Ah, the duty of submitting taxes, irritating artists since time immemorial (picture public area by way of the Metropolitan Museum of Artwork, edit Lakshmi Rivera Amin/Hyperallergic)
As a working artist and tax skilled, the commonest tax mistake I see within the American artwork world is galleries incorrectly issuing 1099 types to their artists for gross sales. Questions in regards to the kind are popping up this week specifically, as galleries and artists alike scramble to satisfy the Friday, January 31 deadline to situation 1099s. So what ought to galleries do, and what ought to artists do in the event that they obtain a 1099 in error?
First, let’s assessment the fundamentals. The 1099 kind is a tax doc for reporting earnings. There are many sorts, however the ones in query listed here are referred to as 1099-NECs — indicating “Non-Employee Compensation,” for people doing contract work. The essential rule is that for those who compensated anybody over $600 in the course of the calendar 12 months for companies rendered to your online business, you owe them a 1099-NEC, reporting the full quantity you paid. The payer should postmark 1099-NECs by January 31, so most individuals are receiving 1099-NECs they’re owed this week.
Right here’s why galleries aren’t presupposed to situation 1099s to their artists: The operative phrase within the IRS’s directions is that this reporting is for “services.” To make clear this additional, the directions on the shape observe that 1099-NECs are to not be issued for merchandise.
In the event you answered telephones in your gallery, or did artwork set up work, then sure, they need to situation you a 1099-NEC for that. However although you might not consider it this manner, your art work counts as “merchandise” to your gallery.
So, as an artist, what do you have to do?
First, do not forget that all of your earnings out of your artwork observe have to be reported, by legislation. Whether or not or not you acquired a 1099 for it, you continue to must report the earnings in your tax return. A lot of your earnings as an artist won’t ever present up on any tax reporting doc, whether or not due to artwork gross sales that don’t require a 1099 and companies you carried out for lower than $600, or since you by accident used Venmo or Paypal on the “friends and family” setting when it ought to have been Paypal Enterprise. However the legislation nonetheless requires you to trace, tally, and report it. And to not put too effective a degree on it, however for those who underreport your earnings to the IRS by greater than 25%, you’re committing a felony.
The reply to the query of what you need to do for those who obtain the wrong 1099 out of your gallery, then, is definitely easy. In the event you get a 1099 out of your gallery reporting your artwork gross sales, you’ll merely report that very same earnings precisely as you’d report earnings for which you didn’t obtain a 1099.
I need to observe that almost all galleries are attempting to do the fitting factor, and tax legal guidelines could be complicated. A gallery that points you a 1099 in error is mostly a conscientious one, aiming to get it proper. Many individuals are confused about 1099 reporting guidelines, particularly as a result of they’re typically issued by small companies and sole proprietors with out good tax steering.
A tip that I share with my purchasers is to trace your complete artwork earnings, because the legislation requires, however then divide this quantity into two classes: earnings reported to you on a 1099 and earnings not reported to you on a 1099. In the event you get a 1099 that you simply weren’t anticipating to get, you progress that chunk of earnings over to the 1099 column, and out of the non-1099 column. These columns ought to at all times add as much as your complete earnings, however the columns might help you do not forget that each little bit of earnings needs to be in a single column solely. None needs to be in each, nor ought to any be lacking altogether.
Whenever you do your taxes, double-check that your 1099 and non-1099 earnings add as much as the full earnings that your bookkeeping displays. This affirmation can be sure that you don’t by accident double-report any earnings (and, consequently, pay double the taxes on that earnings), or depart off earnings that you simply’re required to report (breaking the legislation).
And don’t overlook that for those who paid anybody for companies in your individual artwork observe in 2024, you additionally must situation them a 1099 postmarked by this Friday, January 31. The penalties for not issuing the 1099s you’re required to only elevated this 12 months, they usually start on Saturday.
Editor’s Be aware: True tax recommendation is a two-way dialog, and your accountant wants to listen to your full state of affairs to use the principles accurately in your case. This publish is supposed for common info solely, and isn’t particular person tax recommendation. Please don’t act on this alone.