Do You Need A Business License for Artists?
Turning your creative hobby as an artist into a full-time, lifestyle-supporting career is a huge and exciting step. Then, the business side creeps in such as business license for artists requirements.
Such a big decision comes with plenty of unanswered questions, one of which paves the path to becoming a functional legal business:
Do you need a business license for artists?
Unfortunately, it’s not a simple yes or no answer.
Learn more about whether you need a business license to sell your art, what types of licenses make the most sense, how to sell your art to the letter of the law, and how becoming a “business” impacts your taxes.
The Answer, According to the IRS
The short answer is “yes,” you do need a business license to legally sell your work as an artist. But like anything Internal Revenue Service-related, it’s not as simple as a flat “yes” or “no.”
In the eyes of the IRS, it depends on:
Is It a Hobby or a Business?
The IRS draws a fine line between an art “hobby” and an art “business.”
If you’re selling your crafts regularly and turning a profit, you’re technically operating a business by the IRS’s standards.
On the other hand, if you paint, sketch, or sculpt because you love creativity and simply sell your art to recoup the cost of supplies, your side gig is more of a hobby.
But unlike agriculture and television broadcasting, the U.S. Small Business Administration doesn’t regulate artists under any particular agency.
So the IRS may consider your art sales a business and has the right to audit you if you’re claiming it’s a hobby. But you don’t need any sort of federal license to sell your artwork.
(A city, county, or state business license is an entirely different story. We’ll talk more about that later).
Why It Matters
If the IRS doesn’t mandate business licenses for artists, why are we still talking about this?
The answer is simple: how the IRS classifies your art career will determine how to file your tax returns.
For example, you can’t report losses as a deduction for an art hobby. But you can claim those losses if you’re in the start-up phase of a legitimate art business.
Whether you need a city or state business license or not, make sure you file your federal taxes for your artwork sales correctly. Otherwise, you might be on the receiving end of a federal audit or owe back taxes.
Check Your Local Requirements First
If you’re a freelance artist earning a full-time income from selling your art, odds are you will need a business license to operate legally. Each jurisdiction has its own rules about which artists need a license and when.
Whether you need one could depend on your answers to these questions:
Who Requires One?
What’s confusing about business licenses is that they aren’t always at the state level like you might expect.
Most U.S. states leave licensing regulations to each city or county.
Does Income Matter?
It just might!
Some states have an income threshold for artists selling their sculptures, paintings, or drawings for profit.
Washington State is a great example of this policy in action. Any artist earning $12,000+ (gross) per year must have a valid business license.
Do You Need Another Type of Permit?
Beyond your general business license, your local government may also require you to apply for additional licenses and permits.
The first is a seller’s permit. If you sell your artwork in one of the 45 states (plus Washington, D.C.) with a sales tax law on the books, a seller’s permit allows you to collect it legally.
The second type is a resale certificate (or a reseller’s certificate). A resale license allows you to buy artwork wholesale and resell it without double-charging on sales tax.
When Artists MAY Need a Business License
More often than not, you will need a business license to sell your creative pieces and turn a profit, including:
If You’re Selling Directly to Customers
Generally speaking, a business license is what makes a direct sale “legal.” So if you’re planning to exchange your artwork for money and charging state taxes, you’ll almost always need a business license.
If You’re Selling Art Online
Online creative platforms like Etsy don’t outright require sellers to have a business license. However, you’ll still need to abide by any local or state laws that require freelance artists to have the proper permits.
There’s also an 86% chance (literally) that you’ll need a seller’s permit to sell your artwork online. Forty-three states — the 45 with sales tax minus Missouri and Florida — enforce this requirement, though the minimum earning threshold ranges from $1 to over $100,000.
When Artists MAY NOT Need a Business License
There are also a few rogue scenarios where you might want a business license, but it isn’t necessarily required, including:
When You’re Selling Art at Craft Shows, Fairs, & Garage Sales
Craft shows, garage sales, and art fairs are hit or miss when it comes to the definitive need for a business license.
It may depend on how regularly you attend (or host) these events, your estimated earnings, or whether art is a hobby instead of a side hustle. Event organizers also reserve the right to require sellers to have a business license.
Either way, you’ll need to report all earnings on your tax returns.
When You Sell Artwork to an Entity
Business license requirements tend to be a bit looser when you’re selling to an entity, such as an art gallery, rather than directly to a consumer.
This more lax approach is because galleries will sell your art for you, acting as a middleman between you and the consumer.
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What Happens If You Sell Art Without a Permit or License?
Just how big of a deal is it to secure and maintain a valid business license as an artist?
We’d say, “really.”
If you live in a city or state that requires a business license but never apply for one or let it expire without renewal, consequences could include:
Shutting Down Your Business
Did you know that, according to the government, operating a business without a valid license is fraud?
As a result, the suits can shut your business down indefinitely until you secure proper licensure.
Penalties & Fines
Be prepared to pay out, too.
The government might slap you with hefty fines and penalties, sometimes in the quadruple digits (i.e., a first offense comes with a $5,000 fine in Virginia).
Not only are customers more likely to threaten lawsuits when they learn you’re operating without a business license, but you’re also more likely to lose in court.
As if closing down your business, hefty fines, lawsuits, and even potential arrest aren’t bad enough, skipping this requirement could also ruin what former customers think of your business.
How to Find Out Which Permits & Documentation You Need
A lot of thoughts are probably rushing through your head right now, but none as nagging or loud as, “I want to sell my art, but I don’t want to get in trouble.”
It’s time to let go of those fears and take the next step toward your up-and-coming artist career.
Here’s how to find out the permits that you need to run an art business legally:
Talk to a Lawyer
Talking to an attorney is the next best option from the legal protection angle.
Reach out to a law firm in your area specializing in business litigation to receive expert advice when applying for, renewing, and maintaining a business license.
Contact the Department of Revenue
You can also contact your state’s Department of Revenue to learn more about licensing requirements for self-employed artists.
Just Get a Business License
If you have the time to fill out paperwork and the cash to pay for the license application fee, the best option is to just apply for a business license now. Instead of asking, “do I need one?” assume you do.
It’s better to have it and not need it than need it and not have it.
How to Register for a Business License as an Artist
Now comes the fun part. Since you more than likely do need a business license, we’re going to explain the different types of business licenses, how to apply for one, and important tips to remember when selling your precious art.
Types of Business Licenses for Artists
Before you contact your local government for more information about licensing, you’ll need to decide what type of business structure you need.
As a freelance artist, you generally have two options:
Limited Liability Company (LLC)
An LLC delivers the most flexibility to your art business and puts some much-needed distance between you and your company, protecting you from personal liability in lawsuits.
If you start an LLC, you’ll still technically be self-employed, owe Social Security and Medicare contributions, and pay income tax.
But your personal assets are also protected if the company faces money woes down the line.
If you don’t register your art business as a corporation or an LLC, the government considers it a “sole proprietorship.”
This structure is — by far — the easiest to apply for and the most tax-season-friendly.
Yet, with fewer liability protections, your personal assets are in danger if a former customer sues the company.
Some may think that S Corp is a type of business. It’s actually a tax designation. You can be an LLC and an S Corp at the same time. An S Corp is a rung below a C Corp, which is what you normally think of when you imagine a big corporation.
The advantage of being designated as an S Corp is that you become an “employee” of the business and do not have to pay self-employment taxes (as you would with an LLC or sole proprietorship. The disadvantage is the complexity means you’ll need an accountant, which might eat up the savings you were expecting. Artists with high sales might consider this designation if the balance falls in their favor.
Each of these business types and designations comes with tax benefits, but do your research or consult with a CPA, attorney, or tax professional for tax or legal advice.
Further reading: Advantages of Single Member LLC Quarterly Taxes
Register Your Business Name
As a business owner, you can register your new business entity under your name, which is common with sole proprietors. But you also have the privilege of filing for a fictitious name, trade name, or a DBA (also known as “doing business as”).
After registering your business name and completing the Certificate of Formation, you’ll need to apply for an employer identification number (EIN) or a tax ID number from the IRS. If you’ve chosen a sole proprietorship, use your social security number instead.
Apply for the Appropriate Licenses
By now, you should have a pretty good idea of which licenses you’ll need at the city, county, and/or state levels. If you don’t, this is a good time to contact your local City Hall, County Clerk’s Office, or State Department of Revenue.
Fill out the licensure forms, pay the license fees, and wait to hear back. Also, keep in mind most jurisdictions require business owners to renew their licenses every year or two.
Tips for Selling Your Art
Once your business is officially set up and fully licensed, you’re ready to begin selling your art legally. Here are a few tips to get off on the right foot:
Know Your Local Sales Tax Rates
Don’t forget to collect local or state sales tax on all sales, even if it’s not a tangible piece of property (such as digital art and graphic design).
Track Your Income & Expenses
Come tax season, the last thing you’ll want to do is go through a year’s worth of messages, receipts, and invoices to calculate your income and maximize your deductions.
Accounting software like Quickbooks Self-Employed will sort your earnings and expenses for an accurate filing every year.
When In Doubt, Err on the Side of Caution
The rules for business licenses are so unique from state to state and city to city that it can be easy to lose track. If you’re ever unsure if you need a license, either get one (just in case) or contact your local clerk’s office.
Provide All Customers With a Bill of Sale
A bill of sale legally transfers ownership of the artwork from you to your customer. Add as much detail as possible to the invoice, including copyright information, the title of the piece, and the total cost.
These invoices are a lifesaver not only when filing taxes but also if future disputes arise.
Whether you’re a lifelong artist or recently discovering your passion, selling your artwork can be a rewarding experience for all of your hard work.
Yet, the first step in your business plan should always be securing a business license and following local and state laws.
Generally speaking, if you’re an independent contractor selling your art work directly to customers or online, you will need a business license.
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