We are artists; therefore, by definition, we are unorganized. We are right brain thinkers, we are creative. How do we impose order chaos?
I hope this information helps you tame this wild beast and feel the various business terms that confuse and intimidate you!
1. WHAT STRUCTURE MUST BE USED?
The first question to ask when creating your art business is how you should set it up - that is, what kind of structure it should have. This may seem like a silly question, but it is very important because it determines how you report your income and expenses. And inform them that you should!
There are several types of organizations from which to choose, and the determining factor is risk. How much risk are you willing to take? Are you willing to pay more for less risk? I will demonstrate
what does it mean:
a. SOLE OWNERSHIP
The most risky organization is the only company. This is due to the fact that if someone sues you as an individual enterprise, they can theoretically take your home, your car, and all your worldly possessions in a lawsuit. There is no separation between business and you, so any lawsuit can take everything. However, most art businesses have a slight risk associated with them. I illegally receive a claim for damages, do not steal another. (Do not do this!) If I installed the stairs, on the other hand, I would definitely like to limit my risk. The term for this characteristic is unlimited liability.
Now there are advantages to being the sole owner. There are no costs to set it up, no legal forms to fill out, and no documents to work with the state. When you report your income and expenses, it goes to List C of your personal tax return (1040) and is not taxed separately.
There are also disadvantages, such as the aforementioned unlimited liability. There is also the fact that the company has a limited life - when you leave, just like a business. (Ask Disney if this is important!). In addition, it is more difficult to obtain financing from banks and therefore difficult to expand.
b. CORPORATION
If you are willing to pay a little more money on a regular basis, you can get the benefit of limited liability with a corporate setting. A corporation is a separate entity from you as a person; therefore, if it is sued, only those assets that are owned by the company, and not your personal home and property, can be accepted. This is the main advantage of having a separate corporation. It is also easier to expand, as banks are usually more willing to offer financing for this. He may have a life beyond the founder’s life, as many corporations do (i.e. Sears, Disney).
Now for the disadvantages; The main of them - the cost and compliance settings and support. There is a fee for creating a corporation with a state (not for the federal government) and annual fees to keep the license in good condition each year. In my state of Florida, about 75 US dollars to create a corporation and 150 dollars a year to save it. There is also additional documentation, as you need to file a separate tax form each year (1120 or 1120S) with the federal government. You may also need to specify a file for your status. And you may have to pay taxes at a corporate rate, which usually exceeds your personal tariff.
I would like to understand the differences between C corporation and S. C corporation - the corporations with which we are most familiar - corporate monsters such as Microsoft, IBM, Disney, Sears, etc. They receive a tax at the corporate rate, which is currently time is 15% to 50,000 dollars in profit and comes from there. S (S means Small) must have less than 100 shareholders (among other requirements), but is not taxed at the corporate level. Let me repeat that no tax is paid to the corporation itself. Instead, income is communicated to each shareholder's tax return and paid at their personal rates. This is usually the best deal for small companies, since personal income is not taxable at all for the first 7,000 dollars of income.
from. LLC and LLPs
Many people ask me about limited companies and limited partnerships. These are both completely new entities and still do not have (yet) their own share of rules and laws on the part of the IRS. I personally do not recommend them, as they have a slight advantage over S and are usually more expensive to install. A savvy person can easily create a S. corporation. Lawyer is required for LLC and LLP, and they like to charge a lot of money to do it — that’s why they recommend so much. They do not even have their own tax forms, they use Corporate Forms (1120 and 1120S). Until they decide, I cannot recommend them as corporate structures as accepted individuals. Without, of course, you would like to align a few pockets of a lawyer with money. If you are interested in providing money, my PayPal account is always open
e. RECOMMENDATIONS
In my personal opinion, the majority of artists will do everything possible as an individual entrepreneurship, unless there is a significant likelihood of responsibility (i.e. you are performing 3D installations so that someone can travel and fall). In this case, I would recommend S to corporations as the best alternative.
Since individual entrepreneurship is usually most beneficial for artists, I will continue the essay on the assumption that this is the chosen structure.
2. OK, now which records do I need to keep?
There are several users of your business information, and you need to keep records that give each of them accurate and timely information. Some users:
a. To yourself - you need to know how a business does on a regular basis in order to make business decisions. You must know your net income or losses, your windows, your past sales history and, most importantly, your bank balance!
b. Your state tax agency. Usually for sales tax, and also, perhaps, for income tax, your state should know how much you have done in total sales, taxable sales, non-taxable sales, collected sales taxes and net profit.
from. IRS - Yes, the terrible Infernal Revenue Service. The beast never sleeps and wants to know your net income every year (even if it is a net loss!)
What is the easiest way to keep track of all this information? Well, I do not think that there is a way to keep all the information you need in one place, because some of them are financial and some of them are qualitative (for example, what you sold last year at a local art show). However, all financial information can be stored together, and all quality information can be stored together.
My best recommendation for a small business is to choose a copy of QuickBooks and LEARN to use. This is very convenient, and the tutorial will help you go through the necessary steps for writing checks, making contributions, etc. If you keep track of this information every month, it does not look like such a huge task on April 15, # 39; time to file your taxes. Procrastination is the death chime of business owners, trust me!
For those who hate or do not want to buy QuickBooks, information can be organized in a spreadsheet, whether paper or electronic, but more work is required to set up, and you need to know what you are doing!
I personally put all my income and expenses into QuickBooks every month. At the end of the month, QB will allow me to print my income statement, showing me how I did this month, this quarter or this year. This is good information for those who want to increase their profitability and should know where their biggest expenses are. Believe me, they can accumulate!
For quality items, I have a spreadsheet where I track the following information:
1. How many prints of each image that was printed and who printed them (which tells me that my next batch should start with print number 41)
2. The total number of each print sold this year and since its inception (thus, telling me my best and worst sellers)
3. A detailed list (sorted by date) of all the Scifi / Fantasy conventions that I know about it has an art show, including prices and space sizes (therefore I know where to send)
4. A detailed list (sorted by date) of all the Scifi / Fantasy conventions to which I sent art in the past, with the products listed, with prices (so I know what to send next year)
5. A detailed list of each item sold, where I sold it, how much was the base price, how much sales tax was charged (if any), duties are deducted, etc. This helps me fill out the sales tax form at the end of the quarter, and my print sales data and my net income at the end of the year. It also helps me to track remote sales by geographic region.
6. Items on a lot in different stores across my city, with a retail price and my portion.
7. A mailing list of people I met at art exhibitions who want to know when I update my site with new works.
8. The list of local arts shows what I did in the past, the net income / loss from them (so I can decide whether it is worth the next year)
9. List of local art exhibitions to be applied this year.
10. The magazine that runs through the business during the year.
Many of the above elements can be compiled into a database if you are familiar with something like Access. I’m more familiar with Excel, so have it all on different pages of a large spreadsheet that I’m constantly updating. I also have a calendar that lists not only the days of conventions and art exhibitions, but when the deadlines for submitting applications for these conventions and art exhibitions, as some of them are far in the future. For example, in November there is a local art show, the deadline for submitting an application is May. On February 1st, Dragoncon has the first application deadline. Several times in the past (before I created the calendar), where I missed the art panel because of a missed deadline.
It comes down to what you are comfortable with. If you prefer to do everything manually, with a pencil, calculator and accounting paper with 16 columns, then you have more power. Nevertheless, as a rule, it is much more efficient to keep records in electronic form, at least in order to stop accounting errors!
3. The terrible taxman!
So, now we have taken care of the documents that we need for our own business management, but what about tax authorities, both state and federal?
For the federal and possibly state, you want to know your income and expenses, as well as your net income. If you make your own taxes, I highly recommend a copy of QuickBooks again. The advantage here is the ability to print a profit and loss statement at the end of the year, which includes most of what you need for income tax refunds. Minor adjustments can be made in the form of journal entries. They include any non-business expenses that are removed (for example, paying your mortgage with business funds), as well as some non-cash records added (for example, running a business).
Federal tax forms are required as follows:
1. Sole Proprietorship - 1040 Schedule C, to be held April 15
2. S Corporation - 1120S, from March 15
3. C Corporation - 1120, March 15
4. Partnership - 1065, from April 15
State tax forms, of course, will differ from state to state. However, if you have income tax for your state, it should usually be on the 1st day of the month after receiving federal income. For example, the return of corporation S to the state should take place on April 1.
Sales tax also depends on the condition, and the period during which you need to submit an application depends on how large the sales volume is. Mina is pretty low, so I only need every quarter. I did not pay sales tax made on agreements (they collect and pay sales tax on it), or sales made from my state. I need to collect and pay taxes on sales in my own state. That is why I keep a detailed table on which all my sales were made, especially because different countries may have different sales tax rates!
4. Breathing sigh of relief! Oh, what about inventory?
Well, you are all organized, you have tax returns, and now you look around your studio and see things everywhere - boxes, accessories, tools, ready-made items, work in progress, etc. How do you organize these items ???
Each artist is an individual, and therefore feels comfortable working in a different way. I cannot tell you how to organize my own inventory, but I can suggest ways to keep it somewhat controlled by offering the suggestions I use.
1. Everything is in its place! I keep my accessories in one area (a set of boxes next to my workspace) with inscriptions on them, so that I know where to put them away! These include supplies for delivery, such as boxes, bubble wrap, tape, and matting materials, such as a rug and bags.
2. Alphabet: I now have more than 100 different images, and this is very small for many artists. I have, at any time, from 1-10 matte prints of each image. I find them on the shelf, in alphabetical order by name, with one seal before each set of & # 39; standing and the rest on their side. That way, I can quickly flip the ones I see to get the one I want for a particular show or convention. This method works for me now, but perhaps in the future it may be updated to the box.
3. Records: I keep my notes (checklist of conventions and art shows to be sent) in one place, as well as a folder for each agreement and art show, listing sales information for the previous year, required fees, mailing address, etc. I keep them in the file cabinet per month, so I can pass every month at a time and take care of all the items in a timely manner. I record the correspondence from each agreement or show it in my folder when I receive it, so it is available for search later.
This system works best for me, but customization or other ideas may be required for its own workflow. Since most of my work is created either on my computer or elsewhere (I carry all my work with me everywhere), this is more of a workspace for preparing figures for sale, and not for creating the works themselves.
5. Legal information
So, how about copyright? How about them, you say? You get them whenever you actually create a work of art. Technically, you have copyright on every line you draw, on each sketch, on each photo, etc. However, these copyrights are NOT OBLIGATORY in court unless you have registered these copyrights in the US copyright office. (http://www.copyright.gov/). You can register multiple images with a single $ 30 application if they are grouped logically. For example, I register every year, with an annual compilation CD of all the works that I created this year. It's worth it, especially with the advent of eBay and the ease with which pirates can collect images from the Internet, from your sold prints ... and sell them as your own. Protect yourself now!
6. Conclusion
As an artist, you do not need to be afraid of business. It is rare for an intellectual business to dwell on the artistic mind, but each of us has a talent for organization, or we will no longer live in this world! Don't let the task intimidate you, and you can do it a little at a time. Take small steps, and before you know it, you will work more efficiently, which leaves you much more time for your REAL business, creating art!
If you have any further questions or comments, contact me at greendragon@bellsouth.net or visit my website at http://www.GreenDragonArtist.com. Thank you for attention!
Yours faithfully,
Christy Nicholas, CPA
Aka Green Dragon, Artist
