by Mark Monlux, markmonlux.com
Dear Mark,
I have a question that needs an answer, maybe you would care to comment. I'm an on again/off again freelance graphic designer, and I typically do small side jobs, and take payments in cash.I now have a freelance assignment coming up, and the client wants to pay by check. Freelancing is not my primary income, and while some years I have filed my income taxes as an employee (from my full time job) and a self employed individual both at the same time, last year I did not.
My business is not "registered" and I don't have a NY state business tax ID number, as some have asked me for in the past. The question: When you invoice a client, would you mark up the bill with a state sales tax?
Thanks for listening,
- Willy Nilly
.
_________________________________________________________________
.
Dear
Mr. Nilly,
First
and foremost you need to
get yourself a business license.
It is truly a no-brainer
and is very easy to do. And
if you are just starting out
and are not making a whole
lot of money, don't worry,
most states will only tax
you if you have a healthy
income. When I started I
wrote my income and then NA
in the other slots when I
filed my yearly form.
Just go to city hall and pay the small filing fee and get legal. And don't forget to get a city business license too.
Next, you should not be charging a sales tax on your invoices. Instead you will be paying the government a service tax, which is much cheaper and easily absorbed into the cost of the project. Graphic Design is seen as a "service" because you are licensing the rights to your work, not selling the physical works itself.
If you were hired in house by a firm, your labors would be classified as services, not product. Graphic Design, Illustration, Copy Writing, they are all seen as service. Some states even have specific tax codes stipulating this. Here is the one for Washington State (were I live) Quote from Washington State Tax Commission Ruling (1967) Bulletin N. ETB-308.04.224:
"Clients engage artists because of their professional knowledge and artistic skill, and the drawings which result are visual representations of the artists' ideas. The finished illustrations, and designs are not the end product as they are invariably duplicated by photography, engraving, printing, or similar process. It is further noted that the Code of Fair Practice for commercial artists provides that transfers of such artwork are only of reproduction rights."
Contact the New York Chapter to find out what the tax code is for your state.
Quick
Recap
1.
You must have a State Excise
Tax Number. This means that you
need to file for a state business
license. You will need to pay
the state a business and occupation
tax B&O,
which is a relatively small chunk
of change, based on your income.
That is easy enough to do but
you should be aware that in order
to be straight with the state?
2. You must have a City Business License (if your city requires one). Some cities have these, some don't. Those that do might have a flat fee or again it could based on your income. You will need to check with your city.
3. Your must have a Home Business Permit (if your city requires one). The concept that people work at home is not new to your city. However, some cities have an approval process that allows your neighbors to have a say in whether or not they want your business in your neighborhood. This allows for your neighborhood to make sure that there will be no increased traffic, pollution, or noise pollution near their homes.
It is always a good idea to check with your city to see which of these forms you must apply for first. I might be that you have to apply for them all at once or in reverse order. It all depends on local rulings. So give your city hall a call and find out.
And if you don't have a copy of it, go out right now and buy The Graphic Artists Guild Pricing and Ethical Guideline Handbook.
Because, you really need to have your act together as a business instead of acting like it is a hobby.
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