This information is located in our software for artists. Some references within the text will be software related.
If you are selling any artwork yourself, it is a legal requirement to have a business license. It allows you to file for a DBA (Doing Business As) so that you can operate under a business name of your choice. (You can also operate a business under your own name.) If you receive a grant, it may be required to have a business license. If you already have a business license, then apply for a resale license in order to sell work and buy materials at wholesale prices. You will need to fill out a resale card for each vendor you purchase from, but it will save you money because you will be eligible for a discount. Also, you will not have to pay sales tax on goods that are used to produce works for sale because the sales tax gets passed on to the retail buyer.
Beware that most state IRS services are now wired to city governments. This is significant because not only are you required to have a business license, but also a city or county license. Many artists have received warnings about declaring income on their tax return without having a business license. There can be fines and legal hassles, which you want to avoid. You can also get into a lot of trouble if you have employees and do not follow the requirements.
The following are reasons why you may want a business license:
• Need for the liability protection provided by a corporation or LLC
• Need for more than one owner of the business
• Need to isolate some specific business venture or project like a film, book, musical or other artistic venture
• Need to raise capital for a specific venture or project by bringing in investors
• Separation of ownership and control of business operations
• Desire to shift income to other family members, associates or friends thereby taking advantage of lower income tax rates
• IRS audit concerns: sole-proprietorships have been for many years and will probably continue to be number one on the IRS audit hit parade; other formal business entities are less likely to be targeted
• Tax savings available in particular entities; for example the potential payroll tax savings available in “S” type corporations
• Working in a multi-state environment – a corporation is probably the most portable and practical entity for artists working across state lines
Where to get a business license
For information on how to obtain a city or county business license, look under the city and/or county government pages in your telephone book—locate “business” under the “licenses” heading.
Or simply go on the internet to your city our county’s municipal website.
Artists as a business entity
Most artists operate as sole-proprietors. Eventually, you may want to set yourself up as a different kind of business entity. A sole-proprietorship means that there is one owner and that the income and expenses you incur will directly affect your personal finances. However, the flexibility of a sole proprietorship allows you to have direct control over the direction of your “company” as an artist.
An artist has three choices of entity: the sole-proprietorship, partner/LLC and corporation. By consulting with a tax professional and an attorney, artists can discuss, in detail, the legal and financial advantages and disadvantages of each entity. Many cities have a “Lawyers for the Arts” organization that teaches workshops on such matters. The web also has lots of information on business matters, but beware of web sites that offer to file your paperwork for a fee. They usually overcharge more for something you can easily do yourself.
In larger cities, there are usually multiple sites where you can go to fill out a form, write a small check, and get your license the same day.
If you are delinquent in filing for a business license, apply and get one before the end of the year, as it may be retroactive for the year. Don’t wait. Just do it.
As a reminder, professional consultation with an attorney, tax professional, and artists in your community will help you to develop an informed opinion regarding business structures.