You just finished a long day at the shop. You did some amazing pieces and your clients left happy. You count your cash and check your digital payments. It feels great to see that money in your account. But there is a catch. Not all of that money belongs to you.
As an independent tattoo artist you are running your own business. That means the government expects a cut of your profits. If you do not plan ahead you might face a massive bill when tax season arrives. This is one of the most common struggles for artists today.
So how much taxes tattoo artist professionals actually need to save? The answer depends on a few factors but there is a simple rule you can follow to stay safe. Let us break down exactly what you need to know about tattoo artist taxes so you can focus on your art instead of stressing over numbers.
The Golden Rule of 25 to 30 Percent
If you want a quick and safe answer you should save 25 to 30 percent of your net income for taxes. Your net income is the money you make after you pay for your supplies and booth rent.
Why 25 to 30 percent? This percentage usually covers all your obligations to the government. It might sound like a lot of money to set aside. However, it is always better to save too much than too little. If you save 30 percent and your tax bill is lower you get to keep the extra money as a bonus.
Many artists make the mistake of saving a percentage of their total sales. You only pay taxes on your profit. Make sure you subtract your business expenses first. This will give you a much more accurate number to work with.
Building this habit early in your career will save you from endless headaches. When you automatically set aside a portion of your income you build a safety net. You will never have to scramble to find cash when the IRS comes knocking.
Breaking Down the Taxes You Owe
To understand why you need to save that much money we need to look at the different types of taxes you pay. When you work for yourself you are responsible for three main categories of taxes.
Self Employment Tax
This is the biggest surprise for new artists. When you are an employee your boss pays half of your Social Security and Medicare taxes. When you are self employed you have to pay the entire amount yourself.
The self employment tax tattoo artists pay is exactly 15.3 percent of their net profit. This tax applies to almost every independent contractor. It is a flat rate and it adds up quickly. This is why setting aside money from every single appointment is so important.
You cannot avoid this tax if you are operating as a sole proprietor or a single member LLC. It is a mandatory contribution to your future retirement and healthcare benefits.
Federal Income Tax
On top of the self employment tax you also owe federal income tax. The United States uses a progressive tax system. This means the more money you make the higher percentage you pay on your top earnings.
Your federal income tax rate depends on your total profit and your filing status. For most artists this falls somewhere between 10 and 22 percent. Remember that this tax only applies to your taxable income after all your deductions.
The standard deduction will lower your taxable income significantly. But even with deductions your federal income tax will likely be your second largest tax expense.
State Income Tax
Depending on where you live you might also owe state income tax. Some states like Texas and Florida do not have a state income tax. Other states like California and New York have high state taxes.
You need to check the rules for your specific state. If your state charges income tax you should lean closer to saving 30 percent of your profits. If you live in a state with no income tax you might be safe saving closer to 25 percent.
A Simple Example with Real Numbers
Let us look at a real world example to make this easier to understand. Imagine you are a tattoo artist who brings in 10000 dollars in a month.
First you need to subtract your expenses. Let us say you pay 2000 dollars for booth rent and 1000 dollars for supplies. Your total expenses are 3000 dollars.
You subtract your 3000 dollars in expenses from your 10000 dollars in sales. This leaves you with 7000 dollars of net profit for the month. This 7000 dollars is the number you use to calculate your taxes.
Now you apply the golden rule. You decide to save 30 percent to be safe. You multiply 7000 dollars by 30 percent. The result is 2100 dollars.
You should immediately move that 2100 dollars into a separate savings account. The remaining 4900 dollars is yours to keep and spend on your personal life.
If you do this every single month you will have 25200 dollars saved by the end of the year. When your accountant tells you that you owe 20000 dollars in taxes you will simply write a check and still have 5200 dollars left over as a bonus.
Why Most Artists Get Surprised
Many talented artists find themselves in trouble with the IRS. This usually happens for a few common reasons.
First they treat all the money in their bank account as personal spending money. When you see a large balance it is tempting to buy a new machine or take a vacation. But if you have not separated your tax money first you are spending the government money.
Second they forget about the self employment tax. They might estimate their federal income tax but they completely miss the extra 15.3 percent they owe for Social Security and Medicare.
Third they do not track their expenses properly. If you lose your receipts for supplies you cannot claim them as deductions. This means your profit looks higher on paper and you end up paying more taxes than you actually owe.
Finally they wait until April to think about taxes. By the time they realize how much they owe the money is already gone. This leads to payment plans penalties and a lot of unnecessary stress.
How to Avoid the Tax Time Panic
You can completely eliminate tax season stress by building a few simple habits.
- Open a separate bank account. Create a dedicated savings account just for your taxes. Never use this account for personal spending or business expenses.
- Transfer money weekly. Do not wait until the end of the month. Every week calculate your profit and move 25 to 30 percent into your tax account.
- Pay quarterly estimated taxes. The IRS expects you to pay your taxes four times a year. If you wait until April to pay the full amount, you will face penalties and interest. See our quarterly taxes guide for exact deadlines and how to pay.
- Track every single expense. Use an app or a spreadsheet to record every needle every ink bottle and every roll of paper towels you buy.
- Work with a professional. A good accountant will help you find deductions and make sure you are saving the right amount.
When you follow these steps tax season becomes a breeze. You simply take the money you already saved and send it to the IRS. There is no panic and no scrambling for cash.
Take Control of Your Finances
Managing your money does not have to be complicated. By setting aside 25 to 30 percent of your profit you protect yourself from massive tax bills. You work hard for your money and you deserve peace of mind.
If you are tired of guessing how much you owe or if you want to make sure you are not overpaying we can help. We specialize in helping tattoo artists organize their finances and minimize their tax burden.
Ready to stop stressing about taxes and start focusing on your art? Apply to work with us today and let us handle the numbers for you.