Art as an Expense

June --

Embroidery Digitizer -- 2 yrs.

I have to purchase "clipart" and "artwork" from artists. This consists of either the artwork itself in the form of "clipart" or a licensing agreement for work I can download from their website. This is not artwork that I look at for "inspiration" but I actually take the picture of say the "dog" and make that dog in embroidery form.

What expense does this fall under, and is it subject to the certain percentage of what I made as profit??

This is my first year really working at this as a "true" business that I want to file on, and I have definitely put more into buying my initial artwork than I made last year in profit.

Abbie from Bloomington, IN

Dear Abbie,

To us it is obvious that you are not purchasing art for inspiration but that may not be as clear to the IRS. Because the IRS is firm on the no-deduction-for-art rule you will need to keep an especially accurate record of your art purchases. Were you audited you will need to show the direct relationship of your art purchase to your product.

There are a number of ways that your art expense may be treated. The final determination is up to your tax pro.

You may treat your art purchases as production costs. If I understand your work correctly, then I assume you do not know how many pieces of your work you will make to sell from one art purchase. So you need to pick a reasonable amount of time over which you will sell the "dog" piece. Then have your tax pro use that amount of time -- let's say 3 years -- to amortize the costs of your art. That means that $900 in art purchases would get you a $300 deduction over 3 years.

If you know the actual number of pieces you will make based on one art purchase your tax pro will set up a different method for tracking inventory and production costs.

Be sure to check out the book that can simplify your tax and financial life, and save you money! Self-employed Tax Solutions.

Best,
June