The point, or so it seemed, of last year's tax reform law was to make the system of filing taxes simpler. Many artists, however, are finding the new law has made their lives more difficult and costly. Like everyone else, artists have found that they can deduct only 80 percent of their entertainment expenses - a measure aimed at curbing the high cost of business lunches and dinners. And, as businesses, they no longer receive an investment tax credit of 10 percent of the cost of new equipment they purchase for their work.
The artists are even more concerned about losing the ability to deduct part of their home expenses (such as rent, utilities, heating, telephone), when their studio is part of their home, if they show a loss for that year.
An even greater loss is the deduction for the cost of art materials for works not sold in that year. ``It's telling artists that you have to put all your work into an inventory and only deduct the expenses for what has sold,'' says Susan Lee, an accountant who works with artists. ``If you are a photographer who takes 20,000 frames a year and only one picture sells, you can only take 1/20000th of your expenses.''
This latter provision, which is contained in a footnote of the tax reform law and states that a creator may not carry forward costs for works that have not produced income, had previously applied only to larger businesses. This aspect of the new tax code was written specifically to apply to free-lance authors, artists, and photographers who were seen to be listing large expenses in the face of minimal income.
The change will make recordkeeping difficult for artists, accountants say.
``Say you're working on a series of four paintings and yo sell one of them,'' says Bernard Dickman, a New York accountant. ``In order to make deductions for your costs, you now have to figure which paints went into the one that sold as opposed to the other three in order to satisfy the government. This is incredibly cumbersome, especially for artists who work on more than one project at a time.''
Ms. Lee notes that losing the right to deduct all one's yearly costs reflects a governmental ``end run around the hobby-loss provision,'' which in 1969 disallowed deductions for artists' expenses where they had not shown a profit in two years of a five-year period. Many artists who could not show such profits were still able to declare deductions, however, by proving that they had made a concerted effort to establish careers as professionals. Establishing that proof included keeping good records and receipts, showing their work in galleries, receiving critical recognition, working consistently at their art, and making attempts to sell their work.
Calling the Tax Reform Act of 1986 a ``disaster for artists, especially for beginning artists who probably don't sell that much,'' Lee says there is not much leeway for artists in the new code. All artists can do is keep good records - to show which materials were used on which works - and to try to change the law.
A movement to change the law has begun in Washington, led by the New York City-based Authors Guild, which has publicly called the new law a ``bookkeeping nightmare'' for its members. Reps. Tom Downey (D) of New York and Martin Russo (D) of Illinois, who are members of the House Ways and Means Committee, are investigating the cost of eliminating this provision for artists. On the Senate side, Bill Bradley (D) of New Jersey has also expressed interest in changing the law.
According to an aide of Congressman Downey, there is a strong possibility of an amendment to an omnibus technical-corrections bill - which is to come out of the Ways and Means Committee and is intended to correct problems created by the new tax law - to permit these deductions by artists again.