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.
Do we apply a double standard in censoring Art? Is there a difference between a Rubens classical painting and Playboy? Most of us think so. Yet some of Ruben’s art is probably more graphic than a Playboy centerfold and his Rape of the Daughters certainly shows violence toward women. Nevertheless, most museums and libraries would have no hesitation in displaying it in a public venue. What then makes the old masters art different from artists who create in the here and now? Should paintings showing nudity, graphic violence like rape, sexual themes or nude statues be shown in a public setting such as a Library, Mall or even an art show at which children are welcomed?
Does it make a difference who is going to be looking at or reading controversial material? Yes, it does. Just as a person isn’t allowed to scream “fire!” in a crowded area for fear of causing panic, as a society we will always need to make judgments as to what is appropriate for our public libraries and other non-profits to display and spend their money on. And yes, in the past governments havebeen very heavy handed on what was considered appropriate. On that subject, the right of Private adult individuals to decide what they will read and see must always be defended. The internet has virtually ensured that the freedom to view and read whatever we want will be protected; As long as it exists, artists and book publishers will be permitted to sell these items (in the appropriate venues), and I don’t think we need to be too worried about government imposed censorship.
Public galleries and non-profits have also felt the bite of censorship because of shrinking donations; private and for-profit galleries and bookstores are also under pressure not to carry controversial materials. A mom shopping with her 10 year old simply isn’t going to make a purchase in a gallery or art show that carries nudes because she isn’t likely to take her child into that gallery or to that art show in the first place.
As a visual artist who sets up art displays in public places, I am very aware of our American society’s standards of what is considered acceptable for public consumption. All societies have these standards of behavior and yes, the standards do evolve with society. 60 years ago, Tarzan of the Apes was considered too sexy for the libraries! What is acceptable in Europe is quite different than what is acceptable in America also. American standards are usually much more conservative than those prevalent in Europe. In this financially strapped time, Libraries and other non-profits and public venues are very dependent on donations. Let’s face it; donors are simply not going to come out and see or purchase art or books they don’t like and they won’t give money to organizations that support these things.
As to exactly why we think a painting over 100 years old is less controversial than one painted this year, well, all I can say is that history seems to cover a multitude of sins.
Choosing a gallery is NOT a matter of taking the first offer you get from a gallery, or taking a recommendation from your Uncle’s cousin. It is also not about showing trust in humanity. Choosing a Gallery to represent art can be one of the most important decisions an artist can make. This decision will affect who sees the art, and consequently who buys it. An artist is an equal partner with the Gallery: The artist supplies the product sold and the Gallery in turn supplies the selling venue. Neither party can exist without the other. If an artist chooses poorly, it reflects on both the artist and on the art. Art is a business as well as a creative endeavor. If an artist is pursuing art as a career and not as a hobby artists need to be aware of legal issues that can affect them. Most artists benefit from showing their art at Commercial Galleries (nuts and bolts). Unfortunately, not all commercial galleries are created equal. Some are aboveboard and have excellent reputations and ethics. Others do not. Commercial art galleries derive their profit from sales of artwork, and thus take great care to select art and artists that they believe will sell and enhance their gallery’s reputation. They spend time and money cultivating collectors. If the artwork sells, the gallery makes a profit and the artist is then paid. It is not unusual for a commercial art gallery to charge a 50% commission on sales. Before entering into partnership with a new gallery, the artist should do what any responsible person would do before entering into a contract: check it out with the local Better Business Bureau and Chamber of Commerce. Ask to speak to other artists who are under contract. Do they make sales? Does the gallery pay on time when a sale is made? Does the gallery make sales of an artist’s work and not tell artists about it? What about advertising and publicity, how much does the gallery does and who pays for it? Artists should also attend a few of their receptions or events and see who is attending. If it is mostly other artists under contract, very few sales will be made. A successful commercial gallery will be in a location where there is a high volume of foot traffic and visited by a lot of art fans is ideal. A location such as this may be pricey, but if an audience is already there and primed to visit the gallery with the intent to buy, less can be spent on advertising to drive buyers to see the work.
NUTS & BOLTS VS. ON-LINE GALLEIRES
Surprisingly there are a number of on-line and nuts and bolts alternatives for choosing where you will show your art. The words “on-line art gallery” can mean different things, however; an online art gallery most likely will be a website to display and sell art. For example: 1) An on-line art gallery can be displaying art work from their current, future, or past exhibitions, and be set up to promote the exhibition rather than to sell the work via the website. 2) An artist presenting his/her own gallery, either on his own website and 3) Multi-Artist Sites or shared websites (ArtId, Fine Art America, Etsy, etc.), representing many artists working in different medias and genres. On a multi-artist site the artist either pays a monthly fee or agrees to a commission paid when the work is sold. These are usually non-exclusive and are a risk free opportunity for the artist to sell art worldwide. Search for them using “original art” or “online art gallery”. The advantage of Online Galleries is that while the art buying public is growing, many people are still intimidated by walk-in commercial Art Galleries. If a potential buyer has access to a wide range of art viewed in the comfort and safety of their own home, they may relax and make a purchase. A lot of artists now have an online Gallery as well as a walk-in commercial Gallery, which means that an artist can present a lot more art to a lot more people.
Beginning artists can be confused by Vanity Galleries because Vanity Galleries are not the only type of gallery that charges a fee to the artist; a vanity gallery charges artists fees to exhibit their work and makes most of its money from the artists rather than from sales to the public. Some vanity galleries charge a lump sum to arrange an exhibition, while others ask artists to pay regular membership fees and then promise to organize an exhibition with a certain period. Occasionally a vanity gallery will appear to have a selection process because the number of artists on the membership roster cannot exceed the available time slots for shows. Vanity galleries have no incentive to sell art, as they have already been paid by the artist. They are not selective because they don’t have to be. Most Professional critics and reviewers tend to avoid them.
Cooperative galleries (sometimes called artist-run initiatives), are galleries operated by groups of artists who pool their resources to staff the gallery, pay for gallery space, exhibits and publicity. Most cooperative galleries carefully jury their members. Also, most, galleries of this type do require membership fees. Sometimes members must share the overhead cost of operating the gallery.
Before joining a gallery or on-line site, it is a good idea to check out their sales record. Talk or e-mail artists using the site and ask their opinion of the Gallery.