Article About Artist Professional Travel

An Article About Professional Artist Travel Deductible Expenses - by Sandra Delong

I have two professions. Four months of the year I am a tax professional, an EA (Enrolled Agent), eight months I am an oil painter. When I learned that Kevin Macpherson was going to be the instructor for a group of artists traveling to study painting - I signed up. Since the expenses for the whole trip are ordinary and necessary for my business as an artist, I can deduct the entire trip on Schedule C, “Profit or Loss From Business” on my tax return. If one week was painting and one week was just sightseeing, then only 50% would be deductible. If the primary reason for a trip is personal, then only the direct business expenses while there are deductible but no travel costs to get there. Any new equipment that I purchased for the trip (or for my studio) would be 100% deductible even if it was a capital item (would last more than twelve months). Internal Revenue Code (IRC) Section 179 allows up to $125,000 (Year 2007) first year write off for new qualifying equipment.

For me, all lodging, tips, rental cars, mileage (including the trip to the airport), ferries, etc. would be deductible. 50% of the cost of meals while away from home overnight are allowable by the tax code, but since I don’t want to keep receipts, I just take a standard meal allowance (SMA) and 50% of that amount would be deductible. The rate changes yearly and depends on whether you are in a low-cost or high-cost area ($45/58 for Year 2007). OCONUS (out of the continental US) rates are difficult to find and change constantly. You can call the IRS at 1-800-829-1040, give them the dates and the country and they will give you the current rate.

Film and film processing is a necessary expense. Ordinary street clothes are NOT deductible but aprons, smocks, hats for sunburn care, or any other specialized clothing would be. Passport fees, workshop fees, turpentine purchased in route, paper towels, maps and travel books are ordinary business expenses. Dinner cruises are deductible after you deduct the value of your meal. Telephone calls home are deductible only if they are business related. The IRS requires lodging receipts in order to be deductible but if lodging is included in the total bill from the touring company and you have that receipt, you will meet that requirement.

For artists that have other full time careers or jobs, or are just learning the art of painting, expenses are not deductible unless you have some sales and maybe not even then. If your involvement is considered a hobby (not for profit), then the amount of your sales would be shown on page one of Form 1040, Line 21 “Other Income”. The income WOULD NOT be subject to self-employment tax. Any expenses related to this income would have to be itemized on Schedule A, Miscellaneous Deductions, subject to 2% of gross income. The expenses are only allowed up to the amount of the income.

For those in this category, another option is to go ahead and report sales each year but not expenses. Keep a record of all costs and use IRC Section 263A to “capitalize” all costs of producing your art. When gross sales increase substantially and a true business nature is established, the prior years’ start up expenses can be amortized using IRC Section 195 and deducted on Schedule C with the current year’s income. The capitalized costs of producing paintings, prints, or cards, would become cost of goods sold and expensed on a prorate basis per item sold.

If you show a profit on Schedule C in three out of five years, then the burden of proof is on the IRS that you are not actually in it “for profit”. You can still take losses, but the burden of proof is then on you to prove that you are truly operating a business for profit. This is an area that the IRS looks closely at for noncompliance. However, they do understand that it usually takes years for an artist to make a profit. One argument in favor of proving a profit motive is the expectation that the assets of the business (the paintings) will appreciate in value as you become known.

One of the criteria for determining whether an activity is a hobby or a business is material participation. Under 500 hours a year is considered NOT materially participating (i.e. a hobby). Also a factor is whether the taxpayer is holding down a full time job (W-2 wages), therefore, would not have the time for material participation. Other areas that are watched is whether gross sales increase each year which indicates one is actively working to expand the business. Or, if cost of goods sold are more than sales this could mean current expenses are being written off when they should be part of inventory. Inventory would include parts of the saleable product such as frames, canvas, paints, glass, mats, etc. , those items not used up in a calendar year.

As a professional artist you should ask your tax preparer for advice, as it could save you real tax dollars, not only income taxes but self-employment taxes. Or, for a fee I can give you more details and a sample plan.

I can be reached by e-mail at: srdelong@gv.net I am a member of the Placer Arts League, Pioneer Arts Club, Nevada County Plein Air Painters, American Impressionist Society, and Oil Painters of America. I am a founding member of Chroma Gallery, in Fair Oaks , CA; which is the area’s premier plein air fine arts gallery. I paint contemporary impressionism with representational images using a palette knife.

My work and other Chroma artists’ work can be seen at www.thechromagallery.com