Bookkeeping for Artists: Simplifying Finances for Creative Professionals

What does bookkeeping for artists look like?

Today, we’re going to find out. We’ll tackle the basics but also the unique financial challenges artists face. We’re going to walk you through setting up your accounting software, key bookkeeping practices, and other considerations.

Understanding the Basics of Bookkeeping for Artists

Bookkeeping 

It focuses mainly on inputting data accurately and recording and categorizing transactions. 

Tasks:

• Recording all financial transactions
• Creating and posting journal entries in the general ledger
• Categorizing transactions into their proper accounts 
• Generating reports and statements

Accounting

It focuses mainly on analyzing and interpreting financial data. They also deliver this information to business owners and shareholders and provide financial advisory services. Accountants also help with tax preparation and filing.  

Bookkeeping and CPA tasks and roles have many overlaps. However, accountants must pass a certification exam and must possess a deeper knowledge of accounting principles and tax law and regulations.

Tasks:

• Core accounting and bookkeeping
• Performing financial analysis to assess business health and financial position 
• Interpreting financial data and offering actionable insights, strategies and solutions 

Why Bookkeeping is Essential for Artists

Financial Challenges Unique to Artists

1. High Costs – Being an artist does not come cheap. Art supplies and graphic design software subscriptions can cause a significant dent in their budgets. This is on top of other expenses like marketing, rent, utilities, and other equipment. 
2. Irregular Income Streams – It’s common in their field for artists to have an unreliable and unsteady stream of revenue. They can earn a lot in one period and have little to no cash inflow the next. 
3. Inexperience – Many people striving to make art their profession may not have the business knowledge or sense to grow or scale. This inexperience also affects their ability to properly budget or manage their finances. 
4. Compliance and Taxes – Tax law for artists can get complicated. They need to navigate tax deductions and other unique tax implications like self-employment tax. Hiring an experienced bookkeeper or accountant may not be financially viable for some artists. This means navigating these complex laws with little help.

How Bookkeeping for Artists Can Help with Budgeting and Financial Planning 

Bookkeeping is the organizing part. It helps you see what resources you have to work with. 

Bookkeeping helps with:

• Tracking income and expenses
• Managing your cash flow
• Generating reports that help you make better business decisions
• Preparing for tax season

Budgeting and forecasting is about knowing how much resources you have. It informs your planning and strategies to carry out your plan.  

Plainly, budgeting and forecasting helps you:

• Determine what you have,
• If your current load is enough to sustain you
• If you need to take on more projects
• If you have enough resources to start thinking about scaling

Setting Up Your Bookkeeping System

Choosing the Right Bookkeeping Software

Most artists consider themselves to be freelancers, or self-employed. This means they most likely want software that does bookkeeping for artists as small business owners. The ideal software should also have flexible pricing models and structures. It should also be intuitive and easy to use in case they opt for DIY bookkeeping. 

Here are some options we believe suit artists well:

• Artful Accountancy is a dedicated accounting software for artists. They have unique features like grant management and royalties calculators. 
• FreshBooks and Wave are accounting software that are both user-friendly, affordable and offer the key features that small businesses and startups need. Wave also has a free option. 
• QuickBooks for Solopreneurs is designed for freelancers and independent contractors. 
• Xero offers a robust feature set for all your accounting needs including inventory management and multi-currency support. 

Digital bookkeeping for artists and using accounting software is better than manual for a few reasons: 

• More efficient 
• Reduces risks of manual error 
• Simplifies the process through automation 
• Accountants nowadays are likely more used to digital 
• Receipts and records are all in one cloud-based solution 

Organizing Financial Information

Here’s a step-by-step process: 

1. Collate all of your receipts (physical or digital), bank statements, tax returns, card bills, and other important documents. 
2. Make digital copies of all your documents and store them on your desktop, a cloud storage solution, or in your bookkeeping software. 
3. File paper documents.
4. Use a system that both you and your accountant can easily navigate. 
5. Regularly review documents and see which need updating and which you can toss.

You can maintain the accuracy of your financial information by adopting these practices:

• Use an accounting software.
• Do daily reconciliation.
• Separate business and personal expense accounts.
• Monitor accounts payable and receivable (invoices and bills).
• Set up internal controls and checks and balances.
• Periodically perform internal audits.
• Hire a bookkeeping team. 

Bookkeeping for Artists: Key Practices

Tracking Income from Art Sales and Commissions

Artists usually have multiple revenue streams. They might gain revenue from selling their art or merchandise. Some artists take commissions. They might also do graphic design freelancing.  

With all these streams, you need a solution to track and record these transactions properly. 

Artists can obviously do this within accounting software, which has the benefits of automation and integrations. However, they can also use spreadsheets for a more controlled and flexible experience. They can upload these to their software later on. 

The key things to track include your income sources, dates of transactions, payment methods, expenses, and client information.

Managing Expenses and Receipts

Common Deductible Expenses

A lot of deductions that freelancers can avail are similar for artists. These expense deductions help lessen the blow during tax season. 

Here are some of the most common areas where artist can apply for deductions: 

• A portion of house rent and utilities if using a room as a home studio
• External studio expenses like rent, utilities, insurance, and maintenance
• Supplies, materials, and software subscriptions
• Equipment and machinery (printers, camera equipment, computers, tablets, etc.)
• Marketing, promotion, and advertising expenses
• Business-related competition, exhibit, seminar and workshop fees 
• Education and skill development fees
• Travel expenses (car, plane ticket fees, gas, lodging, meals etc.)
• Legal and accounting fees
• Shipping fees

Receipt Management and Expense Tracking

Expense management is one of the most crucial tasks when discussing bookkeeping for artists. 

The first step to expense management is organizing your receipts. They should be both  secure and easily accessible to anyone who needs to view them. We recommend digitizing your receipts for quick retrieval. 

The next step is creating an intuitive system that allows you to track your expenses easily. We recommend recording expenses right away in your software or spreadsheet. Next, you’ll want to categorize your expenses in their appropriate accounts. Daily reconciliation of bank and card statements against your expense accounts is of utmost importance to prevent discrepancies. 

Financial Reporting and Analysis

Creating Financial Reports

Financial reports offer insightful information that artists can use to make well-informed decisions. 

Some of the common financial reports for artists include:

1. Income Statement – Shows income, revenue, profitability, and spending habits
2. Balance Sheet – Provides a business health snapshot of your assets, liabilities, and equity. It shows financing entities and shareholders your ability to meet your obligations and debts. 
3. Cash Flow Statement – Shows all your inflows and outflows of cash whether through operating, non-operating, financing, or investment activities. An understanding of your cash flow helps you make decisions on payment schedules and workload. 
4. Other statements and reports – Budgets and forecasts, tax return reports, grants, etc. 

Adjusting Your Strategy Based on Financial Insights

Data influences decisions. Actionable insights help business owners plan for the future and make crucial decisions that will impact operations. 

For instance, cost analysis can show you how much you’re spending and where. From this, you can decide where to cut expenses and where to improve efficiency. It can also help you set better rates and help you better price your products.  

Profitability and ROI analyses can also show you if you should consider financing or investment opportunities. 

Analyzing sales data and market analysis can help you make decisions regarding budgeting, scaling, or expansion. 

There are hundreds more decisions you can make in response to data. Just make sure you regularly review and adjust your financial plans based on your current goals and needs. 

Legal Considerations and Tax Obligations

Understanding Tax Requirements for Artists

Tax Obligations 

• Income Tax – Your art sales, commissions, and other income sources are subject to this tax. 
• Self-Employment Tax – Anyone who is an independent contractor and not traditionally employed pays this tax. This includes your Medicare and Social Security taxes that employers would normally withhold. 
• Sales Tax – You may need to remit sales tax if you sell directly to consumers. The amount varies depending on where you live. 
• Property Tax – Any real estate you own is subject to this tax.

Deductions and Credits

Like we mentioned before, artists can get deductions on their tax expenses through their art business’ related activities. 

As long as you can prove it through documentation, you can probably claim deductions on a number of things like supplies and rent and others. 

Avoiding Common Financial Pitfalls

Common mistakes people make include: 

• Poor document management leading to penalties and fines
• Not knowing your tax bracket or what percentages to pay in taxes
• Not knowing tax requirements for hiring independent contractors 

You can avoid these by educating yourself. Read up on resources like news sites that give frequent updates on recent developments in national or local accounting law or regulations. This includes the Financial Times or WSJ for the U.S.

Another way to help ensure compliance is by outsourcing your bookkeeping and accounting process to experts. 

Enhancing Financial Health with Professional Help

When to Hire a Professional Bookkeeper or Accountant

Complexity 

You should hire a bookkeeper or accountant when you feel overwhelmed with the complexities of your finances. Learning tax law is not the only complex part of financial management. You also have to consider the complexities that come with having multiple income streams or investments. 

Lack of Time

If you’re spending way too much time crunching numbers than doing art or meeting other obligations, it’s time to outsource. It allows you to focus on your main strengths while your bookkeeper works on the back end stuff.

Specialized Needs

You should also hire if you need help with:

• International tax regulations 
• Financial advisory and planning 
• Catch up bookkeeping 
• Inventory management 
• Payroll processing 

Benefits of Bookkeeping Outsourcing 

1. It’s more cost effective than hiring an in-house team.
2. Outsourcing is flexible in pricing and is scalable.
3. You get access to expertise and experience. They have tried-and-true processes, efficient workflows, and contingencies for potential problems that come up. They can help you stay accurate, compliant, and far away from tax penalties.

Resources and Tools for Financial Management

Resources

Some accounting software have resources like blogs, YouTube channels, or podcasts connected to them. They not only help you navigate the software but also aid your financial management efforts. 

Udemy and Coursera also have courses related to business and financial management. These are great if you are looking for a more structured learning experience.

There is an arsenal of digital financial management tools both free and paid that can help you improve your processes and practices.  

You can also look at other sources for financial advice and support, such as forums, subreddits, Discord groups, and Facebook pages.

Networking 

Networking is also a great way to build your knowledge and foster partnerships. You can engage with Twitter/X threads and comment on the posts of popular finance and entrepreneurship influencers. Joining seminars and popular finance conferences will also help you connect with more people in the space. 

Frequently Asked Questions

How often should I update my bookkeeping records as an artist?

You can do it daily, weekly, or monthly. Most bookkeeping services do it monthly. 

What should I do if I lose a receipt for a business expense?

You can ask for another receipt or check your bank statement for proof of purchase. 

How can I manage bookkeeping efficiently during peak creative periods?

If you’re doing your own bookkeeping, you can leave the record-keeping for the end of the day. If necessary, set a specific day(s) of the week to update your records.

Otherwise, hire a bookkeeper so you don’t have to worry about it. 

Are there any grants or financial aids available that can impact bookkeeping for artists?

Sure! There are a few grants for artists who need financial aid. Also, consider checking out organizations like Creative Capital and Artist Relief. 

How do I handle international sales and associated taxes in my bookkeeping?

The best option is hiring someone who has specific knowledge about that country’s or region’s tax laws and regulations.

What Is AccountsBalance?

AccountsBalance is a monthly bookkeeping service specialized for agencies & SAAS companies.

We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.

You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.

Interested in learning more? Schedule a call with our CEO, Nathan Hirsch.

And here’s some free resources:

• Entrepreneur Bookkeeping Checklist
• Monthly Finance Meeting Agenda

In Summary

Understanding bookkeeping for artists starts with understanding their unique needs. Selecting the right accounting software can help mitigate their financial and time challenges. There are many resources that can help teach this management skill. However, artists also have the option to outsource so they can focus on their creative endeavors.

If you’re an artist reading this, we hope our article helps you create at least an initial  sketch of your financial management plan.