Taxes for Comic Book artists and Graphic designers
Taxes for Comic Book Artists and Graphic Designers
I don’t know about you, but I love doing my taxes. I love the complicated rules and lost decimal points that can lead to hours of reworking my numbers. Oh and don’t get me started on out of state sales! Okay so none of that is true, but I do like researching legal ways to get out of paying taxes. I’m sure most of you would like to hear those tips!
(Disclaimer: this article was written by someone who took way too long to graduate from college and also lives in California and is not an accountant or a lawyer. Some state tax laws may vary in your area.)
First of all, hire an accountant. Make an appointment with your local H+R block if you have to. Just do it. It might cost anywhere between $100 to $300 but it will be worth it. Do it at least once, and then maybe next year you can do them yourself if your situation is simple enough. But you need to go to your accountant with a little knowledge of the tax code in regards to the arts because artists can take a lot of unique deductions that other professions can’t always take. Below are a few questions I get or have had myself when I was just starting out.
1. Do you need to report income from your art?
Probably the biggest question here. The answer is if you make more than $400 a year in net profit making art, then yes! So congratulations, you’re self-employed. There’s good news and bad news here. The good news is, now that you’re self-employed, you have a ton of deductions. The bad news is, if you’re like me and sell comic books at conventions, then you also have to pay sales tax. And there’s really no way to get around sales tax, but we’ll talk about that later. If the bulk of your work is graphic design, digital art, websites, or anything non-tangible, then congratulations! That stuff is non-taxable!
Keep track of everything you’re paid. You’ll want (and need) to report it all. But if you are delivering non-tangible goods (AKA digital files), then for the most part, the government won’t tax you on it. Here are three personal examples from my working history.
a. Graphic Design: I once worked for a graphic design company that almost exclusively made websites. The invoices sometimes crossed my desk and I noticed they were charging various taxes based on the work completed. Well I have a big mouth and I’m super nosey so I asked “Why are you charging tax on websites when nothing tangible is being delivered?” After a short consultation with their accountant they eliminated a large portion of their tax liability just by separating out digital files from printed files and by not delivering a physical disc of the finished product. (Tax liability is just fancy talk for the amount of money you were paid that is taxable. Or something like that.)
b. Comic Book Art/Illustration: A couple years ago I had a freelance comic book job illustrating a single issue. The job paid $3,295.00. I drew and colored all the pages. When the time came to print the issue I sent the digital files to the printer and the printer delivered the files to the client. I only saw a finished book when the client sent me a copy later. The client paid tax on the books and shipping portion of the job. When I filed my taxes that year I calculated the tax on the $3,295.00 bill. The total came to $0.00. The files were delivered digitally and I never gave anything tangible to the client. This is a very important area that a lot of comic book artists cross into. The moral of the story? Keep your original pages! Or work all digitally.
c. Writing: Unfortunately I have less information on this topic and the information I have is not helpful. Copy writing is exempt from tax, so I assume that story writing might be exempt as well. But I’m not sure. See, told you it wasn’t helpful. Ask your accountant. For most work I’ve done, I did the artwork and wrote the piece for a small fee with more of the expense on the art side. But this won’t work if you’re only writing!
Here’s a helpful California and Federal Tax Code link on the subject of exemptions:
2. What about those deductions you mentioned:
To be honest, deductions still kind of confuse me. But all I need to know is almost everything in my house is deductible! Those pencils? Deduct them! That computer? Deducted! My dog? Dedu-
Well, no, probably not. Of course, if I was doing a comic about a small black corgi that sneezed a lot then maybe….
There are so many things I can deduct as an artist that every single year I hit my maximum deductions. All those little deductions help to reduce the amount of tax you owe. That’s all you need to know. Your accountant should know the maximum amount of allowable deductions and a good accountant will know what kind of stuff would look weird if you chose to report it as a deduction. For example, my accountant is very good. I literally just got off the phone with her before writing this article, and she would most definitely quit if I tried to make her list my dog as a deduction. But every year she helps me deduct my gas mileage, hotel expenses for conventions, and all kinds of other randomness.
Here’s a partial list of some deductions you could be making:
Business Travel Expenses
Art Gallery Fees or Membership Dues
Comic Convention Both Space
Subscriptions Related to Art
Chances are if you spend money, you could get it to fit into one of these categories. The key to claiming deductions of course is adding up all your expenses. You could save all those receipts in a shoe box and add the faded remains up at the end of the year, but there are better options. I use www.mint.com. You can link all your accounts there so it shows balances and expenditures. Then at the end of the year you can export all expenses and credits as a .csv file which will open in Excel. And throughout the year you can and should classify all your expenses into categories.
Here’s a great link that talks about each category in detail. Remember, each category has limits and percentages you can deduct; check with that accountant you just hired!
I’ve also edited this Excel spreadsheet to help with your yearly expenses and income. It won’t solve all your problems but it will help get all your numbers in one place.
3. Is Kickstarter Taxable?
This question comes up a lot. If you run a campaign and only raise $500 dollars then then it probably doesn’t really matter. I don’t think it will put much of a dent in your bottom line. But what if you raise $30,000? Or 100K? Or 1 Million?
Technically, Kickstarter is just like selling a product, and you would normally pay taxes on it. But in reality it’s not. It is fundraising. You are sending goods out to people who pledge money toward getting your product produced. These people can and often do pay an arbitrary amount unrelated to the actual price of the product they are getting. That’s because they are less interested in the final product and more interested in helping you produce something. They are helping you raise production fees. These aren’t just preorders either. These people get nothing if they can’t raise the entire total. At least on Kickstarter. So if you can put 100 percent of the money raised from these backers toward the production of goods from the campaign then your tax liability could be zero. Just remember, Kickstarter sends a report to the IRS about how much you made so you can’t just ignore it. You have to make sure it’s balanced with corresponding expenses. If only you had some kind of I don’t know….accountant who could help you put all those numbers in the right boxes.
Here’s a great article about other ways Kickstarter income can be considered untaxable.
Even Kickstarter has a little information about where that money can go. But they are terrified of being sued, so don’t tell them I showed you.
4. Sales Tax
If you are strictly a graphic designer or a work-for-hire artist, you probably don’t have to worry about this category. But if you are a self-publisher and you move a lot of physical product online or through conventions then this section applies to you.
Here’s a super secret way to get out of paying sales tax. Don’t sell anything. Go ahead and spread that around.
Other than that you have to pay sales tax. There are some very complicated ways of getting out of it but I think for the most part they only apply to companies on the Fortune 500 list. Just remember, sales to stores for resale purposes are not charged sales tax. And if you’re at a convention, don’t charge a fan sales tax. That’s just strange. Leave that to the guy selling all the Doctor Who merch or the giant wall of superhero tshirts. When you own your own business and you have to pay the feds sales tax and then you have to file your personal taxes it can feel like you’re getting charged twice but it’s just part of the business of retail. And if you’ve been using your deductions then your personal tax liability could be very low or zero! Good luck with that!
Another thing random people will tell you is that you have to file your sales tax reports quarterly. Well that’s bunk. It’s totally not true. Everyone and their mother will tell you that. That’s what they told me. When you first start filing your sales tax reports, file annually, and if you make a small amount, then that’s all the government will want from you. But when you start making a certain amount (I have no idea what that is) then they will ask you to file
quarterly. The quarterly tax payments are also called estimated tax payments. It’s kind of hard to file those if you’ve been in the art business exactly one quarter. I am about to file my fifth or sixth year of business taxes and just got a letter from the feds saying that next year I will have to start filing quarterly. And see, I’m not in prison! Take that, Bobby’s mom! Oh, and here are a couple things you’ll probably want when you start filing as a business; a state seller’s permit and a fictitious business name. Both of those things are easy to attain.
So yes, there are plenty of legal ways to reduce your tax debt at the end of the year. Rich people have been using these techniques for years, why can’t us starving artists do it?! You know Uncle Scrooge was writing off those nephews and that money bin upkeep.
Remember, if your accountant isn’t annoyed by you at the end of your meeting, then you’re not getting your money’s worth! If you have any suggestions or are an actual accountant, please leave a comment!
-Paul Roman Martinezby
Artist, Raconteur and Creator of The Adventures of the 19XX series
Taxes for Comic Book artists and Graphic designers