Artist, Did not register business, made some sale through art gallery, should I stay as hobby or file schedule C ?

[dsinha7]

Hi All, Besides my day job (W2), I am also starting as a professional artist (selling paintings)
I did not register my business last year, as I only sold through art galleries (for-profit and nonprofit).
My income through art sales are minimal, but expenses are high ( art studio rental, material, etc.).

Should I file art sales as a business ( Schedule C) even if I have not registered a company with the state ( and no direct sales)?
I will be reporting losses. Or should I report the sales income as Hobby and not take the loss as a deduction? Galleries will not send 1099.

[JohnB5677]

You do not have to create a legal entity to file a Schedule C.  You can use your Social Security Number.  Also, you do not have to get a 1099 to report income.  For a business you can simply enter your gross revenue.

However, if you file a Schedule C you will have to be able to prove that you had a "Profit Motive". 

If a taxpayer receives income for an activity that they don’t carry out to make a profit, the expenses they pay for the activity are miscellaneous itemized deductions and can no longer be deducted. The taxpayer must still report the income they receive on Schedule 1, Form 1040, line 21.

"If your business claims a net loss for too many years, or fails to meet other requirements, the IRS may classify it as a hobby, which would prevent you from claiming a loss related to the business. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions." When the IRS Classifies Your Business as a Hobby

[dsinha7]

Thank you, 

One more related question,  I did not register the business with the state I live and did not pay sales taxes  Is my assumption correct that I do not have to pay sales by the gallery and they paid sales taxes?

[GeorgeM777]

Yes, if the gallery sold your artwork, the gallery would have to collect sales tax and remit that tax to the appropriate revenue department in your state.  We assume the gallery paid you some percentage of the total sales price.  If so, then you would report the income you received on your tax return.

As explained by @JohnB5677, report your art business income/expenses on Schedule C, Profit or Loss From Business.  TurboTax will generate a Schedule C after you enter your artist income.  

In TurboTax online, your artist income is entered as self-employment income.  From the screen Your income and expenses, scroll down the screen to the section Self-Employment and enter your information.   If you are using TurboTax CD/download, from the Wages & Income tab, scroll down to Business Items, and select Business Income and Expenses. 

@dsinha7