Audit issues

All posts in the Audit issues category

DON’T BE AFRAID TO PROMOTE YOUR WORK!

Published October 7, 2019 by Gail Daley Writer & Artist

There is a new catch phrase going around: Support your own community: buy Local! Guess what? As an artist or writer You are local!

Some of you may feel guilty about promoting sales of your work. For those of you who dofeel guilty about telling friends, past customers, family and acquaintances “Hey, consider buying from me when selecting art for your home or office or buying a book as a gift, let’s consider a few things. Do you know what the 80/20 Rule is? Well it says that 80% of money spent locally stays in circulation locally. By promoting theideaof buying your art, you are contributing to the health of your neighborhood! When someone buys art from you, they provide you with money, which you in return spend on groceries, rent, clothing and other stuff (which hopefully youalso bought in a local business!)

Sales tax spent with you supports local infrastructure, police, fire and schools. Money stays with the community when spent in local businesses. The Tax Policy Center: (clickhere for the entire article), says, “Local governments received transfers from both the federal and state governments equal to about one-seventh of total revenue. From their own sources, they collected about $700 billion, or 17 percent of all government revenue.” When your friends and family buy from you, they are helping to return money to their local economy, so youshould feel no hesitation in pointing out to them that your workcan be a resource for their decorating projects!

Spending money locally shows pride in their community culture and local products. As a person who lives in the area you are more apt to locally recirculate money your friends’ family and acquaintances spent with you on your art in the form of purchases from other local business, thus supporting the local work force. When you give some of that money to local charities, even if it is just the local boy or Girl Scout troop, or maybe the local food bank, you are keeping money spent with you in movement. It’s a fiscal circle that keeps people working to make the stuff they and others buy.

“I’m an artist/writer, not a business person”,you shout. Well, I hate to break this to you, but anyone who wants to sell his or her art or books isin business. According to Wikipedia, “a business(also known as enterprise or firm) is an organization or person engaged in the trade or sale of goods, services, or both to consumers”. Q.E.D. Business is NOT a dirty word. Businesses allow us as consumers to buy food, clothes, and gas. It allows us to find a place to live (real estate sales and rentals), and most likely it employs a lot of us who are not fortunate enough to be able to make a living selling our work. OOPS!There is that word “sell” again.

Local Business Can Support Local Artists and Writers

  • Local business can provide a mutual support base by being willing to allow artists and writers to display their work for sale in their stores and offices. The artist or writer will come in to see their art and most likely buy something from the business. They will also promote the business by telling their sphere of friends and family about having art or books on display in the business and urging them to come and see it.
  • Allowing creative people to promote shows, book signings, sales and event by displaying flyers in local business helps develop a mutual dependency.

Local Artists Offer

1 on 1 personal contact with artist/writer
Cachet to

Home/office

Unique Versatile gifts for each individual
Mutual

Support Base

Buy Art

or Books From Local Writers  & Artists

and artists

What value does the community receive when they purchase art from a local artist rather than from a national chain store?

  • Well-made handcrafted items give a cachet to their office, home and gift giving. When giving gifts it shows the buyer not only thought enough of the person receiving the gift to take into account that person’s personal tastes, but also took the time to check the gift out carefully.
  • Buying art and books from local artists and writers gives the opportunity for a one-on-one personal experience and gives buyers an opportunity to develop a personal and professional relationship with the artist or writer.
  • Books and Art are individually created unique, versatile items. Why buy something indistinguishable from what everyone else is buying?

What YOU As The Artist Or Writer Can Do To Promote Sales In Your Neighborhood This Holiday Season:

  • Remind past clients, friends, and family, church and organization members that you are a resource for buying holiday gifts or décor items.
  • Offer items for sale as “Sales specials”.
  • Offer a bonus or discount off a future purchase if the buyer refers another buyer who actually purchases your work. This type of promotion is done all the time in other industries; it is sometimes called a “referral commission’. No money is actually paid until the other buyer makes his/her purchase and mentions the name (or brings in a coupon) of the referring buyer.
  • Artists can adapt some art into small affordable reproductions (cards, small prints, puzzles, ornaments, cups, etc.) for sale at a holiday boutique or Studio Open House.
  • Writers can arrange book signings at local boutiques, stores or other holiday events.
  • Send past clients, friends and neighboring businesses postcards showing your work and invite them to view it in person at a local book signing, show or gallery.
  • Take advantage of the local Art Scene by inviting a selected few to come with you on Art Hop nights and show them to galleries where your work is being sold.

USING CELEBRITIES AS ART SUBJECTS

Published September 30, 2019 by Gail Daley Writer & Artist

Have you ever been tempted to include a celebrity portrait in your art portfolio? Say you are entering a theme show and there is a celebrity whose very image just screams “I am this theme”i.e. General Patton or Pappy Boynton for WWII, Clint Eastwood or John Wayne for western art, Mohammed Ali, or an Olympic swim star for a sports theme, etc.? Well if you do use a celebrity without gaining the proper permissions, you could be sued for copyright violations under something called “the right of publicity” laws.

I became curious about this when a young artist used a drawing of a western icon as an entry in a local art show. I remembered reading about the case of a company being sued when they used President Obama’s image advertising a product on their billboard. I did some on-line investigating and found some interesting information. I discovered that public figures could actually copyright their image under some state copyright laws. This was especially informative to me because I had always thought that copyright was a federal law, not a state one. In my research, I discovered that both are true. In other words, you have federal copyright laws and the states can make additions to these laws that could affect us as visual artists. Copyright law may also vary from Country to Country.

What exactly arethe rights copyright concerning publicity laws in regards to public figures? Public figures include politicians, celebrities, and any other person who has put themselves in the public spotlight or has greater than normal access to the media.

Wikipedia: http://en.wikipedia.org/wiki/Personality_rights, defines these laws, as “The right of publicity, often called personality rights, is the right of an individual to control the commercial use of his or her name, image, likeness, or other unequivocal aspects of one’s identity. It is generally considered a property right as opposed to a personal right, and as such, the validity of the Right of Publicity can survive the death of the individual (to varying degrees depending on the jurisdiction). In the United States, the Right of Publicity is a state lawbased right, as opposed to federal based right, and recognition of the right can vary from state to state. The Celebrities Rights Actwas passed in Californiain 1985 and it extended the personality rights for a celebrity to 70 years after their death.” There are other portions of California’s privacy laws to protect non-celebrity individuals but they not the subject of this blog and may be covered later.

Further reading tells me that even if your artistic source matter is a photograph taken by youof the celebrity or public figure in question, you might still be liable for violation of the right of publicity act if you invaded the privacy of the person in question to obtain the reference photo. An individual’s right of privacy or publicity is infringed when their name, voice, signature, photograph or likeness appears in a work of art and (a) can clearly be recognized as the subject shown in the work, (2) the subject has not consented to their image being used, and (3) the circumstances under which the photo was taken fit one of the following scenarios. Invading the subject’s privacy by encroaching into their private affairs. This covers events occurring in private or semi-private places: i.e. someone’s home or an invitation only event.Invading the subject’s privacy by the public disclosure of embarrassing facts not generally known. For instance if you take a photograph of a celebrity and then use the photo to paint them in the nude, or publish a photo of them embracing someone not their spouse this might be construed as being invasion of privacy. Invading the subject’s privacy by commercial appropriation. Using President Obama’s image to sell a product on the billboard was a clear example of this type of invasion.

Now I am not a lawyer, but common sense tells me why take the chance? Even if you win, a lawsuit is expensive and time-wasting and just being dragged into court over something like this could damage your reputation as an artist. If you would like more information on this subject, there are several good sites on the internet.

 

http://www.avvo.com/legal-answers/can-i-sell-my-own-artwork-depicting-a-celebrity–435063.html

This is a Case out of New York State concerning a sculpture using Cheryl Teigs legs in a sculpture. Recent verdicts expand artists’ rights in celebritydepiction …

http://www.owe.com/resources/legalities/7-issues-regarding-use-someones-likeness/

 

 

 

COMMON AUDIT ISSUES FOR ARTISTS & GALLERIES

Published August 12, 2019 by Gail Daley Writer & Artist

By the Practical Artist

Information for this blog was taken from REG 121584-05 page 523 http://www.irs.gov/businesses/small/article/0,,id=254019,00.html– 77.3KB

 

Probably the one agency that terrifies Americans the most is not the NSA, but the IRS and being audited by the IRS ranks up there with being on some mobster’s hit list. The best way to avoid being audited is to know what items will considered red flags by the IRS. The following are a few audit issues looked at by the IRS that may be found in the examination of an art gallery or home studio.

Unreported income through cashed checks from galleries to the artists leading to related returns to be examined;

Barter transactions between artists and others in the art field;

Taxability and inventory assessment issues for trades between gallery owners and artists;

Avoidance of state sales taxes;

Treatment of ordinary income as capital gains by mischaracterizing inventory as investments;

Identification of sources who failed to file/report transactions through “cost of goods sold” by studying cancelled checks and payment/transaction records;

Framing costs not properly recorded;

A History of losses or very high travel and entertainment costs with low gross receipts suggesting potential Activity Not Engaged in for Profit pursuant to I.R.C. § 183;

Sales of artwork disguised as “loans” secured by art as collateral and possible “money laundering”;

Other “financial status” indicators which show an artist’s or gallery owner’s reported income is incompatible to his or her lifestyle;

Potential issue on Non Resident Alien Artist, Art Galleries, Dealers and Brokers (International Referral Required);

Artwork being deducted as a charitable contribution at fair market value rather than adjusted cost basis and/or not being taken out of cost of sales;

Business use of the home.

If the gallery purchases its inventory, there should be a very detailed inventory listing showing the purchase date, the purchase price, any restoration and framing costs, the sales date, and price.

If the gallery sells on consignment, there will be a system in place to track consigned items. This system will generally contain the artist’s name, his or her address, a description of artwork, the date on which the artwork was received by the gallery, the asking price by the artist, and any other specific terms. It also indicates the date the piece was sold, the sales price, and terms of the sale.

The sales invoice for an art piece needs to  display the buyer’s name, address, date of sale, amount paid (if not fully paid), terms of any installment plan, sales tax, shipping charges, and framing charges if it is the type of artwork that would require framing.

Since artists are not offering a service, galleries are not required to complete a Form 1099 for the payments made. However, artists should receive a consignment check either monthly, at the time of sale, or at a time specified in an agreement between the artist and the gallery.

The best way to keep issues like those above from impacting your career as an artist is to keep good records for your home studio/gallery. If you sell your art, it is considered income and over a certain amount, it must be reported as such to the IRS on your federal taxes. If you participate in a booth event, you are usually required to have a seller’s permit, collect sales tax, and then report and pay that sales tax to the State.  Art is a business as well as a creative endeavor. Losing your art can be a financial loss. Not being aware of losing money because you don’t keep track of costs can create a huge problem.

Hey, relax; this isn’t as difficult as it sounds! Let’s take this one step at a time, using one piece of work. Step one: decide in what form you are going to keep your work log.While it is very helpful to have this information stored on a computer, artists were tracking their work using paper files long before computers became popular. I personally prefer using a computer worksheet, however, all of this stuff can be put on a sheet of paper and kept in a binder. For the initial record, I recommend a single sheet or worksheet per art piece. (Please see the Art Information Sheet in the Sample section)

ITEM 1—a pictorial image of your work. This can be in the form a printed photograph, a slide or a digital image. If your work is 3-deminsional, be sure to take photos of all sides of the work. Since this image is not going to be used to reproduce the work, a small, low-resolution image will suffice. The image should be large enough to see details of the work, clear and without blurring.

ITEM 2—the title of your work, size, style/genre and when it was finished.

ITEM 3—a brief description of the work (use complete sentences—why will become clear later). Optional—I also like to keep a kind of diary as to what I wanted to achieve, why I chose this image, and what was going on in my life when I created this art piece.

ITEM 4—Keywords to be used when downloading the photo of your art to your web site or other internet media.

ITEM 5—Show and exhibit record is a list of what shows or exhibits were entered, when they took place and if the art won awards.

ITEM 6—wholesale and Retail price. This is probably the hardest thing for an artist to decide on—how much to charge for an artwork! What is the difference between Wholesale and Retail? Wholesale is always lower than Retail. Your wholesale price at a minimum should cover the cost of what it cost you to create the art, plus any gallery commission fees and hopefully with a small profit margin. Retail price for an art piece should cover all this plus what you as an artist feel the art is worth. I realize this is very subjective but most of art issubjective.

ITEM 7—Incidental information such as the date you formally copyrighted the work, cost of the copyright, etc. More about copyrights later in the Copyright section.

ITEM 8—If you had limited editions of a painting or photograph or copies of a sculpture made, when, how many , how much it cost to make them, how many sold and how much you made when you did.

ITEM 9—the date you sold the original art and the name and address of the Buyer.

Learn More

Donating Art

Published March 2, 2019 by Gail Daley Writer & Artist

The phone rings, and some well-meaning fundraiser on the other end wants you to donate a work of art to their charity auction. Usually this goodhearted fundraiser will promise you a tax deduction, great exposure, enhanced publicity, and public exposure if you agree; sadly, most volunteer fundraisers don’t know what they are talking about as far as the actual benefits to you as an artist. Should you do it? This really depends on several things; how much do you support the cause itself? Are the benefits going to out-weigh the costs?

Well lets deal with the tax deduction benefit first. It’s not great.Generally speaking, you as the artist are allowed to deduct only the cost of creation (materials, etc.) unless you have had an appraisal done by a qualified art expert. This is no problem if you are a big name artist whose art is going to bring in thousands of dollars to the charity because the charity will usually have the art appraised by their expert, which you can then attach to your taxes. However, if you are donating to your child’s school, your church, local hospital, etc. chances are the charity is not going to pay for this appraisal because they can’t afford it. Sometimes the charity is worthwhile (in fact most of the time), but unless they follow my rules for donation, what they are really doing is training whoever comes to their event to devalue my art and disrespect me as an artist. This may sound really harsh but it has been proven to be true.

The next two items typically promoted by fundraisers are “enhanced publicity and public exposure” which sounds really good, but what exactly are they actually talking about? A line in the auction catalog and announcing your name when they bring up your art? Please. Remember that most of the fundraisers who do telephone contacts are volunteers with no actual experience in the field. In other words they really have no idea what they are talking about. Enhanced publicity shouldmean your name in the newspaper, on the radio or on the charity’s Facebook page with a link to your website. Public exposure shouldmean that instead of just pointing to your art and asking for bids, the auctioneer talks about you, what awards you’ve won, how good the art is, etc. to encourage the audience to bid higher. He or she should also mention your web site, and the brochures advertising you as an artist, which should have been available when the bidders were doing the walk-through.

Predictably, at most of these charity events, they practically give away the art because the bidders are not art collectors, they are there to support the charity and are looking for two things—something they can afford to bid on to satisfy their tax deduction and to support the charity. A lot of them might be even comparing your fine art to canvas prints they can get at a department store! Auctioning your art for much less than you normally sell for undermines the art market in general, and makes it seem as if the artist (you!)didn’t deserve therealselling price. Another negative side effect is to encourage your regular collectors and potential buyers to wait for events like this to buy your art cheaper than they could if they purchased it directly from you.

The “public exposure”thing is problematical; unless the auctioneer makes a really big deal about your art business and how valuable your work is, everyone present is likely to still think you have a nice hobby. I was once asked by my church to design a poster/logo for a women’s retreat. When the event coordinators husband saw it he remarked to her that it looked like a “real” artist had done it. I find that no matter how good the art I donate to their event is, my circle of acquaintances in my church, my children’s school and my family almost all still believe that my art is a hobby, so I don’t donate unless the charity agrees to the following ground rules:

  • I set a minimum price for original art. If it doesn’t sell, I get it back. This is absolutely essential because unless you have an appraisal from a respectable appraiser attached to the art; all that you can take off on your taxes is the cost of material used to create the art.
  • I qualify the event by making sure there will be folks there who can actually afford to purchase the art (this means getting actual names of who will be attending or at least who has been invited), and that the event will be well publicized: this means actual ads on TV, Internet, and Radio, hopefully with a mention of the art you are donating.

Once charities learned I stuck to these rules, I found that the requests dropped off dramatically. This doesn’t mean that I am wholly against art donations; I dodonate my art to worthwhile charities, but I find that it usually pays better tax deduction-wise to donate a good quality print than the original. If you donate a print, you can deduct the entire printing cost, framing and matting which is a much better deal for tax purposes. To sweeten the pot for prospective buyers, I do always sign prints that I donate, and make sure I tape information about myself, my website and the art to the back of the print.
Good Luck

Gail

Common Potential Audit Issues of Art Galleries

Published January 19, 2019 by Gail Daley Writer & Artist

Information for this blog was taken from REG 121584-05 page 523 http://www.irs.gov/businesses/small/article/0,,id=254019,00.html– 77.3KB

Probably the one agency that terrifies Americans the most is not the NSA, but the IRS and being audited by the IRS ranks up there with being on some mobster’s hit list. The best way to avoid being audited is to know what items will considered red flags by the IRS. The following are a few audit issues looked at by the IRS that may be found in the examination of an art gallery or home studio.

Unreported income through cashed checks from galleries to the artists leading to related returns to be examined;

Barter transactions between artists and others in the art field;

Taxability and inventory assessment issues for trades between gallery owners and artists;

Avoidance of state sales taxes;

Treatment of ordinary income as capital gains by mischaracterizing inventory as investments;

Identification of sources who failed to file/report transactions through “cost of goods sold” by studying cancelled checks and payment/transaction records;

Framing costs not properly recorded;

A History of losses or very high travel and entertainment costs with low gross receipts suggesting potential Activity Not Engaged in for Profit pursuant to I.R.C. § 183;

Sales of artwork disguised as “loans” secured by art as collateral and possible “money laundering”;

Other “financial status” indicators which show an artist’s or gallery owner’s reported income is incompatible to his or her lifestyle;

Potential issue on Non Resident Alien Artist, Art Galleries, Dealers and Brokers (International Referral Required);

Artwork being deducted as a charitable contribution at fair market value rather than adjusted cost basis and/or not being taken out of cost of sales;

Business use of the home.

If the gallery purchases its inventory, there should be a very detailed inventory listing showing the purchase date, the purchase price, any restoration and framing costs, the sales date, and price.

If the gallery sells on consignment, there will be a system in place to track consigned items. This system will generally contain the artist’s name, his or her address, a description of artwork, the date on which the artwork was received by the gallery, the asking price by the artist, and any other specific terms. It also indicates the date the piece was sold, the sales price, and terms of the sale.

The sales invoice for an art piece needs to  display the buyer’s name, address, date of sale, amount paid (if not fully paid), terms of any installment plan, sales tax, shipping charges, and framing charges if it is the type of artwork that would require framing.

Since artists are not offering a service, galleries are not required to complete a Form 1099 for the payments made. However, artists should receive a consignment check either monthly, at the time of sale, or at a time specified in an agreement between the artist and the gallery.

The best way to keep issues like those above from impacting your career as an artist is to keep good records for your home studio/gallery. If you sell your art, it is considered income and over a certain amount, it must be reported as such to the IRS on your federal taxes. If you participate in a booth event, you are usually required to have a seller’s permit, collect sales tax, and then report and pay that sales tax to the State.  Art is a business as well as a creative endeavor. Losing your art can be a financial loss. Not being aware of losing money because you don’t keep track of costs can create a huge problem.

Hey, relax; this isn’t as difficult as it sounds! Let’s take this one step at a time, using one piece of work. Step one: decide in what form you are going to keep your work log.While it is very helpful to have this information stored on a computer, artists were tracking their work using paper files long before computers became popular. I personally prefer using a computer worksheet, however, all of this stuff can be put on a sheet of paper and kept in a binder. For the initial record, I recommend a single sheet or worksheet per art piece. (Please see the Art Information Sheet in the Sample section)

ITEM 1—a pictorial image of your work. This can be in the form a printed photograph, a slide or a digital image. If your work is 3-deminsional, be sure to take photos of all sides of the work. Since this image is not going to be used to reproduce the work, a small, low-resolution image will suffice. The image should be large enough to see details of the work, clear and without blurring.

ITEM 2—the title of your work, size, style/genre and when it was finished.

ITEM 3—a brief description of the work (use complete sentences—why will become clear later). Optional—I also like to keep a kind of diary as to what I wanted to achieve, why I chose this image, and what was going on in my life when I created this art piece.

ITEM 4—Keywords to be used when downloading the photo of your art to your web site or other internet media.

ITEM 5—Show and exhibit record is a list of what shows or exhibits were entered, when they took place and if the art won awards.

ITEM 6—wholesale and Retail price. This is probably the hardest thing for an artist to decide on—how much to charge for an artwork! What is the difference between Wholesale and Retail? Wholesale is always lower than Retail. Your wholesale price at a minimum should cover the cost of what it cost you to create the art, plus any gallery commission fees and hopefully with a small profit margin. Retail price for an art piece should cover all this plus what you as an artist feel the art is worth. I realize this is very subjective but most of art issubjective.

ITEM 7—Incidental information such as the date you formally copyrighted the work, cost of the copyright, etc. More about copyrights later in the Copyright section.

ITEM 8—If you had limited editions of a painting or photograph or copies of a sculpture made, when, how many , how much it cost to make them, how many sold and how much you made when you did.

ITEM 9—the date you sold the original art and the name and address of the Buyer.

 

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