legal issues

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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.

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I AM AN ARTIST/WRITER SO WHY WOULD I NEED A LAWYER?

Published February 23, 2019 by Gail Daley Writer & Artist

It seems never to occur to most writers and artists (with some notable exceptions) to have a lawyer look over the contract their agent, publishing house, new Gallery or licensing company wants them to sign. Why not? Well, a couple of reasons might be that the artist is just so thrilled to have an actual walk-in gallery or licensing firm offering to display or sell their work that the artist overlooks making sure their rights are protected, or that the artist simply can’t afford to hire an attorney.

There are several types of contracts an artist might be involved with.

A contract commissioning a piece of art.

A consignment contract with a gallery to sell your work,

A licensing agreement to sell prints, cards or commission work to be translated into other art forms (plates, tiles, textiles, etc.).

An agreement with an agent to sell or advertise your work.

An agreement with a venue (non-gallery) to display or sell your art.

Booth rental space at an event.

When are the times when you should have someone with legal experience take a look at what you are signing? Well, if you can afford it, anytime you want to be paid for your work, but if you are a starving artist, can you afford a $60/hour retainer? Probably not, however you dohave some other options. If you ever find yourself in need of legal representation, you can try Lawyers for the Arts. Most states have either a volunteer lawyers for the arts organization or regular lawyers for the arts who if you ask for it will sometimes give you a bro bono consultation to see want you need.

Volunteer Lawyers for the Arts(VLA) is both a generic term for a number of legal service organizations located throughout the country. It is also the proper nameof an organization in New York City, Founded in 1969. That organization is the oldest VLA in the United States. Many states also have their own non-profit organizations: In California, Bay AreaLawyers for the Arts (BALA) was founded in 1971. When BALA expanded to Southern Californiajoining with Volunteer Lawyers for the Arts–Los Angeles, it was renamed California Lawyers for the Arts. There are more than 30 VLA programs spread around the states. Lawyers for the arts is not a single organization, but a network joined by similar vocations providing a range of free or low-cost legal services and educational programs to tackle the needs of artists and arts associations for all genres of art and artists

Each organization functions independently. Most of them are nonprofits but some are affiliated with arts councils, arts service organizations, bar associationsor business for the arts programs.

Several of the platforms include

  • Legal services through referrals and sometimes on-site consultations;
  • Some host legal clinics; alternative dispute resolution including mediation and arbitration;
  • accounting services;
  • Law studentinternships who are usually a lot less expensive to use and can overlook contracts;
  • Educational programs on topics like contracts, copyright, estate planning, taxes and nonprofit incorporation;
  • Most of them also carry publications on a broad range of issues.

In CALIFORNIA, if you are looking for an attorney, you can also go to: http://www.CaliforniaAttorneyReferral.com,or you can try someone from the list below:

Please keep in mind that some of the address and phone numbers may have changed. Since I have never used any of these firms, I have no idea of their quality, fees or abilities.

Even if you don’t see the need to have legal advice on every little thing, there are some issues you need to make sure are covered in any contract you enter into.

  • If this is a commission sale, when is to be completed and how soon afterwards are you paid?
  • Is the Gallery or Agent requiring exclusive rights?
  • When are payments due from consignment sales?
  • How long does the consignment last?
  • If there is a reception who pays for it?
  • Who hangs the art?
  • If the hanging causes damage who pays for the repairs?
  • If the gallery or venue goes out of business make sure your art cannot be considered part of the gallery assets or they could be sold to pay business debts in which case you won’t receive any payment for your work.

Disclaimer: The information in this blog is for general information purposes only; it is not intended to be tax or legal advice. Each situation is specific; consult your CPA or attorney to discuss your specific business questions.

 

DO I NEED INSURANCE?

Published February 16, 2019 by Gail Daley Writer & Artist

If you have a professional studio or gallery outside your home you probably will need additional coverage for fire and theft for that space. If you have events (open gallery nights, art shows, classes, etc.) then you will probably also need liability insurance to cover anyone attending events there. You should discuss the amount of coverage you will need with your insurance carrier.

DO I NEED ADDITIONAL COVERAGE IF I AM WORKING OUT OF MY HOME? 

The answer to that is maybe. Unless your homeowners insurance has an exclusion forbidding you to work out of your home, you probably are covered for fire and theft since the art you create can be considered personal property. If you need to make a claim, the carrier will require documentation. That is why it is important to keep good records of what you painted. You should consult your insurance carrier as to how much they will cover for each art piece. Don’t make assumptions and get stuff in writing!

HOW DO YOU FIND AFFORDABLE ART INSURANCE COVERAGE?

Your regular carrier might not have contacts in this area; However, Local art groups have to carry event insurance for their art shows. Get in touch with them and ask for a referral to their insurance carrier. The carrier they are using may be a lot less expensive than someone unfamiliar with this type of coverage.

QUESTIONS TO ASK THE CARRIER

What protection do I as a vendor need for my art and my possessions?  What protection do I need if someone is hurt within my stall? What protection does the venue carry for fire, theft, personal liability? What about fire or other damage caused by an accident in another person’s booth that then adversely affects mine? Ask all the “what if” questions you can think of and then make your own determination about participating. Also, check into whether there is an insurance contract and what the terms of the contract may be before signing and have your own insurance agent look it over first as well as an attorney if there are things you don’t understand. Never assume, always ask for clarifications and get them in writing.

If you are displaying your art someplace like a restaurant, gallery or other space, most likely you will need to make arrangements with the owner regarding theft or damage to your art. My carrier won’t cover my art outside my home unless I want to pay big bucks, which I can’t afford. A lot of art shows carry riders to this effect also.

INSURANCE REQUIREMENTS FOR BOOTH EVENTS:

Questions concerning the actual amount and type of insurance you might need for a booth event (art fair, etc.) cannot be answered by anyone other than your insurance carrier. At a minimum you probably want some sort of theft and personal liability coverage but I don’t have any knowledge of what California requires or recommends. The venue holding the event may have requirements for coverage also; they may want a rider from your company naming them as an additional insured for the day of the event. Whatever their requirements are—get it in writing!

Dealing With Negative Comments

Published February 2, 2019 by Gail Daley Writer & Artist

What response do you make when some person posts a negative opinion of you or your work on your website or a social network site? Want some tips on what you can do about this without starting a major public feud and how to turn a negative into a positive action?

Congratulations. You now have a brand new web-site (or blog site). You have spent hours designing it and putting into it everything you think will help you make it popular. Whether you created this site in the hopes of developing an audience for your writing, selling your art, promoting a non-profit organization, business or for some other reason your new site is precious to you and you need to share it with the world at large. There are so many ways to do this beginning with sending e-mails to friends and family, advertising on Facebook, LinkedIn, Twitter, Google AdWords, etc.

Most of these sites have suggestions as to how to reach other members to tell them about your new site. After you have followed instructions from these sites to publicize your work,  in a couple of days when you call up your site to see if anyone has actually looked at it, and among the positive comments posted, you discover that someone has written something ugly either about the site, your work or you and posted it on yoursite. This is a little like having someone kick your baby and you are justifiably offended. The question is what do you do now?

In answering this I’m going to make a couple of assumptions: 1) you haven’t done anything to the negative poster to make them want to embarrass you by publicly posting ugly comments to your site, and 2) this isn’t someone you know well because obviously if you were well acquainted with them you wouldn’t have sent an invitation in the first place.  If you are like me your first impulse would be to slap back at this person. This is entirely a normal reaction and it is a perfectly understandable, human impulse to strike out at what injures us. However, I urge you not to give in to this impulse. If you start an insult slinging match by posting a nasty response to the negative comment on your site it will only increase the adverse impression of your site with potential customers and visitors that this person has created. It also will make you look unprofessional and probably detract from your sites message which should be about the work or ideas you have presented there.

You cantake positive action when this happens, but first you need to make sure it doesn’t happen again. Your first action should be to find out a little about who this person is and how they came to visit your site. When you do find out this information I advise you to resist the itch to retaliate by posting something ugly in return on theirsite. I understand you would like them to know how you felt but this will only escalate matters, so don’t do it! Once you know who they are, simply remove the comment from your site and if the site offers this feature, arrange to moderate any future comments posted. If the person posted the comment using Facebook or Twitter, you may need to change those settings also to require comments to have your approval before being posted.

You should realize that if this person received an invitation to view your site the invitation may have come from you, especially if you were innocently following suggestions to increase your circle of influence put out by LinkedIn, Twitter, Facebook or Google. All of these sites encourage members to make new connections by checking out other members who are interested in the same things, belong to the same groups, follow the same companies, etc. and send out invitations to connect. These suggestions are not necessarily bad; in fact you may make some valuable acquaintances and good friends by using them. Please be aware however that the old adage about kissing frogs also applies; you may also have unintentionally reached out to some people who practice behavior my mother used to call “rude, crude, and socially unacceptable”. You won’t be able to screen these folks out ahead of time because this kind of character reference does notget posted on their self-created profiles! Hateful people exist and they just love to spread their discord and repulsive behavior onto others. The positive thing you can do I mentioned? Sometimes it helps to visualize yourself blowing a big, noisy, fat raspberry at this person, and then start a “Do Not Send” list and check it before you send out invitations to view your work. Good luck!

Gail

IS ART CENSORSHIP REAL?

Published July 30, 2018 by Gail Daley Writer & Artist

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

Published December 25, 2017 by Gail Daley Writer & Artist

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.

 

CHOOSING A SOFTWARE PROGRAM

Published December 18, 2017 by Gail Daley Writer & Artist

Art is a business, and like any business, it is necessary to keep track of expenses as well as income. While you can do this by hand, nothing beats a computer program to track stuff!  I have been searching for a comprehensive program for my art business for years. While there are some all-inclusive programs beginning to be developed, I have usually found some flaw in the program; either they were hard to use, or had an incompatible photo program for thumbnails of my art, etc. There are a couple of new companies with programs designed for artists out on the internet (see links below).  DISCLAIMER: Please keep in mind that I have no practical experience with any of these programs except Working Artist. It is up to you to check them out and decide if you want to use them. Here are some links to potential art software sites along with what information I have on them:

http://www.artlooksoftware.com/Downloads/Introduction.pdf  (Free evaluation copy available) Current pricing is £150.00 (I assume this is British pounds or some type of Euro symbol).

http://www.gyst-ink.com/  Retails for either $59.00 or $129.00 depending on whether you want just the basic system or their Pro program.

http://www.artsystems.com/products/system.htm  this system says it will link to QuickBooks, web manager and has a system for I-Pad. It is also VERY expensive; licensing for this puppy runs anywhere from $5,000 down to $795.00.

http://workingartist.com/   Retails out for between $139 — $154 with upgrades for $59. This one comes in 4 separate editions 1) a studio edition designed for agents representing several artists, 2) The artist edition, designed the single artist to manager their business. The site also claims to have an edition for Art Fairs and for Galleries, but I wasn’t able to access them by clicking on them. This is the only one of these software programs I have any actual working knowledge of, and it was about 10 years ago that I tried to use a free trial download. At that time, I experienced considerable difficulty in uploading photos of my work into the program, as it would not accept jpeg versions for some reason. I assume they would have corrected this issue in the intervening time.

http://www.masterpiecemanager.com/artistfnb.html  this one says it will manage inventory, contact, point of sale, has art web site templates, e-mail marketing and is available for MAC & PC. This is not that unusual as ALL of the software programs say they have both MAC & PC versions. Pricing for individual artists is $29/month, which works out to about $348 a year. Like Working Artist, this set up also has different programs for Galleries, stores consignment stores, museums, etc.

If you don’t want to purchase an expensive program, you can simply use an excel spreadsheet to track income and expenses but it is very time consuming. For expense tracking, I would recommend QuickBooks to track your expenses and income. QuickBooks, while a little on the expensive side is pretty user friendly and easily transitions into tax software programs such as Turbo Tax when it comes time to file your income tax. Unfortunately, I have heard rumors that it doesn’t mesh as well with Apple products as it does PCs. If you simply want to go the excel program route and manually track stuff, you can access copies of my system at http://www.thepracticalartist.com.

Yes, Virginia, I am actually using three programs to track my art and my expenses. QuickBooks for income and expenses, two spreadsheets that tell me where my art is at any given time; (Current Location Report and Painting Information Sheets) to track awards, income from each painting or prints made from it. I also use a photo file  with different sized images of my art for various uses (webpage, large-sized prints, and specific sizes for on-line show entries).

For Photo Editing I use Photoshop Elements because it is less pricey than the full Adobe editing program and as a painter, I really don’t need the maximum amount of bells and whistles you get with the full Adobe Suite.

I can’t say this often enough; back up your data!

You should keep at least two types of photo records:

A photo log with both high- and low- resolution photos of your work, kept separately from your desktop computer. A working copy can be kept on the desktop, but be sure and back up your files each month onto a separate disc or jump drive.

To keep track of your business and be able to recover your files in a disaster, you will need:

A program or system to track income and expenses;

A record that includes an image of each piece of art created and its disposition or current location.

Keep back-up copies of these items in a separate place, And up-date your back-ups monthly. Once your records are lost due to computer crashes, natural disaster or any other reason they are gone. For this, you can purchase separate auxiliary drives that have as much memory as a desktop, or you can back your stuff up into a version of the cloud. There are a LOT of cloud backup systems out there now. Automatic systems such as I-Cloud, and manual systems like Dropbox. None of these are free and if you can’t keep up the payments, I don’t know how recoverable your records might be. Check them out.

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