Dear Rex,
If a working artist in the state of Texas sells some of his pieces, but it isn’t a significant portion of his income, should he still collect sales tax on the pieces sold? And how does he go about filing said taxes with the county and/or state? (Or is there a ballpark threshold income above which it would be wise for said artist to file such paperwork?)
-Taxes in Texas

Dear Taxes,

Pony up, buddy; if you’re selling more than two pieces of your art in a 12 month period—and congrats if you are—you have a legal obligation to collect sales taxes and send them to the State.  Unlike the Margin Tax (which is applicable only to corporations, limited liability companies, and the like), there is no minimum threshold for Sales Tax so you owe tax starting with the first dollar in sales.

The first step is to apply for a sales tax permit with the Comptroller of Public Accounts.   You can do this on-line here.  Before you visit, you’ll need:

• Sole owners need a social security number.
• Partnerships need the social security number or federal employer’s identification number for each partner.
• Texas corporations must have their file number from the Texas Secretary of State.
• All corporations need the social security number for each officer or director.

After your application is approved, it’ll take 2-3 weeks to receive your permit in the mail.

Once received, you’ll need to file and pay your taxes on a schedule determined by your sales volume.  In other words, you’ll file either monthly, quarterly, or annually, as outlined in the instruction sheet that will accompany your permit.  Filing and paying is pretty easy, too, and can also be done on-line.  If you have zero sales in a tax period, remember that you still need to file a return.  There are penalties if you fail to file a return, even when no sales tax is due!

The tax rate you’ll charge is based on the location of your studio, shop, or office, and is composed of city, county, and state taxes.  In larger cities like Houston and Austin, this combined rate adds up to 8.25%.  The State provides information with your permit to help determine the rate.  The good news is you pay the entire tax bill to the state, who then handles divvying the money between the different jurisdictions.

By the way, the Controller’s office is staffed with very helpful people who do a good job of answering your questions either on-line or in person at their state-wide office locations.

Dear Rex
I’m traveling to SXSW in Austin for business, and my spouse is accompanying me so we spend a day or two vacationing. How much of my trip is tax deductable?
-Creative Vacationer

Dear Vacationer,

Travel expenses include the cost of transportation by airplane, train, bus, or car; baggage and shipping; lodging and meals; dry cleaning and laundry; and tips on such costs.

You can deduct all of your travel expenses if your trip was entirely business related.

If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct your business-related travel expenses. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination.

For example: You and your spouse fly to Austin. You attend the conference during the day, your spouse doesn’t. The conference lasts 5 days and you stay the weekend, then fly home. Your plane ticket (business related) is fully deductable, your spouse’s ticket (vacation) isn’t. Of your hotel bill, the 4 nights that covered the conference are deductable, the 2 weekend nights aren’t.  Assuming you rented a car the entire time, 4 of the 6 rental days would be deductible.

The rules are a little different for travel outside of the United States.  You can read more at the IRS website.

Dear Rex,

I’m a self-employed musician and pay for my own health insurance.  How much of this can I deduct?

–Healthy Artist

You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents.  To qualify, you must be a self-employed individual with a net profit reported on Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business.

The insurance plan must be established under your business.  For Schedule C filers, the policy can be either in the name of the business or in the name of the individual.  However, you cannot take the deduction for any month you were eligible to participate in any employer (including your spouse’s) subsidized health plan at any time during that month.

Dear Rex,

I’m an artist and I use my car for all kinds of business purposes.  What can I “pay for” through my business towards travel, and what deductions should I be tracking for tax purposes?

–Wandering Artist

Dear Wandering,

The travel expense deduction gets extra scrutiny from the IRS because it’s so prone to being abused.  Business use of a personal car even has special record keeping rules.  If you own only one car, logic dictates that some of the miles you put on it in a year must be for personal reasons: your daily commute (if you’re an employee) and trips to the mall, grocery store, movie theatre, and the like aren’t eligible for deduction.  So to be able to claim any auto-related expenses, you must keep track of how many of the miles you’ve driven were for business and how many were personal.

The most commonly accepted documentation is a written mileage log.  Here’s the most painless way to use it.  Stash the log and two pens (in case the first pen runs out) in your glove box or center console.  On  January 1, write down your mileage.  Every time you finish a business drive, note the date, the number of miles driven, and the business-related purpose of the trip.  Don’t worry about tracking your personal use miles; only track the business trips.  On December 31, write down your mileage again.  By subtracting your starting mileage from your ending miles, you’ll get total miles driven in the year.  Add up the miles driven from each business trip and subtract that number from the total miles to get your personal miles driven.

By the way, the standard mileage rate for business driving dropped from 55¢ per mile to 50¢ per mile, effective January 1, 2010.