As an arts administrator, my mission is to support individual artists. In graduate school, I was always the person to advocate for the creative: in mock copyright cases, in class debates. When it was time to choose an arts organization to study—to interview, to write about, to research—I always chose those ones that serve individual artists.
Post-graduation, this is how I ended up at Queens Council on the Arts, managing a program where I get to work with artists directly via the Artist Commissioning Program. This new initiative brings in a group of art producers, or community members that select the awardees and engage with their artistic process, as well as grants performing artists a $10,000 commission.
Which brings me to taxes.
Money, Money, Money
As a small arts council based in Queens, New York, this is our first time granting out such a large amount of money to individual artists: our primary granting program, Queens Art Fund, distributes $2,500 to artists (among slightly larger organizational grants).
Given that we are new to this space, our Executive Director, Hoong Yee Krakauer, discussed our new project out in the world. Energized from a recent Americans for the Arts conference, she returned to the office with a new idea: Rather than distributing the $10,000 in one lump sum, what if we explored other options? she asked.
With options, came questions: What are the potential tax implications for our artists? How can we structure this grant to minimize artists’ tax burden? What can and can’t we do as an organization with 501c3 status?
I wanted to know how other grantmaking organizations handle this, and what the best practices in the field are when it comes to fiscally supporting creative practitioners. Specifically, we had an artist who wanted to use his grant to purchase a piece of equipment. Could we use our nonprofit status to purchase this piece of equipment, and thus save money on sales tax?
Inadvertently Uncovering a Knowledge Gap
Embarking on my research project, I was shocked how many people didn’t know the answer to this question. Executive directors of esteemed NYC-based arts organizations gave me answers like, “I’m not sure, we don’t give grants of that nature,” or, “Good question… let me know what you find out.” One cultural leader brazenly said something to the effect of, “I would just do it until you’re told otherwise.”
What Do Most Arts Organizations Do?
To get some answers, I talked to arts administrators who work or have worked for a variety of arts organizations in this space—including Creative Capital, Creative Time, Doris Duke Artist Awards, and New York Foundation for the Arts who helped answer these questions (and to whom I am grateful for their willingness to share).
In doing so, I found two major trends:
Trend #1: Just Send the Money
From my research, it seems like most funders write artists a check and call it a day. This is especially true of arts councils, or other organizations such as New York Foundation for the Arts that are issuing under $10,000 to artists. This is certainly the easier approach administratively, and arguably makes more sense when you’re dealing with smaller amounts of money that do not have large tax implications.
Trend #2: Use The Calendar Wisely
When you start to issue larger sums of money, the game changes. Creative Capital and Doris Duke Artist Awards, who issue up to $50,000 and $275,000 in funds to individual artists, respectively, allow artists receive it over to multiple years, which enables artists to better manage their awards’ tax ramifications.
Here are some other key takeaways I found in talking to cultural leaders:
- Grants are considered income, and taxed as such. In other words, if an artist usually makes $30,000 a year, and then receives a $30,000 grant in 2018, they made $60,000 in 2018.
- Distributing funds over multiple years can help artists minimize their tax burden. To extend the earlier example, let’s say that the same artist receives a $30,000 grant, but is able to receive $15,000 of it in 2018, and the other $15,000 in 2019. This will help them stay in the $45,000 tax bracket both years, rather than being taxed in the $60,000 bracket one year.
- You can sometimes use your organization’s 501c3 status to save on sales tax.
- When you can: If your organization is producing an artist’s event or project, you can use your 501c3 status. For example, Creative Time has used their tax-exempt status to purchase things like art supplies for their projects.
- When you can’t: You cannot use your organization’s 501c3 status to buy things for other people. For instance, at QCA, we were considering purchasing a piece of equipment for an artist directly, using the funds from their grant, but were advised against it.
- The organization’s role—of producer, presenter, or funder—impacts the fiscal relationship with the artists, and thus what you can do from a tax perspective:
Can We Do More?
Most arts organizations start out by hosting a speaker to go over tax issues for their grantees. They go over the basics, then, after the session, the advice is then to seek out additional counsel.
At face value, this sounds perfectly reasonable. But broken down, that means artists have about 30 minutes – 1 hour of information on one of the most complex and personal subjects around.
Moreover, one workshop says nothing of the following issues:
- If artists can afford to hire an accountant: Most would probably opt to spend the money on necessities or arts-related items.
- Tax ramifications are so highly individualistic. Should you accept all the funds now? Depends on how much you make. What income should I declare this year? Depends on your expenses.
- Artists’ projects also change and evolve with the creative process. Wouldn’t it be great if artists had someone to check in with about the financial implications of their decisions?
Yes, these are systemic issues—but is it not our jobs to try to address their impact on the cultural sector?
At Queens Council, we’ve paired a group of art producers with with our grantees—two of whom are CPAs! They’ve been kind enough to offer their continuous council to the artist awardees, and we’ve found it to be one effective way to build advisors into creative production.
I would push arts organizations to become more comprehensive, supportive infrastructures: to go beyond the administrative short cut of writing a check. Enabling artists to receive funds over multiple years is a good start, but I think we can do more. How? By using the very creative problem solving that inspired us to enter the field in the first place.
Disclaimer: I am by no means a tax expert! Just one arts administrator sharing what she found in hopes it will be helpful. For issues pertaining to your specific organization, I must give the same advice that many of us give to artists: seek out a financial advisor or tax lawyer!