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This year, the Indiana Arts Commission teamed up with Elaine Grogan Luttrull of Minerva Financial Arts to prepare answers to common tax FAQs, just in time for tax season. Of course, these answers do not replace tax advice; they are simply educational to help you make sense of some complex rules.
Can I deduct my charitable contributions?
You technically only get a tax benefit if you do something called itemizing your deductions. That’s when certain deductions (most notably state and local taxes you pay, interest on your home mortgage, and charitable contributions) add up to more than your own standard deduction, which for single individuals in 2022 was $12,950.
So, if you have $10,000 of state and local taxes (which is the current cap on the deduction, by the way), you would need to contribute nearly $3,000 to charities in order to itemize your deductions and get the tax benefit (assuming you didn’t have any other deductions to itemize). That’s wonderful … but it may not make sense for you.
This is a little different, by the way, than it was in 2020 and 2021 when individuals could deduct up to $300 in qualified charitable contributions without itemizing. But congress didn’t extend that provision.
So yes, you can deduct your charitable contributions, but you may not actually get a tax benefit unless you itemize.
How do I deduct the cost of supplies or inventory?
If you are a visual artist and you work with tangible materials, or if you are an artist with tangible merchandise, you have a couple of different paths to deducting your supplies.
First, if you are able to track the supplies, which is possible for some types of craft artists and some visual artists – and definitely possible if you can count your inventory of books, T-shirts, or other merchandise – the best way is to track them and deduct the cost of whatever you sell during the year. That’s called your cost of sales or cost of goods sold, and there is a formula to calculate it:
- Start with the cost of your beginning inventory
- Add the cost of whatever materials and supplies you bought during the year (or inventory you produced if you pressed an album or published a book)
- Subtract your ending inventory. The difference is your cost of sales.
But if it is impractical to track your supplies, either because they are immaterial or you use such a small bit in each individual piece, you may decide to expense the cost of your supplies as soon as you buy them. That basically means you’d deduct the cost in the year you have the expense.
This might make sense for some illustrators, photographers, or other artists for whom tracking cost of sales doesn’t work.