Serious Business!

There’s that funny word ‘business’ popping up in this journal again. As many of you know, or may not know, I’ve been working towards getting my studio name, Angelic Shades, off the ground as an independent, one employee, go-to art studio for fantasy illustration for the past couple of years. My dream is to work in illustration while writing and illustrating my own books. I didn’t think about seriously establishing it as a business till I wrote business and marketing plans for Angelic Shades in grad school last year. It occurred to me that perhaps it WASN’T so impossible as everyone made it out to be.

Even still, I’ve waffled back and forth on what to do and ran away screaming when I’ve come up against the extra taxes, registration fees, and insurance that come along with starting a business. Lately, with the promise of a huge commercial project on the horizon, I realize I need to get serious about incorporating if art is going to be my main means for an income for my own sake, and for the sake of organizing my finances. I’ve been looking at the following forms of business setups and trying to make a decision. I am in no way a lawyer or an accountant. These descriptions are what I’ve garnered from my own readings and attending lectures and are how I understand them:

Sole Proprietorship – This form of business is the easiest to form. All you need is a business license, employer ID number, and tax ID number.

Pros

    * Easy to setup and manage

    * Tax forms are filed as part of your personal taxes

Cons

    * There is no separation between your personal income and your business income, meaning your assets are in danger and you have no liability protection if sued for damages, or any other such reason.

The Limited Liability Corporation – The LLC combines the best of the sole proprietorship and allows for great flexibility in taxation, depending on what form of LLC is chosen.

Pros

    * Protection of personal assets from damage claims.

    * Taxes are handled as an attachment on your personal taxes for each managing member (or in this case just you if you are operating it alone)

    * Flexible taxation. LLC can be changed to suit the business’ needs

Cons

    * More complicated setup process involving the creation of articles of formation and other declarative documents.

    * Higher fees for registration.

And let’s not forget the PRO for starting a business or being self-employed in general:

TAX DEDUCTIONS! This subject is a whole other ball of wax that I’ll go into on a later post.

Many of the artists I have interviewed chose a Sole Proprietorship as their business format due to its ease, but also, I believe, because they began practice before the establishment of the relatively new form of LLC, which first came about in the late 70’s. I also noticed a few of the artists I’ve spoken to have opted to form Corporations for themselves, due to the heavy amount of product licensing and business dealings they handle. Personally, I am avoiding the Corporation as the thought of double taxation on shares and having to do separate tax forms sounds like a bit of overkill for my small start. In the future, I may tackle the formation of a Corporation, but for now, LLC sounds like the way I want to go!

It may be more setup, but the protection against losing my personal assets sounds wonderful if, for example, a piece of art should fall on someone’s head at an art show or someone decides to sue me for copyright infringement for whatever reason. These cases are extreme, but they can and do happen.

So now begins my quest to tackle my fear of paperwork, tax forms, and record-keeping. I hope that in a month from now, I can proudly declare that I am no longer just Angelic Shades, but Angelic Shades incorporated!

If any of you have already incorporated your small businesses (or are thinking about it), what business formats have you chosen? How has it helped you with furthering your ambitions? I’d love to hear your thoughts and stories.

2 comments

  1. I’m starting this year claiming my stuff as a business. I have 5 years of claiming without making a profit before I can no longer claim. If after 5 years I’ve been making profit I’ll get a buisness license.
    I’m not sure the differences between US and canada but its sounds like I’m taking route #1 :p

  2. I can’t offer a whole lot on the business side of things, but I know I posted some links way back on Freelancers to a whole bunch of bits and pieces you can claim on tax forms for home business, etc. Deducting a percentage of heating, electric, etc based on the percentage-space your home office takes up. It’s Canadian, but I imagine it’s fairly equivalent.

    Also an interesting tidbit I heard recently from an American author. Apparently she deducts *all* her book purchases on her income tax. It wouldn’t work the same for an artist, but in her case she deducts all educational/reference books as craft and writing research to increase her business (aka writing better books). All the novels she buys, she deducts as market research, checking out the competition. Very cool! Definitely something you’d want to check with someone in the know, but I imagine you could deduct a lot of art-book related purchases that way, such as your books on marketing, making a profit on Ebay etc.

    Once I’m actually employed (first advance, etc) I’m going to be saving all my book receipts and I’ll chat with my friendly H&R lady and see what she says.

Leave a Reply