUR ART UNDER SOME FUN NAME WITHOUT TELLING THE GOVERNMENT.
Next we’ve got a slightly harder one: separating your business expenses.
This is absolutely, 100% essential.
You need to have some method for keeping straight what things your business purchased and what things you purchased personally.
Yes, as a sole proprietor you and your business are legally the same thing. But when tax time rolls around, the IRS wants to put a bit of space between the two you’s because otherwise sole proprietors could get their entire lives deducted from their taxes! (Sounds cool, but the IRS won’t go along with it.)
So they just want to see which things were business-related purchases like an easel, new Copic markers, or a course on building your art business.
And they’re going to ask you to put that on a piece of paper called a Schedule C when you’re doing your taxes.
In order to make that list of business expenses easy, and make loads of other things easy in your business (like seeing how much money you actually made from prints this year), you probably want to get a separate bank account that you use just for art stuff.
It can be a “business bank account”, but most banks will make you fill out a ton of paperwork for that and probably charge you a larger fee to open the account. And the government doesn’t care too much about HOW you’re separating the business & personal financials (just that you are) so they don’t require you to open an official business bank account. So I usually recommend clients open a regular personal checking account that they vow to only use for business.
[Note: If you’ve got a different business entity than a sole proprietorship, like an LLC or an S-Corp, getting an official “business bank account” is not optional. They care. Do it this week.]
Then it gets a bit complicated because you have to actually use it FOR ALL YOUR BUSINESS STUFF.
That means connecting the new bank account to your Paypal and other payment processors, putting all income into that account, and planning out your purchases so that there is enough money in the account.
So if you’re making a trip to the art supply store, you want to transfer some money from your regular personal bank account into your new business-only account before you go.
It’s annoying when you’re not making enough money in your art business to have some cash sitting around when you need it. But I promise it’s less annoying than trying to tease out those random purchases that you didn’t run through your business-only account.
Now you probably also want to make your life super-easy by getting some accounting software.
You can find many that are free and do the job well. My favorite is Wave Accounting. You just connect your bank account to it and it magics all your transactions in and reminds you weekly to pop some categories onto each transaction. Then everything is all ready for you when you are doing taxes or analyzing your income or expenses.
SO LET’S RECAP YOUR HOMEWORK, ASSUMING YOU’RE STARTING AT ZERO.
1 Get your DBA if you aren’t using your own name for your business.
2 Get a separate checking account at your bank that you vow to use for all of your art-related purchases.
3 Connect your new bank account to all your payment processors – Paypal, Stripe, Square, etc.
4 Connect your new bank account to all your online shops and places people can buy your art – your website, Etsy, Big Cartel, Society6, Fine Art America, etc.
5 Choose accounting software and connect your bank account to it.
Whoosh! I know it feels like a lot, but I bet you can tackle all of it before the end of the month.
And then you can rest easy that the basics are covered, right?
And remember – I’m not a lawyer nor an accountant so I can only give you anecdotal advice based on experience. Your business may have different needs than are assumed in this article. You are completely responsible for your own business decisions. When in doubt, go find someone who got a degree in law or accounting.