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How Do You Report Sales Tax On Art? (SOLVED)

4 😎 Business collectors 🙌 Business collectors do not purchase art to resell, but for decoration and office displays in their normal business or trade 🙈 Art is usually not subject to depreciation because its useful life is unpredictable. Businesses often buy art as investment, so they can be classified either as hobbyists or investors. Art investment may be so extensive that it crosses the threshold to become a dealer. Each case is unique and must be evaluated on its facts. [1]
A business can be profitable, while a hobby cannot. You can claim business expenses for a practice that is profitable. If your income isn’t for profit, then you are unable to deduct your losses. IRS lists some restrictions and qualifications that can distinguish between a business and a non-business. According to their rules, an activity is considered a business when it “is carried out with the reasonable expectation that it will earn a profit.” These are some questions to help you decide (be prepared, they can be difficult). Do you spend time creating art with the intent of selling it? Is this your only source of income? Did you have any control over the outcome of this venture? Are you a past profit-maker? What have you done to increase profitability? What do you think the future holds for profits? This is a comedy relief (or to make your life more difficult): Kasondra Quinones of Guwahati (India), for her exceptional insight. [2]
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The past few years have seen high profile cases that involved the avoidance of sales and use taxes It is crucial that collectors, artists and galleries understand how to collect and pay sales and use tax. New York’s district attorney has been investigating art collectors including Sam Waksal (CEO of ImClone), Robert J. Hurst (president of the Whitney Museum of American Art), and L. Dennis Kozlowski (ex-CEO of Tyco International) in relation to the avoidance of sales taxes of many millions of dollars due to the purchase of high-priced paintings, jewelleryry, and other expensive art. In 2006, Kozlowski agreed to pay over \$3 million in sales taxes, penalties and interest — and is serving at least 8 years in prison. Gabino Noel was kind enough to bring this up. [3]
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Your art business sounds more like a hobby than a business. All income is subject to tax, except as otherwise provided by the Code. Art sales must be reported under Other Income. It will appear at line 21 on the Form 1040. For reporting your 2013 art sales, you’ll need to review your sales records. For the next year, it is important to keep these sales records. Keep track List of sales, date and total. If you are a hobbyist, any miscellaneous expenses can be deducted from Schedule A. Even if the standard deduction is taken and you don’t itemize, art sales must still be reported as income. [4]
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Researchers from artacacia.comMany collectors store their art in freeports to save taxes. If you send the art you purchased directly to a freeport, you’ll avoid paying both sales and use tax. Remember that taxes must be paid once artwork is shipped to the new destination. You can sell the artwork directly to another collector if it is an investment. We thank Kamela Robison and her colleagues for these recent insights. [5]
Interesting that a new report has been released by taxjar.com identifies why neither of these scenarios will help you collect sales tax with Etsy perfectly, but you are working within the limitations of Etsy’s sales tax engine. TaxJar will help you file your sales tax returns when the time comes. Our “Actual vs. Expected Sales Tax Collected” report will show you host much sales tax you collected vs. What TaxJar’s robust sales tax engine calculates that you should have collected. It will help you report accurately and pay the correct amount of sales taxes you need to collect, no matter how limited your ability to collect it from customers. This was amended by Scott Edwards, Jundiai (Brazil), April 3, 2021). [6]

Refer to the Article

  1. https://www.accountingtoday.com/opinion/selling-art-dont-forget-the-taxes
  2. https://www.artspace.com/magazine/art_101/guide/how-to-do-your-taxes-as-an-artist-55314
  3. http://www.lehmannstrobel.com/articles/sales-taxes-a-trap-for-unwary-artists-and-dealers/
  4. https://ttlc.intuit.com/community/taxes/discussion/do-i-have-to-file-taxes-on-casual-art-sales/00/30597
  5. https://www.artacacia.com/blogs/posts/taxes-you-ll-have-to-pay-when-purchasing-or-selling-art
  6. https://www.taxjar.com/blog/services/sales-tax-guide-artists
Mae Chow

Written by Mae Chow

Passionate about writing and studying Chinese, I blog about anything from fashion to food. And of course, study chinese! I'm a passionate blogger and life enthusiast who loves to share my thoughts, views and opinions with the world. I share things that are close to my heart as well as topics from all over the world.

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