The best tax tips for artists – great savings potential on operating expenses and public funds

Artists often face unique tax challenges. The complex nature of their income sources, from sales revenue and performances to grants, requires careful planning and management.

In light of recent news about tax reforms and new funding opportunities, it is becoming increasingly important for artists to thoroughly examine the possibilities of tax optimization. Particularly lucrative opportunities arise with regard to payroll tax deductions, certain tax exemptions, or tax reductions.

This article provides a comprehensive overview of the best tax tips to help you reduce your business expenses, claim them in the best possible way for tax purposes, and use public funds efficiently.

Note: Please be aware that this article does not constitute or replace tax advice, but is merely an editorially researched article on the topic.

Art as a valuable asset worthy of support

The state recognizes the high intrinsic value of artistic creation. Art is an essential part of our cultural heritage and our shared identity. Therefore, the promotion of art is understood and implemented as an important state responsibility . Tax law also supports artistic work through special regulations, tax exemptions, and tax reductions for income and sales tax.

Basic classification of artistic work

First of all, it must be clarified whether an artistic activity gives rise to income tax liability intention to make a profit .

Income tax liability

All persons residing in Germany are generally subject to unlimited income tax liability, provided they earn income that falls under one of the seven income categories . For artists, the following income categories are particularly relevant:

• Income from business operations
• Income from self-employment, especially freelance work
• Income from dependent employment

Profit motive

The seven types of income are based on the pursuit of profits or surpluses. Without this intention, an activity is considered a "hobby" and is not tax-deductible. The tax office assesses the profit motive based on external characteristics, although this is often difficult, especially in the artistic field.

Reasonable arguments for the stated intention must be presented. The tax office assumes a profit motive if a positive overall return is expected in the long term. Preliminary decisions can be made in cases of uncertainty. Once the matter is clarified, the tax office will adjust the assessments accordingly.

The Federal Fiscal Court or your tax office generally recognizes entrepreneurial activity as long as a business-specific start-up period of at least five years has not yet been completed, even if it has only generated losses from the outset. This also applies to the work of an artist, as positive income often only becomes apparent after a longer start-up period.

The intention to generate income is assessed based on external characteristics, whereby certain circumstances can provide prima facie evidence that can be refuted. In artistic activities, various aspects must be considered, such as the type of professional training, whether artistic activity is the main source of income, and the professional marketing of the works.

Crucially, irregular participation in exhibitions alone is not sufficient to speak of professional marketing of the works.

(cf. Federal Fiscal Court judgments: Munich Fiscal Court, judgment of 9 October 2009 – 7 K 1731/0; Federal Fiscal Court, judgments of 6 March 2003 – XI R 46/01; 23 May 1985 – IR 101/81; 23 May 2007 – XR 33/04)

In your specific case, it's best to speak with a tax advisor, as general statements cannot be made here. Numerous different aspects are taken into account in the overall assessment.

What type of income?

Artistic activities can generate various types of income, including income from employment , freelance work , or business operations .

It is possible for an artist to combine several types of income within a single tax year, depending on the various activities they undertake. The correct classification of these activities under the appropriate income categories is crucial, as this has direct tax implications, particularly for artists.

The distinction between self-employed commercial or freelance work and dependent employment is of great importance. While freelance or commercial activities are taxed by the tax office at the end of the calendar year and advance payments may be required, in dependent employment it is customary for the employer to deduct income tax from the artist's salary and remit it to the tax office.

Self-employment or commercial activities can also entail VAT liability

Employees are persons who, in the course of their work, are subject to the instructions of an employer or are integrated into the organizational structure of a company and must follow its instructions.

Individuals who provide goods and services as part of their independent commercial or professional activity are not considered employees. The distinction between self-employment and dependent employment depends less on the formal contractual arrangements and more on the concrete implementation of the agreement .

To simplify the tax classification of artists and similar professions, the tax authorities have issued corresponding regulations, which you can also view, for example, in the online edition “Tax tips for artists” of the Bavarian State Government .

Tax tips for employed artists (employees)

#1 Submit your income tax return and take advantage of flat-rate allowances

Income tax calculation is based on the portion of the annual income tax attributable to the current pay period (usually monthly, but also weekly or daily for shorter-term employment). The current wage is converted to an annual amount, assuming the employee receives a salary for the entire year.

Even for single people without children, filing an annual tax return is worthwhile simply because of the flat-rate allowances. Good tax software like Steuerbot or WISO completes the income tax return quickly, without requiring in-depth knowledge, and relatively easily. The cost of €40-46 is definitely a good investment and will save you a lot of time and hassle.

The tax deduction in the tax return takes into account various tax benefits such as the basic tax , the employee allowance for work-related expenses , the allowance for insurance contributions , and the lump-sum allowance for special expenses. This reduces the annual tax deduction even without receipts. If your actual expenses exceed the lump sums, it is advisable to submit your actual expenses. For this, you will need to provide receipts.

The situation becomes even more urgent if you haven't been employed for the entire year. This is where tip #2 comes into play.

#2 Utilize special regulations for wage tax deduction for artists

Artists frequently change employers and/or often have long breaks between jobs. However, income tax is calculated under the assumption that earnings from different jobs could be generated evenly throughout the year. Therefore, the tax rate increases the fewer days coincide for the payments.

To provide relief for artists even during the year , special regulations were introduced to ensure that periods of unemployment can also be submitted. Previously, the relevant employment data was recorded on the income tax card, but today it is submitted electronically.

Employees should present their new employer with the wage tax certificate from their previous employer in order to benefit from the tax relief.

How exactly does this tax break work?

With the extended payroll period, the period before the actual start of employment is extended for the purpose of wage tax deduction. This requires that this period has not already been used in a previous employment relationship and that the employer is informed. Up to one week, but no more than one month, can be allocated for each two days of work.

The payment period can also be extended to a full month ( extended payment period ). In this case, the employer and employee agree that the entire month will be considered the period for income tax deductions and that the payments will initially be treated as advance payments.

Freelance work or business?

If you are not an employee, you may be self-employed. In this case, it's necessary to distinguish between freelance work and a commercial enterprise. You can also earn income from self-employment as a secondary occupation alongside employment.

Freelance activities include independent scientific, artistic, literary, teaching or educational activities, as well as professions such as doctors, lawyers, tax advisors, architects and journalists.

An artistic work is characterized by originality and a certain artistic quality, with the individual's overall activity being a decisive factor. Recognition as an artist can be influenced by the taxpayer's education (e.g., a completed art degree), press publications, art exhibitions, and membership in professional associations – although mere membership alone is not sufficient.

In cases of uncertainty, an expert commission be consulted to clarify the artist status; such commissions are established in all federal states for various art fields.

Self-employment can also exist even if qualified professionals are employed. However, the prerequisite is that the self-employed individual possesses sufficient expertise, holds a managerial position, and performs the typical tasks independently to a reasonable degree.

Due to the highly personal nature of artistic activities, they can only be recognized if the artist has a decisive creative influence on all activities required for the production of a work of art.

If the requirements for freelance work are not met, for example because the activity performed cannot be classified as "artistic" income is generally considered to be from a commercial enterprise.

Tax tips for self-employed artists

#1 Deduct business expenses

Business expenses are an often underestimated area for tax savings . Many artists are unaware of how many of their everyday expenses are tax-deductible. Business expenses are all expenditures incurred through entrepreneurial activity.

Expenses relating to the taxpayer's private life are not deductible as business expenses or advertising costs.

The following items can be deducted for tax purposes:

Material costs and studio expenses

Let's start with the most obvious items: material costs and studio expenses. Paints, canvases, brushes, instruments, costumes, and many other materials you need for your artwork can be claimed as business expenses.

The same applies to the rental costs for your studio or rehearsal space. Remember to also include utilities such as electricity and water.

Purchases / Equipment

If the purchase price (excluding VAT) does not exceed €410, the expenses can be fully deducted in the year of purchase. If the costs exceed this amount, depreciation is calculated proportionally over the estimated useful life.

#2 Claiming travel expenses – Mobility as a tax advantage

Art thrives on inspiration, and this often seems to be fueled by travel. Whether visiting exhibitions, participating in symposia, or undertaking study trips – all of this can be claimed as a tax deduction.

Travel expenses

Travel expenses include costs for transportation, accommodation, and meals. For journeys made in your own car, you can claim mileage (30 cents per kilometer). Receipts for public transportation should be carefully kept.

Additional meal expenses

For trips lasting several days, you can also claim additional meal expenses. In Germany, this amounts to €14 for each full day of travel and €28 for overnight stays.

Tax tips for ALL artists

#1 Deduct advertising expenses

If a taxpayer cannot prove higher work-related expenses, the standard employee allowance of €1,000 per calendar year is automatically deducted from their income from employment. This allowance applies to the entire year, even if the income was only earned for part of the year, to ensure that no losses occur.

If an artist has higher advertising expenses that exceed the employee lump sum, he must – like any other employee – specify these expenses in detail in his income tax return.

The following items can be claimed advertising expenses

Workwear

Costs for typical work clothing can be claimed as a tax deduction. Typical work clothing includes garments that are specifically adapted for a particular profession, such as protective clothing, or that objectively fulfill a professional function.

Expenses for normal everyday clothing, even if it is mainly worn at work, are considered non-deductible expenses for private living.

Application costs

It is possible to deduct job search expenses as business expenses, provided they are not reimbursed. These include, for example, telephone costs, postage, copying costs for certificates, and travel expenses for job interviews. The success of the application is irrelevant.

Commuting between home and work

When it comes to the distances between place of residence and first place of work according to § 9 para. 4 EStG (formerly: regular place of work), the costs are usually covered by the statutory distance allowance.

However, journeys to a workplace that is not the primary workplace are generally taken into account at the actual cost.

A private study – The creative retreat

If you do not have a separate studio, you can still deduct a home office from your taxes, provided it is used exclusively for professional purposes.

This includes a share of the rent, heating costs and other operating costs.

Work away from home and maintaining two households

A business trip occurs when an employee is temporarily away from their home and not at their usual workplace for professional reasons. Even if the employee does not have a fixed workplace and typically works at different locations, this is considered a business trip.

This regulation applies, for example, to guest performances by theatres, ensembles or tours.

The costs incurred for travel, accommodation and meals can be claimed as business expenses, provided they are not reimbursed tax-free by the employer.

Special tax breaks for artists

#1 Flat-rate deduction of business expenses for freelance secondary employment

For certain secondary activities, special rules apply to business expenses: Income from scientific, artistic or literary activities, including lectures or part-time teaching and examination activities, can be deducted as a lump sum of 25 percent of business income, but no more than 614 euros per year, without individual proof.

This regulation does not apply to activities pursuant to Section 3 No. 26 of the German Income Tax Act (EStG). The maximum amount of €614 can only be claimed once per year for all relevant activities.

If higher operating expenses were actually incurred and can be proven, the flat-rate deduction no longer applies. In this case, the actual operating expenses incurred will be taken into account.

#2 Tax-Free Public Funds

Grants from public funds or from a public foundation, awarded as support for the direct promotion of education or training, science or art, are exempt from tax.

The condition for tax exemption is that the recipient is not obliged to provide a specific scientific or artistic service or to perform a specific job in return for the donations.

#3 Instructor's allowance

Income from part-time activities as a trainer, instructor, educator, supervisor or comparable artistic activities is tax-free up to a total amount of 2,400 euros per year according to § 3 No. 26 EStG (= so-called trainer's allowance).

These activities must be carried out on behalf of a legal entity under public law that is established in an EU member state or a state of the European Economic Area, or an institution falling under Section 5 Paragraph 1 No. 9 KStG for the promotion of charitable, benevolent or ecclesiastical purposes (Sections 52 to 54 AO).

The tax exemption applies, for example, to part-time choir directors, orchestra conductors or church musicians.

#4 Honorary pension

Remuneration for artists and financial support from the German Artists' Aid Fund are tax-exempt according to § 3 No. 43 EStG, provided that these are payments from public funds made due to the artist's financial hardship.

#5 Scholarships

Scholarships awarded by public funds or intergovernmental and supranational organizations for the promotion of artistic education or training, and in which the Federal Republic of Germany participates as a member, are tax-exempt.

Similarly, under certain conditions, scholarships awarded by an institution established or managed by a public corporation, or by a corporation, association of persons or pool of assets pursuant to Section 5 Paragraph 1 No. 9 KStG may be tax-exempt.

To be tax-free, scholarships must not exceed an amount necessary for living expenses and educational costs and must be awarded according to the donor's guidelines. Furthermore, the recipient must not be obligated to provide any specific artistic service or perform any work related to the scholarship.

#6 Prize money

Cash prizes for artistic achievements are subject to taxation if they are closely linked to a source of income as defined by income tax law. The competition rules and the objectives of the prize must be taken into account.

#7 Artists' Social Security Fund

According to § 3 No. 57 EStG, the amounts that the Künstlersozialkasse pays to a social security institution or to the insured person from the proceeds of the Künstlersozialabgabe and the federal subsidy for the benefit of the insured person under the Künstlersozialversicherungsgesetz are tax-free.

#8 Small Business Regulation – Use of the Flat-Rate VAT Rate

For artists, the standard taxation of income can often be complicated. The option of flat-rate taxation according to § 19 of the German VAT Act (UStG) can offer significant relief in this regard.

By applying the small business regulation, you can refrain from showing VAT if your turnover in the previous year was less than €22,000 and is expected to be less than €50,000 in the current year. This can significantly reduce the administrative burden and is often particularly attractive for part-time artists.

#9 VAT exemptions for certain cultural institutions

Performances by theaters, orchestras, chamber music ensembles, and choirs are generally exempt from value-added tax (VAT) if they are institutions of the federal government, the states, municipalities, or municipal associations. This tax exemption also applies to similar institutions of other businesses, provided the responsible state authority – in Bavaria, the government of Lower Bavaria – certifies that they fulfill the same cultural functions as public institutions.

Information on the application process can be found on the BayernPortal . Services provided by self-employed solo artists can also qualify for this tax exemption. The genre of music is irrelevant. Even music groups in the entertainment music sector can therefore benefit from this tax exemption.

The performance of plays and concerts by other businesses is tax-exempt if they are performed by tax-exempt theaters, orchestras, chamber music ensembles, or choirs. An event requires a performance in one's own name before an audience. Services provided by intermediaries are not tax-exempt.

The tax exemptions exclude input tax deduction.

Outlook on current developments

Recent political and economic developments could have concrete tax implications for artists. For example, negotiations are currently underway regarding further tax relief for sectors particularly affected by the economic impact of the pandemic, including the cultural and creative industries. The German Cultural Council .

It is worthwhile to follow the news closely and, if necessary, contact your tax advisor in order to benefit from new regulations in a timely manner.

Ending

In summary, there are many interesting ways for artists to take advantage of tax benefits and thus strengthen the financial foundation for their creative work. The skillful use of business expenses, travel costs, and public funding can result in significant savings.

Furthermore, it is important to be informed about special tax regulations for artists and to utilize them effectively. Innovative online tools can also provide quick and easy solutions to tax-related issues.

Stay up-to-date on current developments and funding programs, and don't hesitate to seek professional advice. Your art deserves to flourish – with the right tax tips, nothing stands in the way of this goal.

If you have any further questions or would like to share your own experiences, I warmly invite you to leave a comment. It is always valuable to learn from each other and support one another.