Sunday, December 16, 2018

Do artists have to pay tax on art prizes?

Do artists have to pay tax on the value of art prizes?

An art prize might feel like a windfall but, in fact - and tax law, artists generally have to pay tax on their value.

This post explains about:
  • my new page Tax on art awards and prize money which references 
    • links to tax requirements in different countries
    • why a distinction is drawn between professional and amateur artists
  •  the general principles about tax as applied to art prizes
  • Tax on art awards and prizes by different countries - specifically the UK, Ireland and Germany; the USA and Canada and Australia
NEW PAGE: Tax on art awards and prize money

Tax Tips for Artists on my Art Business Info for Artists website now has a number of sub-pages (see the end). One new one - at the top of the tax menu - relates to Tax on art awards and prize money.

Below is a summary of the information on that page - although none of the information below is specific to a particular country.

Tax principles re prizes

Most countries have more of less the same law which they apply to certain professions. Artists are one such profession.

The basic principle is that - for certain professions - it's a relatively normal and accepted practice to earn income by applying for art competitions and winning prizes. Indeed some artists will win prizes with a financial value on a regular basis - even if you personally don't!

Hence the income from such prizes is counted, as a matter of principle, as part of the overall income of an artist.

However there is A BIG "IF".

This basic principle only holds good for professional artists i.e. if the usual measures used by the taxman to determine whether or not an individual is trading also apply.

So if you need to do a tax return declaring your sole trader income then you will need to include prize money and the value of prizes as part if your normal professional - and taxable - receipts for your gross income.

Those artists who are declared amateurs, who win a small nominal prize at a local parochial art show for amateurs, do not need to declare such income. An amateur is allowed to consider such prize money to be a windfall.

Usually countries have a statement which allows artists to determine whether or not their activities and associated income are considered to be a hobby or a trade.
  • if you are an amateur with a hobby - you do NOT pay tax in nominal prize money - and neither can you claim any expenses
  • if you are a professional (even if it is not your full-time job):
    • you do pay tax on the financial value of all prizes and awards and 
    • you are allowed to claim all expenses relative to your trading income against tax (if allowable)
For more information and references to specific tax documents, manuals and statements see the page identified at the top of this post.

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Tax issues for organisations

In some countries, (e.g. the USA) the organisation responsible for paying out prize money may need to withhold tax if the prize goes to somebody who lives outside the USA. See the blog post for more explanation.

Since the income is considered to be earned income for professionals, the organisation providing the prize may also need to provide a tax certificate to artists as to the value of the prize.

It's not an area of tax law which is crystal clear (artists are generally ignored by tax law), however there are other professions and other aspects of income which suggests that those paying out are responsible for certifying what they have paid out.

I'm going to see if I can get clarification of the implications for organisations of:

  • what documentation they need to provide
  • how small a nominal prize needs to be to count as "amateur status"

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