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To artists, doing taxes may seem daunting, but it is very doable with a good understanding of the topic and appropriate record-keeping skills regarding income and business expenses.
In this article, the Stellenbosch Art Law Clinic (SALC) will address:
what taxable income is,
how and when to pay tax (and the consequences of not),
deductible business expenses and
filing tax returns.
There will also be some handy hints to keep track of your business as well as your head. So, if you are an artist that is looking to make some extra money on the side by selling your artworks, this article is for you.
Employees that work for a company, will have their taxes managed by their employer. However, when working on a commission basis, in a shop, or on social media, you qualify as a sole proprietor under the Income Tax Act 58 of 1962. You, as owner of your own business, will bear the responsibility to include the income from your business in your own income tax return and to pay tax thereon.
Understanding the basics of income tax
First and foremost, various types of artists can generate income from their works, whether working for an employer or as a freelancer. These include:
Visual artists, who create works of art that can be seen, such as paintings, sculptures, photographs, and installations.
Writers include novelists, poets, journalists, playwrights, screenwriters, and copywriters. They create written works, such as books, articles, plays, and scripts.
Designers create visual designs for products, brands, and experiences. They may specialise in graphic design, fashion design, industrial design, interior design, or web design.
Musicians and composers create music and often perform live or record their music for distribution.
Filmmakers produce, direct, and edit films, including feature films, documentaries, and shorts.
Animators create animated films, cartoons, and video games.
Illustrators create drawings and images for books, magazines, advertisements, and other publications.
Photographers take photographs of people, places, and things for a variety of purposes, including art, advertising, journalism, and documentary.
Freelance artists are self-employed individuals who earn income through their artistic talents. As self-employed individuals, they are responsible for managing their own tax affairs and complying with tax regulations set out by the South African Revenue Service (SARS) and the Income Tax Act.
Failure to register for taxes, submit tax returns or pay taxes owing can result in penalties, interest charges, and legal action by SARS. Non-payment of taxes can have serious consequences. Freelance artists who do not comply with tax regulations may also find it difficult to secure loans or credit in the future which may damage their reputation and credibility in the industry.
If you are employed, PAYE (Pay-As-You-Earn) is a tax that is deducted from the salary or wages of employees by their employers and paid over to SARS on their behalf. As freelance artists are self-employed, PAYE is not applicable to them. PAYE only applies to individuals who are employed by an employer and receive a regular salary or wage. However, if a freelance artist hires employees, then they will have to register as an employer with SARS and comply with PAYE regulations.
One of the primary taxes that freelance artists must pay is personal income tax. This is a tax on an individual's income, which includes any earnings from artistic work. The Income Tax Act sets out the rules for calculating and paying income tax in South Africa. Freelance artists must register with SARS for income tax and submit an annual tax return to declare their earnings and pay any tax owing.
​Taxable income (R) | ​Rates of tax (R) |
1 – 237 100 | 18% of taxable income |
237 101 – 370 500 | 42 678 + 26% of taxable income above 237 100 |
370 501 – 512 800 | 77 362 + 31% of taxable income above 370 500 |
512 801 – 673 000 | ​121 475 + 36% of taxable income above 512 800 |
​673 001 – 857 900 | ​179 147 + 39% of taxable income above 673 000 |
857 901 – 1 817 000 | 251 258 + 41% of taxable income above 857 900 |
1 817 001 and above | 644 489 + 45% of taxable income above 1 817 000 |
Source: sars.gov.za
Fig. 1 shows the different tax brackets applicable to freelancers. For example, if your total income in a year is R120 000, or approximately R10 000 per month, you will be taxed at 18% of the taxable income. This does not necessarily mean that your taxable income will be equal to your total income, as there may be business expenses that can be deducted from your taxable income amount, and it is also subject to their age groups. (see more later).
Another tax that may be applicable to freelance artists is value-added tax (VAT), which is a tax on the value added to goods and services as they move through the supply chain. Freelance artists who earn above the VAT threshold (currently R1 million per annum) must register for VAT and charge VAT on their services. They are then required to submit regular VAT returns and pay any VAT owing to SARS.
In addition to income tax and VAT, freelance artists may also be liable for other taxes, such as municipal rates and taxes, depending on their circumstances.
It is important for freelance artists to understand when taxes become due and payable to avoid penalties and interest charges. Income tax is due and payable on a provisional basis twice a year, with the final tax liability due and payable after the tax year-end (28 February) based on the tax return submitted. VAT returns and payments are due every two months. Tax returns will be elaborated on later in this article.
Provisional tax is a way for freelance artists to pay their tax obligations in advance, in two or three payments throughout the tax year, rather than paying a lump sum at the end of the tax year. The calculation of provisional tax is based on an estimate of the taxpayer's taxable income for the year.
Here are the steps you can follow to calculate provisional tax:
Estimate your total income for the current tax year, including any income earned from your artistic business. Subtract any allowable deductions to arrive at an estimate of your taxable income.
Determine the provisional tax payments: Use the SARS provisional tax tables to calculate the amount of provisional tax payable based on your estimated taxable income. You can also use SARS' online tax calculator to estimate the amount of provisional tax payable.
Deduct any allowable tax credits: If you are entitled to any tax credits, such as foreign tax credits or donations made to approved organisations, you can deduct them from the provisional tax amount calculated in step 2.
Make the provisional tax payments: Pay the provisional tax due in two or three installments, depending on the option you have selected. The first payment is due six months after the start of the tax year, the second payment is due at the end of the tax year, and the third payment (if applicable) is due six months after the end of the tax year.
It is important to note that the estimate of your taxable income must be as accurate as possible to avoid underpayment or overpayment of provisional tax. If you underestimate your taxable income, you may be liable for penalties and interest charges for underpayment. Conversely, if you overestimate your taxable income, you may be entitled to a refund when you file your tax return.
Deductible expenses
Freelance artists can deduct expenses that are incurred in the production of their artwork, in the course of their business activities, from their taxable income. Deducting these expenses reduces the amount of income tax owed by the freelance artist.
The types of expenses that freelance artists can deduct include:
Materials and supplies including the cost of paints, canvas, brushes, and any other materials that are used in the production of artwork;
Equipment expenses such as cameras, computers, software, and other equipment used for producing artwork;
Studio and office expenses including rent, utilities, and other expenses related to the studio or office space used for the artistic work;
Marketing and promotion expenses like advertising, website development, and other marketing expenses;
Travel expenses for transportation and lodging expenses incurred for business purposes such as attending art shows or exhibitions;
Professional fees such as legal and accounting fees, as well as fees paid to other professionals for services such as web design or printing;
Education and training including the cost of workshops, classes, and other educational and training expenses directly related to the artistic work.
It is important to note that these expenses must be directly related to the production of the artwork and incurred in the course of carrying on the artistic business -, Any costs associated with the production of income! It is also important to keep accurate records and receipts for these expenses to support any deductions claimed on tax returns.
Record-keeping
Freelance artists who work on a commission basis may find it challenging to estimate their taxable income accurately since their income can vary greatly from year to year. However, there are some measures they can take to ensure a more accurate estimate:
Keep detailed records:
Keep detailed records of all your income and expenses throughout the year. This will help you to accurately estimate your taxable income when it is time to calculate provisional tax. It is important to make copies of your records to send to SARS, rather than sending your originals. This is because records should be kept for at least five years. Brendan Murray developed a genial record-keeping system. He uses five shoeboxes - one for each year, with the most recent one on top. With each new tax year, empty out the bottom box (the oldest one) and put it on top for all the relevant documents and receipts for the next tax year.
Use previous years' income as a guide:
If you have been working as a freelance artist for a few years, use your previous years' income as a guide to estimate your current year's income. This will give you an idea of what to expect, although it is important to remember that your income may not always be consistent.
Consult with a tax professional:
If you are uncertain about how to estimate your taxable income accurately, consider consulting with a tax professional. They can help you to review your records, estimate your income, and ensure that you are paying the correct amount of provisional tax, if applicable.
Use SARS' online tax calculator:
SARS' online tax calculator can also be used to estimate your taxable income and the amount of provisional tax payable. While this may not provide a completely accurate estimate, it can give you a general idea of what to expect.
HANDY HINT: Remember, it is always better to overestimate your income and pay more provisional tax than necessary than to underestimate your income and be hit with penalties and interest charges for underpayment. You can also adjust your provisional tax payments later in the year if your income changes significantly.
Filing your tax return
As a freelance artist, filing tax returns is a crucial part of managing your tax affairs. Measures to adhere to when filing your tax returns include:
Registering for eFiling: To file your tax returns electronically, you will need to register for eFiling on the SARS website. You will need to provide your personal and contact information to create an account.
Gather your documentation: Before you can file your tax return, you will need to gather all the necessary documentation such as your IRP5 or IT3(a) certificate (employees’ tax certificates), invoices, and receipts for any and all expenses incurred in the production of your artwork.
Complete the tax return form: Log in to your eFiling account and select the appropriate tax return form based on your income and tax obligations. Complete the form by providing your personal details, income earned, and expenses incurred.
Submit the tax return form: Once you have completed this form, review it for accuracy and completeness, and then submit it online through your eFiling account. You will receive a confirmation once the return has been successfully submitted.
Make payment: If you owe any tax, you will need to make payment through eFiling or at a SARS branch. If you are entitled to a refund, it will be paid directly to your bank account.
It is important to file your tax returns on time to avoid penalties and interest charges. The deadline for filing tax returns is usually 31 October for non-provisional taxpayers and 31 January for provisional taxpayers. However, it is important to check with SARS for any changes in the deadline dates. See here an example for the 2022 tax year.
Conclusion
In the words of Benjamin Franklin, "In this world, nothing can be said to be certain, except death and taxes". Tax is inevitably permanent, yet made out to be a taboo topic. However, ignoring it will not make it go away, so it is best to become educated and thus empower yourself to manage your own business.
In conclusion, freelance artists are required to comply with tax regulations set out by SARS and the Income Tax Act. This includes filing for tax returns, paying income tax, registering for VAT if applicable, and paying any other taxes owed. It is important for freelance artists to understand their tax obligations and deadlines to avoid penalties and interest charges, and to maintain their credibility and reputation in the industry. To lessen taxable income, certain business expenses can be deducted.
Should you feel a little lost and confused, or you would like to ask some follow-up questions, do not hesitate to contact the SALC.
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