Taxes. Ugh, the dreaded T-word.

As creative entrepreneurs, you pour your heart and soul into your art, but tax season can feel like a creativity killer.

You lose so much valuable time you could have spent doing what you love: making things.

But during tax season, the reality for handmade business owners is that we’re stuck in our offices, dealing with numbers and money – something we rarely want to do.

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Who wants that? Not me, for sure.

But doing your taxes is an important part of running your own business.

So it’s time to face the music.

In this blog post, I want to help break down the tax basics for artists and crafters, so you’ll feel empowered and ready to tackle tax time with confidence.

The Business Side of Life

This month, a lot of my content is going to be about the business side of being a creative business owner.

I’ll admit: it’s not all rainbows and sunshine.

Our days aren’t filled with just making these pretty things…

Which is why I also want to talk about the hard stuff.

I know taxes aren’t the most exciting thing to talk about, but staying on top of it is crucial for any successful business.

So, whether you’re a crocheter or a woodworker, this blog post will give you the knowledge you need to navigate tax season like a pro.

Let’s talk about what you need to track, the common deductions for makers, and how to avoid any nasty surprises.

But, here’s a big disclaimer. It goes without saying, but I need to say this anyway.

I am not a financial professional or expert so if you need specific advice to your business or city or state you live in, definitely consult with a professional.

I can only share with you what I know based on my own personal experience running multiple creative businesses online since 2006. 

Tax Essentials for Makers (Artist Version)

Alright, first of all, let’s break down the basics.

Here are the key things you need to know.

You’re likely self-employed.

Since you’re selling your creations directly, whether it’s artwork, crafts, digital products, and any other handmade goods, you’re considered self-employed for tax purposes.

This means you’re responsible for managing your own finances and fulfilling your tax obligations.

You’re liable for paying income tax on your business earnings, but also a separate self-employment tax that covers Social Security and Medicare.

Unlike traditional employees who have their income taxes withheld from their paychecks, self-employed people typically have to calculate and pay theirs directly to the government.

And, while employees’ contributions to Social Security and Medicare are usually split between them and their employer, as a self-employed individual, you’re responsible for paying the entire amount of these taxes.

Track your income and expenses.

This is the backbone of financial management, and it’s where organization becomes your best friend!

Keep good records of all your income and expenses throughout the year.

Capture all your income streams.

This includes income from online sales platforms like Etsy, sales at craft fairs and markets, any commissions you earn from clients, and any other sources of revenue.

And, just as you track your income, it’s also important to record your business expenses.

Track everything you spend to run your creative business.

Think about things like:

• Art supplies: From paint and brushes to clay and yarn, all the materials you use to create your work are deductible expenses.
• Studio rent or home office deduction: If you have a dedicated studio space, you can deduct a portion of your rent or mortgage payment. Even if you use a spare room in your home as your workspace, there’s a specific formula you can use to claim a home office deduction.
• Marketing and advertising costs: Those business cards you printed, the social media ads you ran, and the website domain you purchased – all of the expenses you made in promoting your business, whether online or offline – are all deductible expenses.
• Booth fees and travel expenses: Selling at craft fairs? The cost of booth fees, the gas the travel to and from the event, and even meals you buy while exhibiting are deductible business expenses.
• Business equipment and software: That new camera you bought to photograph your work, or the design software you use to create digital art – these can be depreciated over time, meaning you can deduct a portion of their cost each year on your taxes.

The key to successful tax filing is keeping good records.

When you do this, it becomes so much easier for you to have a clear understanding of your business’s financial health and to make informed decisions for the business.

There are many free expense tracking apps available, or you can simply use a spreadsheet to categorize your income and expenses.

These tools can help make looking at your numbers easier and it also minimizes errors in the long run.

I like using WaveApps. It’s totally free to use and it’s got an easy and smooth interface as well. You connect your business cards and bank accounts to it and it automatically pulls in all your business related transactions. 

Pro tip: Document and file all your receipts, invoices, and other supporting documents for all business-related expenses.

These documents serve as evidence in case of audits or inquiries from tax authorities.

Additionally, accurate documentation ensures that you can claim legitimate deductions and credits when filing your taxes, which minimizes your tax liability.

Common Deductions for Makers

Want to hear some good news about all this?

The IRS recognizes the unique needs of artists and makers, and there are many deductions you can claim to reduce your taxable income.

Here are some additional examples:

• A portion of your phone and internet bill: If you use your phone and internet primarily for business purposes, like communicating with clients, promoting your work online, or managing your online store, you can deduct a percentage of the monthly cost.
• Continuing education workshops and classes: Investing in your professional development is not only beneficial for honing your skills but is also tax-deductible. What you spent for workshops or online courses are all deductible expenses.
• Subscriptions to art and craft magazines or online resources: Staying up-to-date on industry trends and techniques through paid resources like magazines, online tutorials, and membership-based platforms can be a valuable business expense as well.

Additional Tips on DIY-ing Your Taxes

Now that you understand the basics, here are some additional tips to make tax time go as smoothly as possible: 

Set aside money for taxes throughout the year. 

Don’t wait until April to suddenly realize you owe a big chunk of change.

Avoid the stress of a hefty tax bill by proactively setting aside money for taxes throughout the year.

Here’s how: estimate your quarterly taxes based on your projected income and set aside that amount each month in a separate savings account.

This will prevent a big scramble come tax filing season when it’s time to settle your liabilities.

Consider using tax software or hiring a professional accountant.

Tax laws can be complex, and there are always changes year to year.

Tax software can help you simplify the process and they can easily categorize your income and expenses, and ensure you’re claiming all the deductions you deserve.

If you have a more complex business structure or a high income, hiring a professional accountant can give you peace of mind and they can ensure you’re complying with tax laws while maximizing your tax benefits.

File your taxes on time.

The deadline for filing taxes is typically April 15th, although you can file for extensions if needed.

However, avoiding penalties and interest charges is always a good idea.

Mark the tax filing deadline on your calendar.

Set reminders and allocate sufficient time to gather necessary documents, review your financial records, and accurately prepare your tax return.

Finally, aim to submit your tax return well before the due date to avoid penalties and interest charges. 

No matter what, always try to get those taxes filed on time!

Conclusion

When it comes to taxes and how to run a handmade business, don’t be afraid to ask for help!

There are many resources available online and in your community to help you navigate the world of taxes.

The Small Business Administration (SBA) website is a great place to start, and many local community colleges offer free or low-cost tax preparation workshops specifically for artists and entrepreneurs. 

So, based on what you’ve learned today, do you think you’re ready to start DIY-ing your own taxes this year?

Let me know in the comments if you have any questions!