Craft business vs. artist exemption
J. L. Harrison
previous years on craft businesses and inventory
requirements.
Can someone direct me to specific information or guidelines
on the exemption given for artists as to inventory
requirements?
Is there a bright line between a craft business and an
artist's sales of creations?
The motivation of exploring whether the artist treatment
fits would be to avoid the burden of inventory and cost
tracking by item when it comes to hundreds of small items
purchased at many different times and in different
quantities. If we gotta do it, OK, but if we don't HAVE to,
we'd rather not.
Larry Harrison
larr...@MillComm.COM
(Delete aaa to reply directly -- thanks)
D. Stussy
> I have reviewed (via dejanews) the very helpful posts from
> previous years on craft businesses and inventory
> requirements.
>
> Can someone direct me to specific information or guidelines
> on the exemption given for artists as to inventory
> requirements?
>
> Is there a bright line between a craft business and an
> artist's sales of creations?
>
> The motivation of exploring whether the artist treatment
> fits would be to avoid the burden of inventory and cost
> tracking by item when it comes to hundreds of small items
> purchased at many different times and in different
> quantities. If we gotta do it, OK, but if we don't HAVE to,
> we'd rather not.
There is a revenue ruling (of which I do not remember its
number) that indicates that for certain artists [of the
non-performing type], one may simply expense costs as
supplies instead of maintaining an inventory. I believe
that there are restrictions on this as to which artists
qualify.
I believe the ruling is intended towards those "street
artists" that create their work and sell it in public
places, as opposed to those like Picasso or Da Vinche who
make many items (and maintain a "supply of works"). Here in
the Los Angeles area, there are areas (e.g. the Venice Beach
"boardwalk") where artists/craftsman are allowed to sell
ONLY that which they have made during that day on the beach
(by city ordinance). However, the ruling may apply to all
artists - I haven't read it recently.
Ed Zollars
> Can someone direct me to specific information or guidelines
> on the exemption given for artists as to inventory
> requirements?
Someone will need to check the details, but I don't recall
a *specific* exemption that is granted to artists as far
as inventory goes. However, what might happen is that if
materials are not deemed to be a substantial portion of
the income production (produced work sells for far more
than the cost of the underlying materials) it appears that
the general inventory rules wouldn't be tripped.
For instance, if a painting goes for $20,000, the total
materials involved would be minor compared to the selling
price. But if we are talking most craft items, then I
think we have a much higher percentage of the sales price
represented by the material costs.
Some have suggested reading the Knight-Ridder case (which
was a newspaper arguing it didn't need to maintain
inventories) as holding that a 15% material cost compared to
revenues appears to "certainly" trigger the inventory rule
(and accrual basis). If I use that test (which isn't
necessarily correct), then the artist falls below that level
while the crafts business comes out above that level.
---
Ed Zollars, CPA (Phoenix, AZ)
ezo...@primenet.com
http://www.getnet.com/~hmtzcpas