Tax season can often feel overwhelming, especially for creatives and artists running small businesses in Massachusetts. As the deadline for filing 2023 taxes approaches, it's essential to equip yourself with the knowledge and resources necessary to navigate the process smoothly.
Understanding Self-Employment Tax and Estimated Quarterly Taxes
One of the key aspects of tax filing for creatives is understanding self-employment tax.
Watch FRACC’s workshop Tax Planning and Schedule C for Creatives below.
As a small business owner or freelancer, you're responsible for paying both income tax and self-employment tax, which covers Social Security and Medicare contributions.
The self-employment tax rate for 2022-2023 in Massachusetts is 15.3%. This rate comprises two components:
Social Security Tax: 12.4% of your net earnings from self-employment.
Medicare Tax: 2.9% of your net earnings from self-employment.
Taxpayers who work for themselves must cover the entire 15.3% of these taxes in addition to paying the normal income tax rates. It’s essential to consider this when managing your finances as a self-employed individual. It's crucial to calculate and set aside funds for self-employment tax throughout the year to avoid surprises come tax time.
Additionally, if you anticipate owing over $1000 in self-employment tax, you must pay estimated quarterly taxes. These payments help you stay on track with your tax obligations and avoid penalties. Utilizing tools like IRS Direct Pay can streamline the process of making these payments and ensure compliance with tax regulations.
Filing a Schedule C and Deductible Expenses
For many creatives, filing a Schedule C is standard practice. This form allows you to report your income and deductible business expenses, providing a clear picture of your financial situation. It's essential to keep thorough records of your income and expenses throughout the year to support your deductions and minimize tax liabilities.
When it comes to deductible expenses, creatives have unique considerations. From art supplies and equipment to studio rent and travel expenses, there are numerous costs associated with running a creative business. By understanding which expenses are deductible and maintaining detailed records, you can maximize your deductions and minimize your tax burden.
What is income?
Cash, checks and credit card payments you receive for your work, whether or not you get a 1099 for it.
Barter income (listed at the full value of item)
Property received for your work.
NOT bank transfers, loans or capital contributions to the business, gifts, inheritance
What are expenses?
Additional Resources for Creatives
Massachusetts is home to several organizations and nonprofits that offer online resources for small businesses, including those in the creative sector. Here are a few:
Massachusetts Small Business Development Center Network (MSBDC):
MSBDC provides free, confidential business advising and training to small businesses in Massachusetts. Their website offers a wealth of resources, including guides, webinars, and tools covering various aspects of business management, including taxes. You can find more information on their website: Massachusetts Small Business Development Center Network
Artists' Resource Trust (A.R.T.):
While not specifically focused on taxes, A.R.T., administered by the Berkshire Taconic Community Foundation, provides grants and resources to individual artists in Massachusetts. They offer various programs and funding opportunities that may indirectly support your business endeavors as a professional painter. More information can be found on their website: Artists' Resource Trust
Greater Boston Legal Services (GBLS):
GBLS provides free legal assistance and representation on civil matters to residents in Boston and surrounding cities and towns. While not exclusively focused on taxes, they can offer guidance on legal aspects related to your business. Location: 197 Friend St, Boston, MA 02114. Contact: (617) 371-1234. Learn more.
Tax Tips for Artists:
Tax expert Hannah Cole of Sunlight Tax offers helpful advice for artists and freelancers.
She emphasizes tracking mileage (deductible at 53.5 cents/mile) and using apps like MileIQ to automate mileage recording. Additionally, she collaborated with Kind Aesthetic to create a visual chart of artist deductions on the Schedule C. Hannah Cole conducts workshops and events specifically for creative businesses, self-employed individuals, entrepreneurs, and artists. Her expertise lies in understanding the financial challenges faced by freelancers and small creative businesses. Sunlight Tax also provides a one-hour online tax course specifically tailored for artists. Use code ARTPRENEUR for a 20% discount on the course. Explore tax tips for artists. Learn more about workshops.
Additional Creative Tax Deductions:
While not specific to Massachusetts, consider exploring general creative tax deductions.
Examples include deductions for hiring editors, designers, photographers, and other creative professionals.
Sundance Collab Advisor Studio: Financial Planning for Creatives: From Taxes to Retirement (youtube.com)
Disclaimer: The content provided here is solely for informational purposes and should not be construed as tax, accounting, or financial advice. It's essential to recognize that individual circumstances vary, and thus, specific guidance should be sought based on your unique situation. Prior to undertaking any transaction or submitting documents to taxing authorities, it's advisable to seek guidance from your own tax, accounting, and financial advisors.