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When art is your business

There are certain activities out there that some people do as a business while others do as a hobby. Art is among these activities. Professional artists or other individuals who are trying to make a business out of one of these activities can face scrutiny from the Internal Revenue Service over whether they are actually engaged in business or instead are just a hobbyist. This issue can be a major focus area when such an individual ends being audited by the IRS.

Why does it matter tax-wise whether an artist is a professional or a hobbyist? Well, it can have major implications on what sorts of tax deductions they would be allowed. If their art activities are considered a business, they would be able to deduct many of the expenses related to these activities. If, however, the activities are deemed a hobby, such deductions generally would not be available.

So, when an artist is being audited, what the IRS decides regarding their professional status could have major financial implications for them.

There are several factors that the IRS uses when determining whether a given activity a taxpayer engages in is a business activity or just a hobby. So, the range of evidence that could be relevant to this issue in an audit for an artist can be quite wide.

So, when facing an audit, a professional artist or similar individual may have many questions about what kinds of documents and evidence regarding their art activities could be critical in the audit and what steps they should consider taking to prepare for the audit. Skilled tax attorneys can help taxpayers who are facing an audit with these kinds of questions and give them guidance on the issues particular to their audit.

Source: Observer, “Are You Really an Artist? It’s the IRS Who Actually Decides,” Daniel Grant, Nov. 24, 2016

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