As a serious, profitable artist and entrepreneur, you know that it’s essential to keep track of your finances. But this can be tricky to do, especially if you’re not used to dealing with numbers. Not to mention, doing your own accounting can be intimidating when you’re not familiar with what all is involved.
Below, I’ll unpack 5 of the best, most must-know accounting tips for artists — everything from bookkeeping to tax deductions, so that you can keep your business finances in order and maximize your profits. Whether you’re just starting out as an artist or you’ve been at it for a while, read on for some helpful advice to get your accounts in order!
1. Track your expenses to stay on budget and file taxes correctly.
As anyone who has ever done their taxes knows, keeping track of expenses is crucial. Not only will it help you stay on budget, but it will also ensure that you file your taxes correctly.
So, how do you keep it all together?
- The first step is to keep all of your receipts organized.
- Once organized, use a simple file system or an app like Mint to track your spending, or simply forward them to an accounting partner like RAE for data entry and cataloging.
- Once you have all of your receipts in one place, you can categorize them. Common categories include space leasing, transportation, and supplies.
- Once you have everything categorized, you can pinpoint where you spend the most money.
- From there, you can adjust your budget accordingly.
Tracking your expenses using a simple process can save you a lot of time and money in the long run!
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2. Stick to a budget to prepare for future projects and investments.
It’s no secret – one of the keys to healthy finances is creating and sticking to a budget. Tracking your income and expenses helps you better understand where your money goes and make changes to ensure that your spending stays in tune with your goals. This can be especially helpful when saving for future projects, periods of focused work, or investments. Setting aside funds for specific purposes is easier when you know how much you have coming in and going out each month. Additionally, sticking to a budget helps you avoid overspending and getting into debt, which could quickly derail your financial plans.
If you’re looking to get your finances on track, create a budget and commit to sticking to it. You’ll be glad you did!
3. Create an LLC or register as a self-employed individual – this will protect your finances from any legal issues.
Whenever you start a business, you always have a risk of personal financial liability. Aka, if your business is ever sued, you could be held responsible and have to pay damages out of your own pocket. However, if you form an LLC or register as a self-employed individual, your personal assets generally receive protection from any business debts or liabilities. This is what’s known as “limited liability protection.”
What does this mean for you?
If your LLC or freelance business is ever sued, the court can only go after the business’s assets — not your house, car, or savings account. In other words: registering your business can help you sleep better at night knowing that your personal finances are off-limits to creditors. And that peace of mind is worth the time and effort it takes to get set up.
That’s why registering your business as an official entity is one of the key actions that RAE advises for solopreneurs. Especially because they often work with limited resources and can’t afford to lose any personal assets in the event of a lawsuit. So, if you haven’t yet registered as a self-employed individual or LLC, now is the time! It could save you a lot of money (and headaches) down the road.
4. Know how donating your art can impact your taxes.
When it comes to art donations and taxes, there are a few things to keep in mind:
- First, you can deduct the fair market value of any art you have donated from your taxes. However, it’s important to get a professional appraisal of the piece so that you know its verified fair market value. Additionally, you should keep good records of the donation, including photos and documentation from the appraiser.
- It’s also important to remember that the IRS has specific rules about what types of art you can deduct. For example, the art must be in good condition, and you can only deduct a certain amount based on the size and the type of piece.
- Finally, the donation amount that you can deduct should only amount to your materials – not the time you’ve invested in making your piece or the perceived market value (as opposed to the appraised fair market value) of your art.
Overall, donating art can be a great way to support a charity while getting a tax deduction. However, it’s important to be aware of the rules and regulations before making your donation.
5. Find an accountant who understands the creative arts industry – they can offer valuable advice and support throughout the year.
If you’re like most creative professionals, the words “accountant” and “taxes” aren’t necessarily music to your ears. But finding an accountant who understands the unique challenges of the creative arts industry can make a world of difference come tax time – not to mention throughout the year. An excellent creative arts accountant can offer valuable advice on everything from bookkeeping to financial planning. In addition, they can help you take advantage of any tax breaks or incentives that you may be eligible for.
The help of a professional like this will allow you to keep more of your hard-earned money in your pocket – and that’s something everyone can appreciate!
As an artist, you’re passionate about your work and its impact on the world. Naturally, you want to sell your artwork and support yourself financially, but you may not have much accounting experience. That’s where we come in. In this article, we’ve covered the basics of accounting for artists. Following these tips can help you take control of your finances and ensure that your business stays healthy and sustainable!
Ready to learn more accounting tips for artists? Contact us today at Remote Accounting Experts to explore how we can make managing your creative business that much simpler!