Starting a Business Basics
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 the business name of your choice. You can also operate a business under your own name. If you receive a grant, you may be required to have a business license. If you already have a business license, 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 discounts. 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 legal requirements.
Reasons to get a business license:
To secure the liability protection provided by a corporation or LLC.
There is more than one owner of the business.
To isolate a specific business venture or project, such as a film, book, musical, or other artistic venture.
To raise capital for a specific venture or project by bringing in investors.
To separate ownership and control of business operations.
To shift income to other family members, associates, or friends in order to take advantage of lower income tax rates.
To ensure compliance with IRS requirements and minimize hassles should you be audited—a frequent occurrence for sole-proprietorships.
To benefit from tax savings available to particular entities; for example, the potential payroll tax savings available to “S” type corporations. This is for large businesses and not applicable for most artists. If your art practice gets large enough to consider incorporating, consult an attorney.
A corporation is typically the most portable and practical entity for artists conducting business in more than one state.
Where to get a business license
Visit your city our county’s municipal website for information on how to obtain a city or county business license. Most cities have a business license department and often have multiple sites in which you can apply for a license. Some cities now let you apply online instead of showing up at an office. You need a business license for the city in which your practice is located.
Artists as a Business Entity
An artist has three choices in forming a business entity: 1) a sole-proprietorship, 2) a limited-liability (LLC) partnership or 3) a corporation. 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. The second two options are beyond the scope of this book and should be researched with an accountant and a lawyer. They are much more complicated businesses to run and require a fair amount of business knowledge.
Consult with a tax attorney to discuss the legal and financial advantages and disadvantages of each entity, and determine which would be most suitable for you. Many cities have a “Lawyers for the Arts” organization that teaches workshops on such matters. The internet also has lots of information on business matters, but beware of websites that offer to file your paperwork for a fee. They usually overcharge for something you can easily do yourself.
In larger cities, there are usually government agencies 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.
Other Things to Consider as an Artist Business
Hiring employees or independent contractors should be researched carefully. A studio assistant can be either, but you need to follow the IRS guidelines.
Having a separate bank account for your business is a good idea, but not mandatory. A business checking account is more expensive, but keeping your taxes separate from your personal expenses is important.
Read the Taxes Section of this book in order to understand what is and is not tax deductible.
You may need to consider liability insurance if you have others in your studio.
Keep good records.
You can also get our popular book for artists which includes all of this information and more here.