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Is your art a hobby or business?

Being an artist and making art puts you in a funny spot. You are serious about your art. You enter competitions, juried shows and group shows. You display your art wherever you can; at coffee shops, businesses of friends, in your home. You invest serious time and money in your art. You sell pieces, prints, cards, and catalogs. You attend seminars and conferences gaining knowledge. You regularly discuss promoting your art with other artists and have membership in art groups.

Does this make your art a tax deductible business in the eyes of the IRS? Or will they call your art a hobby. And why does it matter?

If you are a business with your art you can deduct the costs of doing business in:
• Travel
• Entertainment
• Car expenses
• Seminars and conferences
• Part of meals
• Utilities
• Promotional materials
• And other areas

It is amazing how much these items can add up to.

If you are in business with your art you can deduct all losses beyond the money your art brings in. If you sell $1000 of art this year and have expenses of $6000 for your art business you can deduct the $5000 loss against your income from your job, or your spouses job.

But, if IRS calls you a hobby, (and they really want to do that with artists), you can only deduct up to what came in from your art. Sell $1000 of art, have expenses of $6000 producing and marketing the art, deduct only $1000. You can’t deduct more than the art brought in.

We think of ourselves as artists first, not as business people. We believe business can ruin our art, that our creative spirit will be compromised. I know that with a few tools and rules, the business of getting the deductions that are rightfully yours will lift you and be an asset to your life and your art.

So what makes your art a business and not a hobby? Here is the check list.

• You have planned on making a profit.
• You have an honest profit objective.
• You have a sincere purpose of eventually reaping an overall profit.
• You conduct you art in a business manner.

How do you cover these areas? The tax courts have laid down the following ways.

First is a business showing projected estimated income and expense for the business. With a business plan. Business plans can be found in many books and seem to be very complicated and involved. A Dummies® or Idiot’s® book on starting a business is where I found this list:
• Market and Industry Analysis
• Business Description
• Competition
• Marketing Strategy
• Operations Plan
• Management Team
• Funding Needs

Second is your own statements. If you say “I am only doing this so I can take classes and write them off” it will not fly. If you say to anyone and everyone “I am doing my art and promoting it in competitions and shows to sell it to keep it growing” you are on the business track. Good statements like this also focus your energy so people can know in a few short words that your art is available to show and for sale.

The third area is how you keep track of your business. Businesses keep Daytimers® and Franklin® diary entries daily. They record what, who where, how much, and what the purpose or expected outcome is. As artists this could be in the form of a journal. It doesn’t have to be boring, just business-like. Also businesses keep track of income and expenses through invoices and receipts. I keep a folder for every month and put everything in it.

The fourth thing IRS looks for is: Do you run your business like other profitable artists run theirs. Successful artists enter shows, send cards and catalogs,, have letterhead, shipping forms, and business cards. Also a listing in phone directories and e-mail address for their patrons. Are you following a successful pattern another artist has succeeded at.

Number five is do you have previous experience in this type of business. If you do not this can be overcome by the other areas and by taking seminars, attending conferences, studying business materials, and working with business and artist coaches or mentors. Also showing that you did research on the art market would show you had a realistic view of what you sere starting. Remember to put it in your diary or note it in your files, even talking with a mentor. Again, it shows you are not in a hobby.

Area six is putting in a regular amount of time to your work and business. Hobby people my work every other Saturday. The courts have held that as little as one hour per day on average is enough to support a business and a profit motive. Just track it in your diary.

Area seven is your history of profit or loss. You have probably heard the rule of “a profit in three out of five years.” While true, the IRS is also looking at the level of your seriousness in business. I you are really trying to make your business go, follow the steps and document it the three out of five may be extended. And the IRS has not put an amount on the dollars of profit you need. Only that you have a profit most of the time. On the flip side, if every year you travel to Europe to paint, buy a new camera, and take seminars only in Hawaii, and show a lot of “no profit” they will not allow it.

Number eight may not be fair, but the IRS can look at your other sources of income. If you make a lot in other types of work, they may say this is your hobby. Again, documenting and business intent are your strong points.

Number nine. The IRS looks for suspicious activities like travel writing, antique collecting, and raising horses and dogs to see if you are a hobby or not. Having an art business could fall under their suspicious activities.

So being a business instead of a hobby; it’s one of those things that isn’t hard but it sure isn’t easy either. Millions of businesses and a lot of artists have “done the business” and with practice and stick to it you can to.