Artists

[Lion]

I have an artist that hadn't worked much since she's been my client as she was renovating her house. I have another artist who does mostly speaking engagements and is an author. So, a new client coming Saturday is my first working artist. Are her paintings inventory? If so, how do you allocate how much paint, brushes, supplies, etc., go into each piece to determine COGS for each year's sales? (The canvas is obvious.) Anything to help me prepare her taxes would be greatly appreciated.

[DaveO]

I only have a couple of artist but since no one else has responded I'll share what I have done. For an original work I so far have deducted the canvas and paints as supplies since the cost is so low relative to the sales price.

For prints, postcards and other reproductions I have inventoried the cost of producing the prints. Lately though they hey gone to an on demand process where they pay an upfront fee that allows for the production of a specified number of prints from an original. The upfront cost is fairly low and doesn’t seem really worth inventorying but I pick up the production cost as COGS in the year produced.

The artist returns I have are pretty minor and it’s hard to justify them as a business except for the time and effort they spend creating and displaying their works and the travel to fairs and art shows necessary to produce income. That and the fact they hold sales tax permits and collect and remit sales tax to the state is about all that elevates the activity above a hobby.

I did go through an audit with one of them a few years back. They produced a well written business plan and a list of show they had and reviews of their works by art critics. They prevailed on the question of an activity engaged in for profit.

[Lion]

Thanx

Thanx, DaveO. That is very helpful. Even my artist who's been slow has finished her renovations and displayed in a number of shows in 2011, so it'll be interesting to see her tax info this season. The potential new client coming in Saturday morning has been doing her own (husband doing them, I think, for their joint return) taxes, so have been reading what I can to get up to speed. We might not come to a meeting of the minds anyway. But, my broker recommended me to them, and she's a good source of referrals for me, so I want to know enough to fairly evaluate our potential to work together. I appreciate your sharing your experiences.