Arts and Taxes

[Aitch]

Came across this story on another site:

... I remember reading about an American professional artist who I believe objected to the tax he was having to pay. So he took all of his artwork out into the desert, invited a few friends with some beer, piled up the paintings and set fire to the lot. It was a great evening enjoyed by everyone.

He was then charged with tax evasion!

Does anyone have anymore details on this story? Like, for instance, who was the artist and is it true?

Thanks.

 

[The Central Scrutinizer]

I smell an urban legend.

 

[Aitch]

That's what I thought, but it would be nice to have confirmation. Either way.

 

[madurobob]

Yup, smells urban legendy.

But, if I ran a business, took an unusually high amount of deductions against my business income... then burned all the evidence, I shouldn't be surprised to be charged with tax evasion when I'm audited.

 

[Ysidro]

Put me in the "it smells fishy" camp.

Hell, maybe it was completely 100% true. That still doesn't mean that his arrest had anything to do with burning the paintings. The story implies that, but does not state it outright.

Probably just one of those "**** the IRS" stories though.

 

[drkitten]

I smell an urban legend.

Here's what I've been able to find. From the (Canadian) Cultural Human Resources Council:

In the late 1980s, Vancouver artist Toni Onley was caught in a Catch 22 with Canada Customs and Revenue Agency (as it then was called.) Canada Customs and Revenue Agency had ruled that Onley's unsold paintings were taxable at a value that the agency itself, and not the artist, had determined. Onley responded by threatening to put all the paintings in a pile on a Vancouver beach and set them on fire.

After much negotiation, Canada Customs and Revenue Agency backed down. The incident served as a sober reminder to self-employed artists and cultural workers to not only fulfill their statutory obligations, but to keep abreast of the changes in obligations as well as how Canada Customs and Revenue Agency views self-employed artists as small business operators.

The small manufacturer: Toni Onley
His problem seems to be this. If classified for tax purposes as a 'small manufacturer', he has to show a profit within approximately four years in order to claim expenses against income; income is qualified not simply on a cash basis, but also includes the market value of any works unsold or undestroyed during the tax year in question against which actual expenses are not allowed (because the work has not actually been sold). Thus, his $1 million worth (assessed market value) of unsold prints are brought to tax as 'accrued income', against which he cannot set-off the actual expenses of making these works. His only solution, under the tax regime, appears to be to destroy the $1 million worth of prints before the end of the tax year so that they cannot be assessed as 'accrued income', and then he can claim a tax credit for their production costs.

In this country [the UK], this issue need not arise. There is no tax classification of 'small manufacturer' as such, but rather a legal category for taxing the profits of a 'trade, profession or vocation', thus embracing the small manufacturer, trader, self-employed doctor, lawyer, musician, visual artist and so on. What is more, although such free-lancers here are expected to show a profit over a similar period (3/4 years), if they in fact make a loss they may nevertheless be allowed to claim actual expenses against actual income during those years of trying to make a profit. As a result, visual artists here who expend more in their production of works (especially during their first ten years or so, if not forever) than they receive in sales, can be allowed to set-off the one (actual expenses) against the other (actual income) and reduce their taxable profits accordingly.

So as near as I can tell:

• Artists are liable for taxes on their income (like anyone else)
• this liability includes the value of both sold and unsold works (again, like anyone else)
• If your self-assessed "value" of your artwork inventory is too high, perhaps it's time to rethink your life.
• or at least lower your damn prices

 

[Aitch]

Cheers, Doc. Not quite an urban myth, just a slightly mangled version of what really happened.

 

[qayak]

this liability includes the value of both sold and unsold works.

I suppose the easy out for an artist is to simply claim that none of the works are finished.

 

[drkitten]

I suppose the easy out for an artist is to simply claim that none of the works are finished.

Tax agencies tend to object to glib claims like that. Especially if an object is listed for sale somewhere, while being "unfinished."

 

[madurobob]

Tax agencies tend to object to glib claims like that. Especially if an object is listed for sale somewhere, while being "unfinished."

This must be a non-US issue. In the US we pay tax on income and for the artist that would be triggered by selling the art work, not just having it "completed" and sitting in a studio. Do artists elsewhere really have to pay some kind of VAT on finished goods?

 

[drkitten]

This must be a non-US issue. In the US we pay tax on income and for the artist that would be triggered by selling the art work, not just having it "completed" and sitting in a studio. Do artists elsewhere really have to pay some kind of VAT on finished goods?

Canadian, yes. See references above.

And I think there are still tax implications for unsold art in the US. The US has a similar rule about expenses offsetting income for professions, but not for hobbies. So if I spend $8,000 making paintings and sell them for $10,000, I have a net income of $2,000. If I spend $8,000 making paintings but can only sell $6,000 worth of them, I have a net loss of ($2,000). And whatever inventory is left in the studio would need to be dealt with appropriately.

But unless I can show a profit over a reasonable period (3 years?) I become a hobbyist and can no longer claim expenses against income. Which means that I'd have taxable income of $10,000 and $6,000, respectively.

 

[The Central Scrutinizer]

Tax agencies tend to object to glib claims like that. Especially if an object is listed for sale somewhere, while being "unfinished."

When I formed my own corporation back in 96 and went into business for myself, my accountant told me two things:

Rule #1: The IRS isn't stupid
Rule #2: See rule #1

He told me to claim all my legitimate business expenses, and even be a little agressive in the grey areas. But don't be stupid, because the IRS isn't.

 

[qayak]

Tax agencies tend to object to glib claims like that. Especially if an object is listed for sale somewhere, while being "unfinished."

Oh sure!!! Now you are chock full of advice. Where were you six months ago before I got into this mess?

Oh! Gotta go. My computer time is limited here in the pen.