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The great fun of taxation

February 23, 2010

Dear Lise,
Yesterday, Maro Lorimer of Anna Maria Island, Florida wrote, "As tax time approaches, do you think artists who sell very little work are better off treating their art as a hobby (claiming no expenses and reporting no income) or going through the formalities of reporting income and claiming expenses? Is there a threshold where it makes sense to switch from hobby to profession? Related decisions include whether to claim part of the home as business space, get a business license and get a reseller's license to buy wholesale. For the artist who wants to keep life simple but who occasionally sells originals, giclees and cards, what's the best path?"
 
Thanks, Maro. For this one I had a chat with the artists' tax expert Bob McMurray. Right away he told me in his experience artists who go the reporting and claiming route tend to do better. "Just by keeping records," says Bob, "they get a better grip on a career. They take themselves seriously, learn more stuff, and, just like blonds, they have more fun."
 
Bob has counselled many emerging and established artists. He urges artists worldwide to talk to their own tax specialists. "Different jurisdictions have different spins and loopholes," he says. "And every individual artist has specific needs and requires specific advice." Apparently, all taxing agencies provide guidelines for artists who are considering reporting. Generally, to report for tax purposes two main questions need to be positively answered: Are you carrying on a business? Are you in pursuit of profit?

If your answers are positive, then you should report your activities whether or not they are showing a profit. It's understood it might take a number of years to actually show a profit, but that doesn't mean you are not carrying on a business.

It seems most emerging and semi-motivated artists find their expenses exceed their revenues and these losses can be deducted from any other income. It's possible to lower taxes generally by reporting your art losses.

"The artist must report all income, both cash and non-cash, and may claim all expenses that can reasonably be related to the income earning process. In most places there are lots of deductions, depreciations and other benefits," said Bob.

"But it's all such a pain," I blurted out.

"Not painful for you," said Bob. "You just give us a great big cardboard box and go on having your fun."

"Scotch?" I said.

"No ice," he said.

Best regards,

Robert

PS: "Acting professionally breeds professionalism." (Bob McMurray)

Esoterica: Bob McMurray has been doing my taxes for thirty years. A couple of years ago he decided to retire and get serious about painting. He was always impressed with how much fun his artist-clients were having. These days he gives tax workshops as well. He's the only guy I know with two FCAs after his name: "Federation of Chartered Accountancy," and "Federation of Canadian Artists." Along with Maro Lorimer's work at the top of the current clickback, we've put up some work by Bob McMurray FCA, FCA.