Herbert I. Lazerow (San Diego), Income Tax Planning for Visual Artists, Their Dealers, Investors, and Collectors, 170 Tax Notes Fed. 923 (Feb. 8, 2021):
The tax issues of visual artists, art dealers, art investors, and art collectors all revolve around the same type of property: artwork. Be it a painting, drawing, print, sculpture, photograph, fabric, or glass art, that property raises tax issues for which advance planning can be useful. Some tax problems are shared by artists, dealers, investors, and collectors alike, such as the necessity to prove a profit motive in order to deduct expenses. However, those four categories of taxpayers face different tax results for the same activity in some cases, such as when artwork is sold or donated. This report explores those similarities and differences and suggests steps advisers can take to maximize tax benefits for their clients. It occasionally questions whether the similarities and differences — or the rules applied by the IRS — make sense.
Clients from the art world come in a variety of packages. A few artists are wildly successful, and some have trouble making enough money to pay the rent. To survive financially, many artists follow the adage “Don’t give up your day job.” Their economic status may change from year to year — an artist who earns a living solely by selling artwork may have years of plentiful sales followed by years in which nothing sells, and vice versa. Art collectors and investors are usually prosperous, with income from investments or other endeavors. Art dealers run the gamut from well-to-do to “Why did I ever commit myself to running an art gallery?” The tax planner needs to consider many different possibilities. ...
It should be clear from this report that the tax treatment of visual artists and their dealers, collectors, and investors is much more complicated than it was a generation ago. The good news is that there are many ways tax planners can help their clients achieve the best results.