Tom Wirt on thu 1 apr 99
>>>>>Let's see, I make pottery, so my number must be
327100, "Clay product & refractory mfg.".
I guess that would put me in the same catagory as AP Green,
or whoever bought them out, and Dal-tile.
>>>>Does anyone have any thoughts about this?
Bonnie, If you have a few minutes this time of year, what do you
recommend for potters?<<<<
>>>>David Hendley
David,
Hopefully Bonnie will answer, but our accountant said you choose by
determining what the largest portion of your income producing activity time
is spent on.
He also said, that there are advantages in being a manufacturer rather than
a retailer.
The reason for the proper code is that your return will be compared by the
ubiquitous computer against others in your code for "appropriate"
percentages of expenditure for various expense categories. Being a
manufacturer, there is assumed cost of sales, materials, etc.., etc..
If you just call yourself a retail seller of pottery, the expenses vary
dramatically. The object here, unfortunately, is avoiding audit, not
getting into the proper category.
Love and kisses
Tom Wirt
Erin Hayes on thu 1 apr 99
Hi All!
I consulted a friend who is a CPA about the new business codes and he
advised me that the only viable choice was the "Independent Artist" code
under Entertainment business codes. Sorry I don't have the actual code in
front of me...
Erin.
Judith Enright on thu 1 apr 99
David -- I just reviewed the tax papers prepared by our our accountant and
he listed my principal business or professional as "sales - pottery", and
that was all. Doesn't appear that he used any numeric code at all, and he
never has. So far (6 years) I've not been called to task by the IRS or the
state.
Be well...
Judith
Judith Enright at Black Leopard Clayware
BLEOPARD@ricochet.net
(408) 947-1723
Olivia T Cavy on thu 1 apr 99
David, and others,
The short answer is that the code the IRS would prefer you to use is one
that requires inventory and the accrual method of accounting, clay
product manufacturer code 327100. Here's the long explanation.
First I will tell you that I don't like those pesky new IRS codes either.
I'm finding it difficult to code many clients' occupations for exactly
the reasons you so humorously describe. However we need to choose the
best fit from the business codes less than 999999 codes wherever
possible. In tax matters it is better NOT to stand out! We would really
prefer NOT to have an individual looking at our returns, and (although I
don't know this for sure) I think that code 999999 is an invitation for
an IRS person to look to see why we can't classify ourselves. In general
we want our tax returns to look as normal and standard as possible, we
usually want to try to fit within the meaning of the pre-printed lines
wherever possible.
IRS instructions for line A of the Schedule C state to "Describe the
business or professional activity that provided your principal source of
income report on line 1." This is asking you to describe your business in
words and will further classify what you do. I'd try to state my
business in generic business terms. Imagine you're talking to a business
person when you tell the IRS what you do. Describe things in general
terms. Tell the IRS that you are selling handmade ceramics, wholesale &
retail, if this is what you do.
The main consideration is how the greatest part of your revenue is
earned. Other things to think about are how you think of yourself. Do you
see yourself primarily as a geologist, an art dealer, a gift store
retailer, a seller of wholesale goods, a builder, or as an artist or a
clay product maker? If your business code used to be 1032,
Manufacturing Clay Products, the new code 437100, which includes Ceramics
Mfg, is probably the one that best fits your business RECORDS and the way
your Schedule C probably looks. In addition, the name of your business
also describes your business in many cases.
I believe in giving the IRS all the information they ask for, but not
giving them more information than they need. I also wany my clients to
pay the least tax legally permitted by the tax code, so I'll make choices
that favor the client over the IRS wherever possible.
The IRS has been creating specialty occupation audit guidelines for their
staff, and some of these may actually be online, at the IRS website. When
you select a business activity that falls within the audit guidelines it
means that if your return is selected for audit, the IRS auditor will
probably be looking for certain things discussed in the audit guide, i.e.
certain types of expenses, certain ratios of certain expenses to revenue,
certain approaches to record keeping. BTW even if there is no audit guide
for your business, the IRS computer still looks at various numerical
ratios, particularly cost of goods sold to gross revenue, and total
expenses to revenue. (I've simplified things here quite a lot, but the
above is a very general discussion. Certain returns are statistically
more likely to be audited than others.)
Each person will have to examine his/her own situation to see what fits,
but if you've been filing on the accrual basis in the past and keeping
inventory, you can't go wrong choosing the clay product manufacturer code
327100. The IRS likes returns filed on the accrual basis where businesses
claim inventory, and they try to force many filers to claim inventory and
thereby be required to file on the accrual basis, both of which tend to
maximize taxable income. I've heard colleagues talk of dentists being
audited, where the auditor tried to claim that their supplies of dental
materials were inventory! And once you accept that you have inventory,
you MUST be on the accrual basis. If this is what you've been doing all
along, you're basically just continuing the same way. This is very safe
because it is the most fiscally conservative approach.
Now for the code 711510 Independent Artists. If this is my first year for
filing, I'd try as hard as I could to see if I felt I qualified as an
artist, because then I could write off all my materials and supplies as
purchased (& received), not have to keep track of inventory, and I could
keep my records on the cash basis. I've been talking to ceramic artists
trying to see if they have been audited on the issue of whether or not
they are "artists" for the IRS. Remember we are ONLY discussing an IRS
return, not whether your art is as good or better or worse than someone
else's. This is not a time for philosophy or art appraisals or ego trips.
We are discussing business here. How does your work look to the general
public, not the Garth Clarks of the world. Do you have a cohesive body of
work, your own style, unique elements of design, something that makes it
look like what your IRS auditor would think is art? We're not using MFA
standards here. I really can call myself an artist when I sell everything
wholesale or when I sell everything at local fairs and festivals-doesn't
matter, although it would help if my work could be found in "art"
galleries, museums, books and "collections". I don't need to feel
comfortable uttering Pablo Picasso and my name in the same breath. That's
not the standard. I've got to look like an artist and convince my auditor
that I am an artist, or my representative before the IRS (my tax
preparer, CPA, attorney, enrolled agent) has to be able to convince the
auditor that I am an artist.
I know one ceramic artist who was audited at her local IRS office, who
took professional looking photographs of her work, arranged artfully in
groups. She took those photos to her audit, and before the auditor even
got started, she got the auditor to agree that she was an artist. Very
clever!
The IRS does not offer a lot of guidelines about who is an artist.
According to one explanation (and I believe this comes from tax code
section 263A) an artist is "any individual who uses his personal efforts
to create a picture, painting, sculpture, statue, etching drawing,
cartoon, graphic design or original print edition. However, when
determining whether an expense is incurred in the trade or business of
being an artist, two factors will be taken into account: (1) the
originality and uniqueness of the item created or to be created; and (2)
the predominance of aesthetic value over utilitarian value of the item."
Does this exclude potters making functional pottery? Unequivocably NO,
functional potters are not excluded from being artists, but they may have
to work a little harder to look like artists than the ceramic people
making murals and people selling their work at Art prices, rather than
functional prices.
I venture to guess that most people on Clayart see themselves as either
artists or clay manufacturers as their primary occupation on their
Schedule C (or other tax return).
As one parting thought without going into detail, I'd suggest that there
are many income tax reasons to avoid having more than one Schedule C
business, unless absolutely necessary.
Let me add the usual disclaimer, that the above is intended as general
discussion, and not tax advice, and for each person's individual
situation, each person should consult with his own advisor.
Bonnie
Bonnie D. Hellman, CPA in PA & CO
Pittsburgh, PA
work email: bdh@firstcaptl.com or oliviatcavy@juno.com
home email: mou10man@sgi.net
On Wed, 31 Mar 1999 08:49:40 EST David Hendley
writes:
>----------------------------Original
>message----------------------------
>I'm finally getting around to filling out my tax forms.
>Those not interested in American tax forms can delete now.
>As an avowed generalist and do-it-yourselfer, I sure do hate
>picking out one thing that I do, giving it a number and putting on
>a tax form.
>
>Let's see, I make pottery, so my number must be
>327100, "Clay product & refractory mfg.".
>I guess that would put me in the same catagory as AP Green,
>or whoever bought them out, and Dal-tile.
>
>But wait, I also sell what I make, so I must be a reatiler, maybe
>number 453920, "Art Dealers". That would put me in there with
>the New York art dealers and Southeby's.
>Maybe, it's a stretch to call my humble pottery "art", so I must be
>a number 453220, "Gift, novelity, & souvenir stores". I wonder
>how my return will compare to the gift shop at the statue of
>liberty store?
>
>Hold on, I also wholesale a good bit of what I make. That will
>send me over to "Wholesale trade". I can't find anything there
>relating to pottery or ceramics, so I guess I would fit in under
>"other miscellaneous". Oh oh, should it be 421990, "Other
>miscellaneous durable goods", or 422990, "Other miscellaneous
>non durable goods"? Well, pottery's pretty durable, some of it's
>been around for thousands of years. But I've also dropped some
>pieces while unloading the kiln. Not too durable.
>
>Maybe I'm giving too much importance to manufacturing and
>selling. I do have an art degree, after all. Let's look in "Arts,
>Entertainment,
>& Recreation". There it is, right below "Gambling industries", number
>711510, "Independent artists, writers, & performers". Great, I also
>write. I guess now I'll be in the same catagory as Jerry Seinfeld.
>I wonder how my tax return will compare to his?
>
>Let's see, what else. I did spend several months last year building
>a new kiln and kiln shed. That would put me in "Construction". I also
>spent some time digging and collecting clay and glaze materials. Maybe
>number 212300, "Nonmetallic mineral mining"? I also did some
>teaching and workshops, how about "Educational Services"?
>Then there's always number 999999, "Unclassified establishments
>(unable to classify)". Sound good to me.
>
>Seriously, a while ago Bonnie mentioned the new codes and suggested
>that the code number you put on your schedule C is important, as
>it puts you in a class where your return is compared to others in the
>same class.
>Does anyone have any thoughts about this?
>Bonnie, If you have a few minutes this time of year, what do you
>recommend for potters?
>
>David Hendley
>Maydelle, Texas
>hendley@tyler.net
>http://www.farmpots.com
>
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eden@sover.net on thu 1 apr 99
David Henley's entertaining post reminds me of the "a potter is" t-shirt.
I guess I haven't looked closely enough at my schedule C, I didn't notice
this latest tax connundrum. I have always assumed we're in "clay
manufacturing". But I also think that the blurb you write down at the top
of your schedule C, describing your business, is a crucial bit of info. I
describe myself for this purpose as "Creating and distributing ceramic art
to galleries, fairs, and individuals." Which I figure takes it out of the
"manufacturing" category and puts it where it belongs.
Eleanora
.............
Eleanora Eden 802 869-2003
Paradise Hill
Bellows Falls, VT 05101 eden@sover.net
Caroline Cheng on thu 1 apr 99
Wow! Good questions David, I'm an American tax payer with a green card
living outside the USA, and I've been wondering for years whether I have
filed my tax forms correctly!
Caroline Cheng
The Pottery Workshop
2, Lower Albert Road
Hong Kong
Timothy Dean Malm on sat 3 apr 99
Greetings: Concerning tax reporting. If you find yourself disabled,
choosing to apply for Social security disability insurance coverage, your
earning from those tax forms will be factored into your monthly checks if
you are fortunate to be accepted as truely disabled. Fourty percent of
applicants are turned down the first time around. There's quite a segment
of lawyers who help people to receive disability dollars the've paid in
taxes along the way so they can be taxed again if and when they recieve
them in the form of disability checks.Sincerely.Tim Malm
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