Insane Imaginings, Random Reveries & Other Creative Cogitation

My day job is a  tax accountant.  I specialize in small businesses.  Time and again I am told things like “I am not that organized,” asked “Why can’t I take the deduction?”, and “Why do I need receipts, all my receipts?” etc.

Rule number 1. In general, for tax purposes, there is no deduction without documentation.  Documentation consists of receipts, invoices, statements, canceled checks, logs for listed property (automobiles, cell phones, computers and entertainment equipment) etc.  From these little bits a bookkeeper or accountant can generate a set of books and create financial statements for you, but I realize many of you out there reading this do not have a bookkeeper or accountant.  So you will have to DIY, or you will have to bring the shoebox of your stuff to your tax person at year’s end.

Your tax preparer should ask you if you have receipts.  We don’t usually need to see them, unless we have reason to believe you are being dishonest with us, (“Yeah, that that boat I bought is only for business purposes.”) or unless we are dealing with your shoe box because you have not created a realistic profit and loss statement from those records.  If you hand over the shoe box, I gotta tell you, if it ain’t in there you are not getting the deduction.

“How bad can it be? I didn’t make that much”. As a self-employed artist, even if you did not make enough money to pay income taxes on, you will still owe self-employment taxes.  That’s right-you still owe money.  If you made $5000 total from selling your art in a given year then your Uncle Sugar wants 15.3% of it or $706-not including income tax; you may owe another $500 in income tax or more depending on your marginal tax rate.  If you didn’t keep your receipts then you will not be able to deduct any of your expenses for creating that income from that income. So get that shoe box out and start filling it up.

Lets get back to the hypothetical $5,000 in sales.  For the sake of argument lets your work is very detailed an you spent a lot of time creating it, in addition to time spent marketing for shows, contacting collectors, working with your gallery etc.  Lets say had the following expenses: $1000 in materials, $100 in brushes & other small tools and equipment, $62 for a sales tax license, accountant you paid $200 last year to do your schedule C, 1065 or 1120S, cell phone $50 per month, a website that costs $500 per year,$500 for the art-show fees, drove 100 miles each way to the fair where you sold that art,  rented a motel room for $80 per night for 2 nights and ate modestly at $40 a day for a three day show, that you drove an additional 500 miles for business meetings with collectors, gallery owners, buying supplies etc. Lets say that your car had 8000 miles total for the entire year.

• Material participation: You do work at your art business don’t you?  If you don’t then certain limitations apply, which are beyond the scope of this discussion.
• You expect to turn a profit don’t you?  Deducting expenses directly from income is for folks who have the profit motive.  If you are a hobbyist and not really trying to turn a profit then you can only take expenses up to the income from your hobby subject to the 2% limitation of income if you itemize deductions on your personal tax return; if you do not itemize there is no deduction at all.  Business owners get to deduct business expenses directly from income on their schedule C or other business return, but you have to have the profit motive.
• Art is a funny business for tax purposes as we get to expense the materials we used in making our art.  A lot of other businesses don’t get to do that, they can only take the expense for materials in their products after they sell it-in the mean time it is nondeductible inventory.  Lucky us.  We get to take the whole $1000 in materials expenses this year.
• Small tools and equipment:  In reality they usually last more than a year – if they don’t they are deductible as supplies, but if they do last longer (just how long have you had your favorite paint brush?), you are supposed to depreciate them over time.  The IRS will tell you the time it takes and how to do it.  Things not otherwise specified have 7-year recovery periods.   BUT if you have net income you may be able to take the entire expense in the year of purchase via something called section 179.  This example does have net income, so your tax preparer could complete a form that would allow you to deduct your small tools as an expense in the year of purchase, instead of depreciating this paltry $100 amount for a over time.
• $500 in art show fees, $500 the website, $62 sales tax, $200 to your accountant is accounting fees are all reasonable and necessary expenses for your business & are normal deductions for tax purposes.
• The cell phone – does your bill break out the calls you made?  If it does you should figure out the percentage of calls that are business verses personal.  The business percentage is deductible (assuming it is not your only phone) and the personal usage is not.  Don’t want to mess with it? Don’t expect to be able to take the deduction at all.  Consider, if you use your cell phone 50% for business then that represents $300 in expense you could use to offset your income, that is represents about $46 in self-employment tax and maybe another $30 in income tax or more depending on your marginal tax rate.  If your bill doesn’t break out the phone numbers called then you need to keep a written log; its probably worth it to call your cell phone provider and see if they can give you access to a detailed log so you can figure it out instead of trying to keep a log of your calls.
• The travel expenses: $160 in accommodation and $120 in meals.  If you have a tax home, that is to say you are not one of those people who only lives in a town for a few weeks before moving on, you maybe able to deduct certain travel expenses if the travel is for business, overnight and more than 50 miles from your tax home.  If you have a tax home then this trip may be deductible as business travel.  There are a lot more rules but that is the short form of it.  So the $160 in hotel fees is completely deductible, but the meals are only 50% deductible – this case is usually the case for any meals or entertainment deduction; if you keep your receipts you get another $60 deduction for your meals on the road for business travel.
• The automobile mileage:  You had 700 business miles and 8000 miles total.  Your business usage is not even 10% so taking automobile depreciation is out, but if you keep a written log which includes the year’s starting and ending mileage, the starting and ending mileage of each business trip, the date of each trip, the business purpose of each trip, and you use fewer than 5 vehicles for business purposes you may qualify for the mileage deduction.  Simply put instead of tracking gas, oil, insurance etc, you just keep track of your mileage, which you have to do anyway if you are going to take any deductible expenses for the business use of your personal vehicle.  In 2009 that rate is 55 cents per mile or $385 in mileage expenses.  Don’t want to keep a log? Then don’t expect to be able to deduct those expenses.  That is another $59 in self employment tax and maybe another $38 in income tax or more depending on your marginal tax rate.

So you can reduce your income by $2582 by saving receipts and another $685 by keeping a mileage log and figuring out business self phone use.  That’s about $500 in self-employment tax and and maybe another $327 in income tax or more depending on your marginal tax rate.  Lets compare: $1206 tax verses $379 tax.  You have to ask yourself, come tax time is it worth it to keep your receipts, mileage log and figure your business percentage of cell phone use? Only you can answer that question, but many people I know have enough trouble coughing up $379, let alone $1206.  Also if you didn’t pay estimated taxes on that $5000 in income you may also owe a penalty and interest on that $1206. Why? Our tax system is pay as you go; safe harbor is under $1000 (OR 90% of all of your taxes owed for the current year OR 100% of the tax you owed last year unless you earned more than $150,000 then its 110%).    In this particular example keeping receipts and logs not only reduced the tax liability but also kept it low enough to stay within estimated tax payment safe harbor.

Where to start?

1. Get a file, a box an envelope or something and start keeping all of your business receipts, statements, invoices etc. NOW.
2. Poor man’s business accounting system:  There are several banks out there with free checking accounts-you may be able to open one with as little as $100 and run it down to nothing regularly without incurring fees (just don’t overdraft it-then they really hammer you).  Get one for your business.  In reality it should be a business account, but that may involve additional paperwork and expense; for the purposes of this discussion if you’re a Schedule C filer without an Employer Identification Number, an individual account may work just as well as long as you use it only for business expenses and income.  Get this account at a different financial institution from the one you currently bank with if at all possible.  Once you have that account, deposit all money you receive for your goods and services as the result of your business into that account and use those funds to pay for your business expenses out of that same account.  Do not pay for your mortgage, electric bill, car payment, lunch with Lucy or any other personal expenses from this account; if you need money write yourself a draw, or paycheck, deposit it into your personal account and pay your personal expenses out of your personal bank account.  If you need to loan your business money, loan the money formally: Prepare a promissory note, with payment terms and interest, and only then write a check to the business and deposit it in your business account.  If you need to buy something small for the business out of your own pocket, submit the receipt to your business (file it in your shoe box) with a request for reimbursement (post-it note – “pay myself back for this”), but do not make a habit of paying for business expenses with personal funds; it is best to pay for business expenses out of business funds.  If you keep all of your receipts, and use the business account only for business purposes, you will have at least a minimum amount of information to figure out profit and loss from business and pay your taxes.
3. Start keeping logs for listed property: I hear, “I am not that organized, I don’t want to keep a log.“  My response is, “That is your choice, but you will not be able to take deductions against your income for the business use of your car, your cell phone, your computer or your camera.“  The log could just be a flip book you write the information in, but many office supply stores carry inexpensive mileage log books you can use as well. Just make sure the log and a pen is with the listed property at all times so you will remember to use it.

One final note:  Keep your receipts, invoices, bills, check stubs, statements etc.  with your tax forms.  Just because you have used them to figure out your taxes doesn’t mean you are done with them.  You may have to produce these items if you are audited so don’t throw them away.

The usual disclaimers: Although Art & Business Consulting LLC has made every effort to insure the accuracy of this information, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in.   Internal Revenue Service Circular 230 Disclosure:  As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein.  Art & Business Consulting LLC currently does not have a certified public accountant or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.

I love creating.  I have to create.  If I could find a way to continuously paint or whatever and keep a roof over my head, food in my belly and keep myself in art supplies, I would.   I am still working on that.  A lot of my previous writings have been about the business side of what I am trying to do, but I really would like to write more about the creative process.

I have stuff that wants to get out.  It has to be expressed.  I have a need to do this thing.  It is very frustrating not to be able to do it and I have been frustrated a very long time.  I was a good student, but I was always doodling in class.  I don’t doodle much anymore as my creative time is very limited these days.  I think I would like to doodle again.

The Random Reverie part of the blog is for people who have the same need as me, the need to create.  It’s a very special brand of insanity.   I have to be insane to want to keep doing something like this after having my pegs knocked out from under me again and again.

These days when I decide to art, I art; I don’t want to lose the spirit of the thing before it gets done.  I have to focus intensely as my time is limited.  Just like many of you I also have to keep doing the stuff that keeps the roof over my head, the lights on, food in my belly, food in my critters’ bellies etc. The way I accomplish my goal is through my process.

I usually do some preparations before I paint as I generally need to know where my painting is going before I lay brush to canvas, but I do not spend so much time preparing that I don’t get to the canvas.  Recently I built a skeleton of a dragon out of pipe cleaners so I could figure out how the dragon would work. I did several sketches then loaded the result into PhotoShop to do my layout and fool with the colors.  I’ve created transparent overlays so I can see how the layout is interacting with the Golden Mean and the theoretical ideal locations of focal point.  A lot of times it is spot on, but sometimes I break the rules.  Once I start painting it usually goes pretty fast.  That is my process, but it may not be yours.  I know several other artist’s whose technique for getting it done is the complete opposite of mine; maybe they flip on their favorite tunes, spend some time selecting their pallet then let the brush and the paint on the canvas tell them where they are going, let the history develop real-time.  (Sometimes I do it that way too.) The point: You have to have a process for getting it done, a creative work ethic if you will.  I can’t tell you what that process will be as you need to figure it out for yourself.  If you do not have the will to finish what you start, if you do not have a process that leads to completed work, then you probably will not get it done.  Your process may change over time. Your process may vary.  The goal is to get it done, get it out, complete the thought of the moment and set if free.

Focus serves another purpose as well.  When you are concentrating on your art, you are not indifferent, you are setting your creative animal free.  It doesn’t matter what you produce, it matters that you care about what you synthesize.  Some artists do pure abstracts while others do photo-realistic still-life, some artists paint portraits while others paint big-eyed charactures, some artists paint cityscapes while others do pastoral scenes, some artists paint animals while others paint flowers, some artist don’t paint at all, they do cartoons, sculpture, jewelry, quilts.  No matter what the result, there will be those who like it. But there will be  those who can’t stand it; they are not your concern.  Your concern conveying your passion to your audience.  If you don’t enjoy it, if it is just a job, I think it will show.  If you do not feel enthusiastic about what you are doing, I think that the connoisseurs of your subject matter will be able to tell.  Art must come from the heart.

PS.  As you create, you may be tempted to go fool with something that you previously completed.  I would say, “Don’t do that!”  The completed thing is a completed thought at that moment.  If you want to change something, start a brand new thought.  Before you know it you may have a series.  You can learn a lot about your process while you explore variations on a theme.  One thing that I have discovered over time is that the painting I like in a series, the one that I think most completely expresses my thought of the moment, is very seldom the one that is the most popular with my patrons.  Imagine if I had painted it over  in an attempt to perfect my thought instead of letting it be; I would never find that my collectors had different ideas.

Yours in art – Jake

Artist, AKAJake.com Come Experience the Art!

So I admit it. I am a geek.  The beauty of the numbers has long fascinated me.   It is one of the reasons I wound up getting an advanced degree in physics.  I considered engineering,  mathematics, and even art as my college major, but physics won out on the fun factor.  Engineering was too pedestrian, Art too risky, and the mathematicians I saw really didn’t look like they were having a good time.  I wound up getting a masters degree in nuclear physics. but I am not doing anything with it these days.  If I can say one thing about getting a masters degree (which probably applies to any masters degree, not just physics) is that graduate school taught me to think, to use the tools my undergraduate degree gave me.  Physics taught me to look at the big picture as many solutions to Physics problems apply to a great many very different types of problems.

But I digress, I really still am a beauty of the numbers gal.

So one problem, which is kind of like the problem of all problems, is the P verses NP problem.  What is P verses NP? In a nutshell, the big question is whether P = NP or P ≠NP;  if P = NP then every problem has a efficient solution and we can find it efficiently. One might postulate all problems are solvable in an infinite amount of time, but what good is that?  Only God, perhaps, has an infinite amount of time to solve problems; in the real world problems need to be solved in a finite and reasonable amount of time. The amount of time is the crux of P verses NP. Are problems really as complex as they appear? Is the only solution brute force over an infinite amount of time?

By way of example, consider we have a large number of wedding guests we need to seat at tables at the reception.  We might want to pair them up into groups of two people who like each other, so that no one is lonely.  In 1965 a guy named Jack Edmonds developed an efficient algorithm to solve this particular problem, and having an efficient algorithm means, among other things, you can feed it to a computer and solve the problem in a reasonable amount of time. Jack Edmonds pioneered the lingo for P verses NP.  Problems with efficient solutions are the “P”, in P verses NP.  This particular problem is called the “matching problem.”

But there are many other ways to seat our large number of wedding guests that are by far more difficult to solve.  Suppose we want to make groups of three wedding guests who like each other, OR large groups of wedding guests who like each other, OR we want to seat guests around a round table such that guests, who can’t stand each other, are not seated next to each other, OR group  three couples at the wedding with other couples in a mutually agreeable triads, OR the evil converse social science experiment where only guests who can’t stand each other are grouped together in one way or another (hey, maybe the wedding planner has a thing for the groom).  All the problems that have efficient, verifiable solutions are “NP”.

So if P = NP then every problem has an efficiently verifiable solution AND we can find it efficiently.  On the technical side, even if this statement is true, we still may not have the algorithm to efficiently solve a given problem. The P verses NP problem is an abstraction, therefore just because we may do something doesn’t necessary mean that we can…

Naturally this question has ramifications well beyond computing algorithms, such as mathematical proofs, encryption, DNA sequencing etc.

Why think about it at all?  The P verses NP problem is one of the seven Clay Mathematics Institute Millennium Prize problems; solving it is worth $1,000,000.  Not a bad chunk of change, but also realize proving P = NP  might solve other Millennium Prize problems as well, each worth $1,000,000.  However you should know that many theorists believe P ≠NP. Don’t get your hopes up.

So I am invited to attend this art show, the Biennale Internazionale dell’Arte Contemporanea di Firenze, in Italy in December 2009.  It is an honor, and a phenomenal opportunity, but I am just beginning to grasp what a pain in the behind international shipping is.

In order to ship for this show, the art has to be received by Italian customs on a certain date, stored, then be made available for hanging at the show on a certain date.  It also has to be removed immediately after the show and shipped back.  Because of all these timing constraints I feel compelled to use the shipper/freight forwarder advised by the show.  I will have to pay what ever they charge.  So much for shopping around.

I have to mark the art as For Exhibition Only, but in spite of that I will have to front the Value Added Tax (VAT ) as part of my shipping costs, just on the off chance my art sells at the exhibition.  The VAT is 20% of the value of the artwork.  It is not an insignificant amount. It will be refunded, they say, when the artwork is shipped back home.

I have to supply 8×10 images of my artwork in triplicate with the paperwork.  The paperwork is also in triplicate.  They also require a copy of my passport and a self-certification that:

• I created the art,
• it is not more than 50 years old,
• and that I am a participant in the show

The certification is also in triplicate (and according to recent information must be signed in blue ink-whatever).  By the way, the return paperwork also requires triplicate of the self certification, shipping documents and 8×10 images of the artwork.  We are basically talking 6 copies of everything.   That is a lot of paperwork including 18 8×10 photographs of the art.

The shipping materials have to be re-usable or I will incur the costs of repacking the art for return shipment.  Who knows how much that will cost if I have to buy the materials in Italy.  At first I thought of using U-Haul mirror boxes, but the shipper has nixed that idea.  They want a crate, with screws (not nails) on one side, which is ISPM15 compliant.  Although a crate will be more durable, one thing that occurs to me is a crate is going to weigh more too.  I initially guesstimated the cost of shipping at $1200 (not including the VAT thing).  That is a lot of money to ship $3,000 worth of artwork, of course I would like to do it for less, but I am really hoping it does not cost significantly more.  Hey, I haven’t made it yet, this is a lot of money for me.

Then there is this ISPM15 compliant thing – what is that? Well suffice to say you will not likely be building your own crate.  The wood used to make the crate has to be treated (fumigated) to specific standards. The wood so treated is specially marked with the “bug” stamp.  If the crate doesn’t have a bug stamp on it, it will be quarantined and fumigated when received in the foreign country.  My crater said the process pretty much destroys whatever is packaged inside.

So I am off to find an ISPM15 compliant crater. I made a local search and eventually came up with three possibilities (mostly what you get when you search for ISPM15 crates is people who make pallets – not terribly useful to me).  I contacted all three possible vendors.  One never contacted me back, the second quoted me $237.50 for a crate weighing 70 pounds, and the other Craters & Freighters (480) 966-9929 quoted me $94 for a crate weighing 50 pounds.  Needless to say I am sensitive to price and weight as the heavier the crate is the more it is going to cost me to ship.  These prices required me to deliver the artwork, let them pack it, and then come pick up the crated artwork.  They charge more if they come and get the art from you (about $70 dollars more, if you can do the drop and pickup yourself). Craters & Freighters (C&F) is lobbying me for the privilege of shipping and I may or may not do that, but one thing about C&F is they listened to me.  They were aware that I was sensitive to the weight, that I needed to have a re-usable crate to these exacting specifications and they delivered.  The crate with the artwork inside weighs 34 pounds.  Their normal turn around time is 2 days but they got me done faster (I wouldn’t necessarily expect that, but it was very nice of them). Just so you know, I am not affiliated with C&F, they are not paying me to say this stuff etc. This paragraph merely relates my experience with them. YMMV.

At the moment I am still waiting to hear back from the Italian shipping company.   I will update this blog later on when I finalize the shipping plans, and if I think of it, I may even write about the total shipping experience when I get back from Italy.

UPDATE:  The Italian Shipping Company wanted more than my art was worth to handle the door to door services, $2370 plus $480 refundable VAT.  Their basic shipping was $1830 including insurance; it is almost twice as much as certain other shipping companies  I surveyed-the other $540 is the warehousing and customs fees excluding the $480 refundable VAT. Unfortunately several of the other companies have proved downright wishy washy when it comes to ensuring my art will make it through Italian customs to arrive at the Fortezza at the appointed time-they won’t guarantee what day it will show up-lovely. One of them could not even give me a quote stating “things could change between now and the shipping date.”  Furthermore, since I had an account with them I could set it up such that the customs fees could be charged via my account; in which case they could deal with the customs issues, but they could not tell me what the customs fees were going to be, nor would they set up the temporary import thing so I could get the VAT refunded.

I am contemplating just taking the art on the plane with me as an over-sized bag fee is by far less expensive than any shipping options proposed.  I started researching the whole importation thing and seems I should be able to get a temporary import license for my art-I just don’t know how to do it yet, but I need to do it soon as it will take 15-40 days to get it.  Apparently the big rub has more to do with antiquities and important works of art and less to do with VAT concerns.  I have a letter into the local Italian Honorary Vice Consul asking if I can just fly with my art, and  if there is anything I can do to ease my entry into Italy with my art.  Apparently leaving Italy with it should present no problem.

Anyway I have until October 11, the drop dead date for the Italian shipper, to make up my mind.

Update: October 2.  I took something like 5 tries to get a contact with the US Italian Consulate without it being kicked back etc.  I still have not heard from them, but at least my request for information went through.  In the meantime I have received a quote that is substantially less than the Biennale recommended shippers from DHL.  I also am going to investigate another local shipper called Art Solutions.

I have talked to an artist who just got back from Italy.  She advises that many artists flew in with their work.  As far as that goes as the art as crated it will cost $370 to fly with round trip.  She advises having a proforma invoice with the art that lists NO COMMERCIAL VALUE what so ever. That is fair.  The Biennale is an Exhibition, not an art sale; no prices will be listed.  I am considering taking the art off the stretcher bars so I can reduce the packing to under 62 lineal inches.  If I can do that I may be able to fly it free.  That would likely be an 40 x 11 x 11 container perhaps-my long stretchers are 36 inches so there is nothing I can do about the length. Either way it looks like flying in with it will be the most cost effective method.

If I fly with the art as is, then another friend of mine has suggested modifying the crate with a piano hinge on one side.  He says it will need to be opened several times on the trip by customs officials so a million screws (OK there are actually 10, but his point is taken) is probably not the best plan.

I am still considering DHL, but this new information has me contemplating flying in with it more strongly.

Update: October 6.  I am probably flying in with my art and it will have to be reassembled on site.  I have just experience another financial setback that is definitely sealing the deal.  At the moment I am looking for a gun case to ship the art in as they are long and skinny and may fit the bill with regard to the maximum airline dimensions.  I have friends who have guns so my first inquiry is with them, but if not then I may have to plan B it.  An alternative I am considering is cobbling something together with a PVC tube, to provide protective rigidity to the stretcher bars, or buying inexpensive commercially available tubes and a soft-sided bag.; again sports equipment bags look to be ideal if I can find one in the appropriate dimensions.  A note about flying with used gun bags – you probably will have to open them for customs as they will have gun powder residue which will likely set off the explosives detectors.

I am doing a separate post about my shipping tube research.

Yours in Art…

-Jake

Artist, AKAJake.com Come Experience the Art!

PS. I am still looking for Sponsors & Contributing Patrons to help me pay the estimated $8000 it is going to cost me to attend this event.  Every little bit helps.

So I have decided to create a real blog.  The individual content should be a little more focused than my other random thoughts posted infrequently over the years and this forum should also be interactive which is new to me.  So far the set up hasn’t been horrible.  The basic program is supported by my webhost.  What remains to be seen is how well the two spaces interact.  I could wind up deleting the whole shebang.

It has taken a while to figure out how to get the API key, but I eventually did. If you are wondering, in as much as I created the blog on my own site, I had to create a separate WordPress identity.   I am currently experimenting with the design of the blog starting with a prepackaged theme.  I may or may not decide to tinker with it.  I am certainly capable of creating the code, but I am rather more interested using in the plug and “pray” aspects of using WordPress at the moment.

This blog will really be a random foray into my topic du jour and that could literally cover anything.  If this works out I might invest in something that will simultaneously update MySpace, FaceBook etc.  Let me know what you think if you dare.  Or if the social media aspect of blogging is not your cup of tea, have a read, then just browse my website AKAJake.com.  Art, after all, is the distillation of a few of my thoughts du jour.

AKAJake.com Come Experience the Art!