24 Feb

Finances and Today’s Independent Dancemakers

Blog
An icicle in an odd shape hangs from a ledge

Post by Shawn Lent

 

In addition to 2020/21 being a year of mourning and struggle, ice and insurrection, it’s an exceptionally messy time for finances and tax filing. That stress can be overwhelming, even on a good day. Here, I will try to provide answers to a series of questions that may be on your mind. The following is for independent dancemakers.

 

I already file as Self-Employed with a Schedule C, what should I be doing right now?
  • Consider immediately applying for a PPP Loan (The government provides an average of 2.5x your average monthly income as a freelancer — minus 1% interest, which is completely forgiven in most cases making it more like a grant; or paid back over 2 years). The federal government has just made two major announcements regarding the Payroll Protection Program (PPP) that may work to your benefit. For two weeks (February 24 – March 9), they are giving a window of increased opportunity for freelancers and small businesses by freezing applications for businesses with more than 20+ employees. Also, it seems that the loan amount will now be approximately 2.5x your monthly gross income as a freelance artist rather than your monthly net income. Last year, we hosted a workshop on PPP Loans with Kimberly Jones from Self Help Federal Credit Union; although much has changed since then, it’s important to know that you must go through a bank or credit union like Self Help to apply for PPP, so reach out immediately if a PPP Loan seems to be a good fit for you.
  • Get organized and find out how much you will owe in 2020 taxes–to be within the next 7 weeks (by April 15, 2021).
I have never filed as Self-Employed as an Artist, what should I be doing right now?
  • Watch “Artists in a COVID Economy“
  • Create a budget for 2021 that includes both living expenses and artistic processes or projects. Compare your anticipated income to your anticipated expenses. How much can/will you pay yourself from dancemaking project grants? Will you need to find more financial support to make things possible this year? Are you eligible for unemployment benefits (from lost W-2 wages/tips), grants for individual artists, relief funds, housing assistance, etc.?
  • Find out how much of your income is from freelance work as an artist and/or dance teacher. If the answer is more than $400, you may want to think about treating your arts practice as a small business. This means filing as a Self-Employed, as a freelance artist and/or dance teacher. To make that process easier, you will want both your arts-related 1099 income and expenses to flow through one bank account, while you non-arts 1099 income and expenses to flow through a separate account. See below for more information. 
  • Organize and Find out how much you will owe in 2020 taxes–to be within the next 7 weeks (by April 15, 2021)
    • List all of your income for 2020. 
      • W-2 Wages/Tips + 1099 Freelance Work Unrelated to Arts Practice 
      • 1099 Freelance Work Related to Arts Practice including grants  
      • Note: You do not need to report any COVID-19 relief funds that you have received, unless the giving entity has sent you a 1099.
      • Note: If you receive a large grant(s) or payment(s) as an artist that you are worried about paying taxes on, you will definitely want to apply as Self-Employed so that the related expenses can offset that taxable income. 
    • List all of your expenses for 2020. (You may have to go through your back account activity, apps, and/or receipts if you weren’t able to take good records throughout the year.)
      • Unrelated to Arts Practice / Personal 
      • Related to Arts Practice (Pay close attention to acceptable deductions.)
      • Note: In regards to paying others, you will be responsible for submitting the 1099 forms for anyone you pay $600+ in a single year. Your life may be easier if you pay less than $599 or split the amount over two years. 
    • Subtract Arts-Related Expenses from Arts-Related Income
      • Did you have a Loss or Profit from your arts practice in 2020?
      • If there was a Profit, the 15.3% Self-Employment Tax on that profit (net income) is often better than paying taxes on the full amount you earned (gross income). If there was a Loss, you will not have to pay Self-Employment Tax.
    • Take all of this information to your Schedule C in order to file as Self-Employed. If you have W-2 Wages/Tips, you will report that as you normally do on your 1040.
    • Read “A Smart Artist’s Guide to Income Taxes“
    • Consider using a tracking app such as QuickBooks Self-Employed Tax Bundle (which connects seamlessly to automatic filing through TurboTax for a fee–which will be a deductible expense for you in the following year), Stride, Mint, You Need a Budget, Expensify, or Shoeboxed.
How can I set myself up for more financial stability?
  • Register for “Intro to Financial Wellness: Budgeting Nuts & Bolts” (a free workshop offered monthly by The Actor’s Fund, and a pre-requisite for their other free financial wellness workshops)
  • Watch “Money“ — part of the ArtistsU Working Group materials (with an e-book, workbook, and videos all available online for free).
  • Build Credit. Self Help Federal Credit Union’s Fresh Start CreditBuilder Loan could be a great option. Working with a non-predatory program like this is recommended.
  • Look for a nonprofit organization that would be willing to receiving arts grants on your behalf. This way, you would only have to declare the amount you pay yourself. The catch is that the nonprofit organization would have to agree to disburse all grant funds; it is common for them to charge 5-8% for this added work but you may be able to negotiate a barter situation where you help them in exchange for no fee.
  • If that’s not an option, consider a fiscal sponsor such as Fractured Atlas or The Field (compare fees and rates). Here is a list of benefits to fiscal sponsorship. There is often a 7-10% fee and/or monthly membership dues. But also consider that you may not need a fiscal sponsor right now.
  • When receiving large grants, communicate directly with the staff at the foundations and grantmakers to let them know how and when you will need to receive the funds.
  • Explore your long-term and alternative options including mutual aid, co-ops, investments, automatic savings, IRAs, emergency funds, long-term care, life insurance, etc. Read “Investing During COVID-19.”
  • Separate Your Arts Practice Finances From Your Personal Finances
    1. List all of your current / anticipated income sources for 2021.
      • W-2 Wages/Tips = Column A
      • 1099 Unrelated to Arts Practice = Column A
      • 1099 Related to Arts Practice including grants = Column B
    2. List all of your regular / anticipated expenses for 2021.
      • Unrelated to Arts Practice = Column A
      • Related to Arts Practice including projects = Column B
    3. Set-Up each of those listed transactions (income & expenses) so that they will flow through two separate bank accounts.
      • Set up two bank accounts (checking accounts, can be personal or business accounts).
      • Set up direct deposits from W-2 employers, public benefits, and income that is unrelated to your arts practice to automatically go into Bank Account A.
      • Set up automatic transfers from your freelance 1099 arts practice income (QuickBooks Self-Employed invoicing, Venmo, PayPal, Cash App) to go into Bank Account B. Then use the card/online banking services for Account B exclusively to pay for all expenses related to your arts practice, paying close attention to acceptable deductions.
      • Use the card/online banking services for Account A to pay for everything else.
    4. As money comes in and out, regularly check that the correct account is being used. Consider using a tracking app such as QuickBooks Self-Employed, Stride, Mint, You Need a Budget, Expensify, or Shoeboxed.

I hope that all helps, even a little. And I invite you to close your eyes, breathe deep, feel an icicle drip, and just thaw out for a little while.

 

Sources

  1. Creative Capital
  2. Arts Alliance Illinois
  3. The Actor’s Fund
  4. Performing Arts Alliance
  5. IRS.gov
  6. Pentacle Next Steps

 

Photo credit: Markus Spiske for Unsplash

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