Start your art business legally (a resource roundup)

AN ARTIST IS A BUSINESS OWNER

To be a full time artist, you must know the world of business. You are a business. You have products that you make and sell. You buy materials to make the products. Money comes in when you sell them. You delve in marketing, finances, shipping, taxes, and more. An artist is a business owner. 

Of course you are a creative, and that’s probably where most or all of your expertise is. Me too. Maybe you hate strict schedules and get nauseous when you think about doing hard math problems (just me?). 

But running an art business isn’t like high school algebra. It’s much better.

You can be a creative person and also be good at running a healthy business.

And besides, you can always hire an accountant to do a lot of the math and taxes for you — no nervous puking required 🙂

To help you learn to be a business owner as well as an artist, I’ve compiled these resources for you. These are the wells of information I used to learn about LLCs and tax filings, etc. They are all easy to read and easy to understand and you’ll start your art business legally in no time.

Before we begin I have to say that I am not a lawyer or accountant and this is not professional advice, just my unprofessional opinion. I cannot guarantee you’ll have my same results. Hire a real accountant or lawyer if you need specific legal or financial advice. Thank u 🙂

Oh yeah, also, this advice is geared toward artists living in the USA. I live here and I don’t know much about how other countries handle their business filings (yet). Sorry if this affects you. 

Okay, now that that’s over with, let’s get it:

HOW TO FORM AN LLC

Typically you’ll want to begin here. 

You can remain a sole proprietorship if you choose to combine your business and personal money. Being a sole proprietorship is the easiest thing to do, since you literally file nothing and just continue to sell your art as a regular individual. 

However, it comes with disadvantages. 

First, you can be sued personally for things you do inside your business. Not cool. 

Second, you can’t get a business bank account or build business credit. You can’t get a business loan either. 

Third, you also can’t write off things on your taxes as a sole proprietor that you can as a Limited Liability Company. Don’t you want to save money? I know I do.

If you want to learn more about the difference between an LLC and a sole proprietorship, this page from The Street will spell it all out.

I created my company, A Cup of Cloudy LLC, to make sure I have everything organized and I can reap the benefits of being filed with the state. I am truly liking it so far but as of now (October 2019) I’m still getting comfortable with my new standing.

Another resource I want to share is one from LLC University.

This guide shows you how to file for an LLC for each state in the USA. It’s a little different for each state. I live in Michigan, and I created my LLC in Michigan, so that’s the process I went through. Choose your state and it’s laid out step by step for you. 

Another good place for studying LLCs is this page on Legal Zoom.

It also lays out the general steps for applying for your LLC, but it functions more like a blog post than the other link. This site answers common questions and has a ton of other good articles about LLCs on there. If you’re ready to go down a rabbit hole, bring your shovel.

HOW TO GET YOUR EIN

Basically your EIN or Employer Identification Number is just a Social Security Number but for your business. It lets the government track your taxes, refunds, benefits, credit, and so on. This is a step you do after your LLC has been paid for and approved by the government.

I feel much safer having a separate EIN and SSN — I don’t want my business credit tanking to affect whether or not my personal credit is good enough to buy my first home. Ya know?

This number is free to get. Clearly the IRS wants to make it easy to take your money and keep track of you, so they made it pretty hassle-free. 

LLC University has the perfect resource for how to apply for your EIN. They have a video here that shows you exactly how to fill out the form so you don’t get confused by stuffy language.

Here is the IRS’s actual page for applying for an EIN when you are ready:

https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

OPENING YOUR BUSINESS BANK ACCOUNT

The point of being an LLC versus running your business as a sole proprietorship is to protect your personal finances.

Therefore, if you blend your finances together — spending business money on your personal needs like grocery shopping or using your personal debit card to buy supplies for your business — it ruins any protection your LLC gives your personal assets. Separating them fully with two bank accounts means that when someone sues your business, they can only sue your business. They cannot touch your personal assets like your car or your house. BUT if you blend your money together, the court will have a strong case for suing both your business and you. This is not a safe route. If you’d prefer to keep all your finances together, understand this risk and just continue being a sole proprietorship (that’s what the state considers your business if you file nothing). 

To protect yourself with an LLC, make sure you get your business bank account and a business debit card to use regularly. 

You want to start your art business legally and protect it by legal means, too.

Another shining resource from LLC University (clearly where I learned most of my business info; they’re amazing) will walk you through how to open a business bank account right here.

This page also teaches you common knowledge when it comes to business banks. They’re surprisingly different from personal accounts. They have fees for different actions and have different paperwork requirements for setting one up. LLC University suggests their favorite banks here, too. 

However, if you want to go deeper into what makes a good bank account good, check out this guide by Fundera. They help you decide what type of business bank account you might want and which companies are best for what you need. If you’re not ready to get a bank account just yet, save this one for later. 

KEEPING TRACK AND PROPER USE

There are some things you always do in any small business, creative or not. And that’s keeping track of your finances. I mean, if you don’t make a profit, your craft is a hobby, not a business. 

Below are some best practices and some places online where you can get help with them. 

—– Get an accountant. Obviously you don’t want to spend all your time learning tax law, keeping up with constant law changes, counting numbers and doing math all day. Gross. With an accountant, you can hire someone who loves numbers and is much better than you to do this for your business instead. You can make sure you’re going to start your art business LEGALLY, not illegally. They’ll know what to do.

This one gives you tips on how to search for a good accountant.

The IRS themselves provide things to think about such as qualifications, history, fees, and so on when hiring an accountant. I’d trust this resource if I were you. 

—– Know what tax exemptions your business is eligible for and record them. Are you keeping track of work-related driving miles? New equipment? Donations? Your accountant should know what can be written off on your taxes which you’ll receive later in a return, but they can’t be there with you everyday to record your expenses for you. You have to know what to keep track of first. 

Here are some good links for knowing your tax exemptions:

NOLO has a concise list here. They outline the top 12 expenses you can likely write off in your business and also throw in some easily missed expenditures at the bottom of the article. Scrape every penny you can get. 

The IRS also has a guide here. There is SO MUCH reliable information here, with links to actual laws and legal chapters. Get a hot cup of coffee and pay attention while you browse this one, folks. It’s a gold mine.

—– Keep track of your income and expenses. 

Forbes has a wonderful article on what to keep an eye on financially in your business. There are 5 areas to monitor for healthy finances in your new LLC: Profit & Loss, Balance Sheet, Cash Flows, Net Profit Margin Over Time, and AR days vs. AP days. 

This will take practice and your accountant can help you, but it’s important to start early because you’ll be bad at it at first. As you grow, you’ll get more comfortable with keeping track of these. The bigger your business, the more you’ll need to exercise these practices, and at that point you can’t afford to suck at numbers. So start simple by reading through these and familiarizing yourself with the concepts. 

YOU CAN’T SKIP THESE STEPS

You just can’t. If you want to be a working artist, spending your days illustrating and selling art online, you have to have a solid legal and financial leg to stand on. Bummer, I know, but it must be done.

Become an LLC first.

When your paperwork clears, file for your EIN.

After you get that, you can get your own business bank account.

From there you can keep record of how well your sales are doing and hire an accountant to help file your taxes based on this info.

Those are the most important first steps to start your art business legally and financially 🙂