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  1. #1
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    Starting an illustration business question

    Hi all,
    I'm moving towards creating a business for my freelance illustration. I just wondered if anyone out there has done similar and which would be the best course of action.

    I'm leaning towards an LLC, but also looked into a Sole Proprietorship. I don't plan to have any employees and would be working out of the house.

    Any help, thoughts, anecdotes would be appreciated.

    Thanks,
    Steve


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  3. #2
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    Most important is where to find clients. If you have the means for this then how are you doing it?

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    Quote Originally Posted by stevethomas View Post
    Hi all,
    I'm moving towards creating a business for my freelance illustration. I just wondered if anyone out there has done similar and which would be the best course of action.

    I'm leaning towards an LLC, but also looked into a Sole Proprietorship. I don't plan to have any employees and would be working out of the house.

    Any help, thoughts, anecdotes would be appreciated.

    Thanks,
    Steve
    I'm glad you are thinking about this, too many artists ignore the business end and get into trouble with the government over taxes. I went for a Sole Pro because it is easier record keeping. If you live by yourself you can set up a designated part of the house or apt for working and write it and all your equpiment and supplies off your taxes. GEt yourself a resale license so you can buy wholesale without tax. If you are in the US put asaide at least 13.5 percent of your earnings for Employment tax (there are no deductions for it)

    An LLC requires certain criteria to pass muster with the IRS and if they disallow you you will have to pay all back taxes. Most people form LLC's to protect themselves from lawsuits and asset siezure, not really a problem in the art business. Talk with your accountant and see if it is really cost effective for you to incorporate.

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  6. #4
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    Yeah, for your situation Sole Proprietorship/self-employed would probably be easier to deal with.

    If you're able to portion off a part of your house as a work-only area, not only can you deduct that portion from rent, but also from your electricity bills. (For instance, if 1/4 of your place is designated for work, you can deduct 1/4 of rent and 1/4 of electric. And possibly some other things, like insurance, depending on circumstances. Check the IRS publications to see what applies to you.)

    If you aren't selling original, physical items, you may be able to use a "cash" method of accounting (I do this, it's a lot simpler than dealing with inventory); otherwise, you might have to use the "accrual" method and keep track of inventory - how many supplies you bought, how much was used, etc. It gets complicated. (My dad used to have to do this as a fine woodworker, it gets very involved. If you think you'll need to do this, better read up on any related IRS publications to make sure you're keeping the right records before tax-time hits you.)

    The IRS publication 334 (Small Business Tax Guide) would be good to read through if you haven't already.

    And don't forget to pay your estimated taxes quarterly! (It's so easy to let that slip, and you'll regret it at tax-time if you do...)

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    Thanks all for the advice.

  8. #6
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    Quote Originally Posted by dpaint View Post
    I'm glad you are thinking about this, too many artists ignore the business end and get into trouble with the government over taxes. I went for a Sole Pro because it is easier record keeping. If you live by yourself you can set up a designated part of the house or apt for working and write it and all your equpiment and supplies off your taxes. GEt yourself a resale license so you can buy wholesale without tax. If you are in the US put asaide at least 13.5 percent of your earnings for Employment tax (there are no deductions for it)

    An LLC requires certain criteria to pass muster with the IRS and if they disallow you you will have to pay all back taxes. Most people form LLC's to protect themselves from lawsuits and asset siezure, not really a problem in the art business. Talk with your accountant and see if it is really cost effective for you to incorporate.
    dpaint, at what time in your career would you recommend starting to buy wholesale? Or should you do it right away from the beginning, even before you have regular work?

  9. #7
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    Quote Originally Posted by dpaint View Post
    If you live by yourself you can set up a designated part of the house or apt for working and write it and all your equpiment and supplies off your taxes.
    Woah, you mean you can write off the worth of a certain square footage in your house or apt. on taxes? If that's the case, I'm going to look for a place with ridiculously sized second room, muahaha.
    Last edited by Ryan K; June 29th, 2010 at 11:50 PM.

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    RyerOrdStar,

    If you can afford the resale license I would start right when you think you are about five years away from becoming a fulltime artist. Some places a license is cheap 10 bucks some places it is really expensive 200, and someplaces they won't give you one without proof you make an income from the business.
    The reason you want a resale license is that if you write off your art expenses in the beginning while you work at another job, the IRS will want proof it is not a hobby so you need to have as many things in place as possible, in case they want an audit. They will call it a hobby if you fail to make a profit 3 out of five years.

    The down side to having a resale license is every level of government will contact you about taxes; so your city, county and state will want you to pay quarterly taxes even if you don't make money yet. You will have to be prepared to deal with these people.

    The IRS hates self employed people and they always want to say what you do is a hobby and disallow it. I recommend getting a good accountant who knows their stuff to avoid audits. In 30 years I have been audited twice and won both times but it cost me thousands of dollars to do it.

    Ryan K

    yes you can deduct the square footage of any room used exclusively for an art business and all of the utilities too as Queen G said and I forgot to mention the first time. Example, in my house, my basement is my studio, it is exactly 1/3 of the total of my house so I write off 1/3 of my mortgage and ultilities from my taxes.

  11. #9
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    Thanks dpaint, that helps a lot!

    What if there are two self employed people in the house using two separate rooms for two businesses? For ex, my mom is self employed and has her own corporation in her office, she already writes off a bunch of stuff for that. Can I do the same with my office, or is that audit bait?

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    Rebecca
    it says on your profile that you live in Canada so remember that some rules are different across the border.

    As to "business use of home expenses" (in Canada) you can write off that portion against property taxes, utilities etc. If it's not your place you can deduct it against rent if you're paying that.

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  14. #11
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    Quote Originally Posted by RyerOrdStar View Post
    Thanks dpaint, that helps a lot!

    What if there are two self employed people in the house using two separate rooms for two businesses? For ex, my mom is self employed and has her own corporation in her office, she already writes off a bunch of stuff for that. Can I do the same with my office, or is that audit bait?
    That is what my partner and I do, we split the house payment, she does voice-over professionally and has half the top floor converted to a studio office for her work.( Luckily the middle floor is like a normal house.)
    My accountant says don't be afraid of an audit if you have a legitimate claim. But yeah, business use of the home is the no.1 audit flag of the IRS here in the USA, doesn't matter how many people claim it. Are you both paying the payment because you can only right off a portion of what you pay. So if you pay half and use a part of your space you can write off the percentage of your portion of the payment. Make sure you don't have any obvious non-artistic uses for the room otherwise you are inviting trouble.

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