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elizabethanngrab
Jul 31, 20215 min read

Financial documents for artists: a quick & dirty breakdown

When it comes to money management, here's what you need to know.



Financial documents you need to know

Do you know which tax forms you need to submit come April? I forget every year, too. So here's a quick and dirty list that I keep as reference from many (and I mean many) conversations with my ever-patient accountant mother. This is very much a Cliff Notes version, so check out the links at the end of this post or ask your local public librarian for help if you need more info when actually filling out these various forms.


Employee vs Contractor

Are you an employee or are you a contractor? What's the difference? An employee is on the payroll for a business. Potentially that means you receive benefits, like health insurance, a 401(k), etc. A contractor—AKA a freelancer or being self-employed—means that a business pays you for a particular thing, but you aren't on their payroll. I tend to remember the difference by checking if the person paying me includes vacation days in the contract. If vacation is in the contract, you're typically an employee. If it's not, you're a contractor.


The next big reminder (and the legit way to know the difference) is whether they gave you a W-4 when you signed your initial contract and if you received a W-2 from them as a Valentine's present. If you got those two forms, you're an employee, not a contractor. And that brings us to...


Forms you need if you are an employee

  1. W-4: You should receive this form when you initially sign your contract of employment (or at least before receiving your first paycheck). This form tells your employer how much to deduct from each paycheck for tax purposes. Basically, this one makes sure you aren't paying the IRS too much or too little by the time mid April rolls around. What's key on this form is knowing what deductions are and which ones you can claim. I cannot even pretend to understand what most of the deduction options are, so this is where I point you to your ever helpful local public librarian. If they can't walk you through the form, they can point you to someone who can. Though, just as a note, they won't actually fill out the form for you; they just explain it. H&R Block links to their W-4 calculator in this article, so that might be helpful to you in determining which allowances and deductions you qualify for: https://www.hrblock.com/tax-center/irs/forms/what-is-a-w-4-form/#:~:text=What%20is%20a%20W%2D4%20Form%3F,large%20balance%20at%20tax%20time.

  2. W-2: You should receive this document from your employer round about mid February. You need to hold on to this form to submit with your other tax documents come tax season in mid April. So don't lose it. The IRS already knows all of the information on this form. And still they require it. Like a gym credit in college that you can fulfill with a bird watching course that you never actually have to attend—it's a pointless hoop to jump through but if you don't jump, no diploma for you. This form tells you your gross wages (what you earned before your employer deducted money for taxes every paycheck) and how much your employer deducted over the year.

  3. 1040: This is your individual tax return that everyone fills out every year. Your W-2 gets attached to this form when you submit your taxes mid April.

Forms you need if you are a contractor

  1. 1099: If you get paid more than $600 on a contract, the person doing the paying is required to send you this form. Basically, if you're self-employed, 1099 forms are the evidence the IRS needs to keep track of how much taxable money you made that year. Do not lose this form either. If you made less than $600 on a job, the entity paying you is not required to send you a 1099.

  2. 1040: This is your individual tax return form that everyone fills out. Even if you're an employee rather than a contractor, you'll need this one out. But as a contractor, the 1040 is where you'll note all of your income for which you didn't receive a 1099 (aka all the work where you received less than $600).

  3. Schedule C: This is part of the 1040 that you have to fill out if you're self-employed. I'm less clear on this one, but as far as I can tell, you submit this form with the 1040 if you operate your own business. What they rarely tell you in art school is that being an artist means that you are a small business owner, and your art is your business. So you'll need to fill out one of these suckers come April. See the appropriate link below for more concrete details.

Side note for contractors: Employers are required to withhold part of your income for taxes. If you are a contract, you are your own employer. That means that the people paying you are not your employer; they are your clients. This means that you have to withhold taxes from the income that your client pays you. Keeping this in mind is vital for when you set your rates, quote, and invoice a client. Make sure you're billing them enough to make money on the job even after you've accounted for deducting federal, state, and local income tax, plus Medicare and Social Security. Here's a dated example for what accounting for those deductions looks like for an independent contractor: https://blueprint.theblueground.com/working-remotely/independent-contractor-taxes-ny/.


Forms you need if you're paying someone to help you


Basically, you become the one issuing the above forms depending on whether or not they're your employee or a contractor.

  1. For non-employees: 1099. If you hire someone as an assistant of some kind for help, but aren't employing them, you only need to issue them a 1099-MISC if you pay them $600 or more.

  2. For employees: You need to have them fill out a W-4 before their first paycheck and send them a W-2 in the first couple of weeks of February.


Why should you care?

As many of us learned when trying to get our Pandemic stimulus cheques (officially known as the Coronavirus Tax Relief and Economic Impact Payments), if you weren't up to date on your taxes, it was challenging to impossible to receive your money either as an individual or especially as a small business owner. While we can all hope that we don't experience another global or national health crisis in our lifetimes, better safe than sorry. Beside that extreme, if you're like many professional artists, you operate at a loss most years. By keeping up with your taxes, you ensure that you qualify for the social, economic, and health safety nets we have in place federally, as well as available to various degrees in different states. Additionally, if you're hoping to have any kind of retirement fund to keep you going in those senior years, your tax return is a great candidate for annual IRA contributions.


Most importantly, artists tend to be largely dependent on grants for their income. Those significant (yet somehow never enough) monies awarded you in those grants are typically taxable income. There are exceptions to this. See the appropriate link below. Keeping up with your taxes ensures that you don't become beholden to the IRS for stupid amounts of money that you don't have.


Sites for more (accurate) details


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