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 most typical 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 type are popping up this week specifically, as galleries and artists alike scramble to fulfill the Friday, January 31 deadline to subject 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 evaluate the fundamentals. The 1099 type is a tax doc for reporting revenue. There are many sorts, however the ones in query listed below are referred to as 1099-NECs — indicating “Non-Employee Compensation,” for people doing contract work. The essential rule is that when you compensated anybody over $600 throughout the calendar 12 months for providers rendered to your corporation, you owe them a 1099-NEC, reporting the whole 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 purported to subject 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 be aware that 1099-NECs are to not be issued for merchandise.
In case you answered telephones on your gallery, or did artwork set up work, then sure, they need to subject you a 1099-NEC for that. However although you might not consider it this fashion, your paintings counts as “merchandise” to your gallery.
So, as an artist, what must you do?
First, keep in mind that all of your revenue out of your artwork apply have to be reported, by legislation. Whether or not or not you obtained a 1099 for it, you continue to have to report the revenue in your tax return. A lot of your revenue 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 providers 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 high-quality a degree on it, however when you underreport your revenue to the IRS by greater than 25%, you’re committing a felony.
The reply to the query of what you need to do when you obtain the inaccurate 1099 out of your gallery, then, is definitely easy. In case you get a 1099 out of your gallery reporting your artwork gross sales, you’ll merely report that very same revenue precisely as you’ll report revenue for which you didn’t obtain a 1099.
I need to be aware that the majority galleries are attempting to do the precise factor, and tax legal guidelines could be complicated. A gallery that points you a 1099 in error is usually a conscientious one, aiming to get it proper. Many individuals are confused about 1099 reporting guidelines, particularly as a result of they’re usually issued by small companies and sole proprietors with out good tax steerage.
A tip that I share with my shoppers is to trace your complete artwork revenue, because the legislation requires, however then divide this quantity into two classes: revenue reported to you on a 1099 and revenue not reported to you on a 1099. In case you get a 1099 that you just weren’t anticipating to get, you progress that chunk of revenue 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 revenue, however the columns might help you keep in mind that each little bit of revenue needs to be in a single column solely. None needs to be in each, nor ought to any be lacking altogether.
While you do your taxes, double-check that your 1099 and non-1099 revenue add as much as the whole revenue that your bookkeeping displays. This affirmation can be certain that you don’t by accident double-report any revenue (and, consequently, pay double the taxes on that revenue), or depart off revenue that you just’re required to report (breaking the legislation).
And don’t neglect that when you paid anybody for providers in your individual artwork apply in 2024, you additionally have to subject them a 1099 postmarked by this Friday, January 31. The penalties for not issuing the 1099s you might be required to only elevated this 12 months, and so they start on Saturday.
Editor’s Word: True tax recommendation is a two-way dialog, and your accountant wants to listen to your full scenario to use the principles accurately in your case. This put up is supposed for common data solely, and isn’t particular person tax recommendation. Please don’t act on this alone.
