All material in this section is provided for informational purposes only. IC cannot guarantee 100% completeness or accuracy. Please consult an accountant, attorney or other qualified professional for advice regarding your specific issue.
LEGAL
MAY 2008
STOP THE TERRIBLE ORPHAN WORKS ACT OF 2008!
The Orphan Works Act of 2008, essentially an anti-copyright bill, is being rushed through Congress right now by big corporations, with the support (surprisingly) of the Copyright Office, and is scheduled to be voted on very soon. An attempt to push it through in 2006 failed, but this time they're trying to do an end run by putting it on a fast track before the summer recess.
WHAT IT DOES Don't be fooled by the name. This bill deserves no sympathy. Its stated purpose is "to provide a limitation on judicial remedies in copyright infringement cases involving orphan works." Orphan works are those works whose copyright owners or creators are not readily identifiable. This includes a vast number of images on the internet right now, not to mention artwork or photos that someone buys at a yard sale, maybe from one of your past clients. The bill says you can't sue for copyright infringement if violators can show they tried but couldn't track you down to get your permission. Then they can use the image for any purpose. If you ever find out and object later, they're only required to pay you "reasonable compensation" (whatever that is!). Forget about any kind of damages.
The bill also requires databases to be maintained by private commercial (i.e., for-profit) registries that will cost you annual fees to sign up and keep your work on file. If you don't, you risk having it fall into the public domain—which will allow big image publishers and stock houses like Google, Getty and Corbis to vacuum the web for unregistered works and sell them, without telling you or paying you a penny. Guess who's pushing to get this bill through? Google, Getty and Corbis.
WHAT YOU CAN DO NOW It's very simple. As soon as you can, please send an email to your Congressman and Senators asking them to vote against it.
Don't panic... Click on the sample letter here that you can either send as is or add your own words to. Then type in your name and address and hit Send. All done in one click!
Other sample letters and more information here.
BRAD HOLLAND INTERVIEW On April 5, 2008 (before the bill was released in the House and Senate) artist and producer Mark Simon interviewed Brad Holland about Orphan Works legislation. The warnings in this interview have now been confirmed by the language in the final bill. Learn what artists groups are doing and how you can help oppose this radical departure from traditional copyright law and business practice: Click on the MP3 file for the interview.
BACKGROUND The Illustrators Partnership of America (IPA) has an excellent archive/resource page on the topic here.
TEXT OF BILLS If you'd like to read the bills for yourself, here's the official page for the House version: Orphan Works Act of 2008, H.R.5889. Click on "Text of Legislation":
...and the Senate version: Shawn Bentley Orphan Works Act of 2008, S.2913.
BUSINESS
HOW TO START & RUN A FREELANCE ILLUSTRATION BUSINESS
For those of you just starting out, this should get you going in the right direction. For others, it's not a bad idea to review this material once in awhile and check the links for more information & updates. If something's missing or inaccurate, or if you have any suggestions, please let us know at legal@illustratorsclub.org.First, two very important rules:
Rule #1. KEEP RECORDS
One of the most overlooked aspects of any freelance business is good record-keeping. It doesn't have to be a daily chore, but it should be regular, consistent, and well-organized. With minimum effort, you can save yourself hours of aggravation at tax time. It's also important to measure your business growth in some detail, for your own benefit.Some suggestions:
- Create a system of folders (electronic or the old-fashioned tabbed kind) for clients and jobs as they come in.
- Maintain a log book of telephone conversations with clients (just a few notes after you hang up).
- Get it in writing: Use your own Estimate or Confirmation of Assignment form. Even a quick email summarizing a phone call and describing the project, usage of the artwork, estimated price & timeline will come in handy in case there's any disagreement later.
- Your invoices should look professional and include terms of the sale. Be sure to reserve to yourself all rights not transferred, and make the transfer take effect only when payment in full is received.
- Save all receipts. See Rule #2.
Rule #2. WHENEVER POSSIBLE, DEDUCT
Keep track of all income, from every source, as well as all expenses. This is especially important for deductions -- which fully reduce, right off the top, the amount of income on which you're taxed. You're allowed to deduct everything you spend related to your business, as long as you can document it. So save all receipts, and file them in specific folders, following the itemized list in Part II of Schedule C of IRS Form 1040. Schedule C will become a major part of your business life.Some suggestions:
- If you drive, keep a mileage log of every business trip (jot down the purpose -- visiting clients, buying art supplies, attending IC programs, etc.). Add parking and tolls. The standard mileage rate (48.5 cents for 2007) can add up to several hundred dollars at the end of the year.
- If you meet a client for lunch or dinner, mark all those credit-card receipts with the client's name and the job discussed (you can deduct 50% of the total). In fact, try to use a separate credit card for ALL you business purchases, and ask for a year-end summary.
- Deduct that home studio. Get a tape measure and follow the instructions for IRS Form 8829.
- Telephone: If you work at home, you can only deduct a second line, and of course all long distance business calls. Add cell phone charges, too, if used in business.
- Deduct subscriptions to magazines, Internet Service Providers, domain name hosting, etc. used in business.
- Deduct fees for programs, shows, lectures, classes, workshops, etc.
- Gifts to clients: You can deduct up to $25 per client.
- Business licenses and memberships (your IC dues are fully deductible!).
- Deduct all sales taxes you charge to clients (which of course you've paid over to the state), all state income taxes, local gross receipts taxes and business property taxes.
And don't forget: Being self-employed, you also get to 'adjust' your income on Form 1040 by deducting 100% of health insurance premiums, 50% of self-employment tax (Be sure to fill out Schedule SE), and up to $4,000 of a traditional (not Roth) IRA for 2007 ($5,000 if you're 50+).
Some valuable (and FREE) publications from the IRS are:
- 334 - Tax Guide for Small Business
- 463 - Travel, Entertainment, Gift, and Car Expenses
- 535 - Business Expenses
- 583 - Starting a Business and Keeping Records
- 587 - Business Use of Your Home
Download Forms and Publications from http://www.irs.gov/ or order by phone: 1-800-829-3676.
See also their very helpful site:
http://www.irs.gov/businesses/small/index.html
Now for the formalities:
TYPE OF BUSINESS: SOLE PROPRIETORSHIP
Most freelance illustrators operate as sole proprietors, with studios in their homes. That's the quickest and easiest business set-up. Other options are partnerships, limited liability companies (LLCs), and corporations (type S or C), but they're not for beginners. For more information, download the PDF at:http://www.irs.gov/businesses/small/article/0,,id=98359,00.html
If you have a regular salaried job, either full or part time, you can still freelance on the side. The same considerations and requirements apply. Just be careful to keep your own activities separate from those of your employer.
GET STARTED ONLINE
The Internet is a great resource for new business owners, and all 3 area jurisdictions make it easy to start the application process online. You can get information, download forms and/or register directly.There's usually a comprehensive general registration page which will guide you through all the forms and requirements you need to become an official business.
DISTRICT OF COLUMBIA
http://brc.dc.gov/planning/requirements/requirements.asp
MARYLAND
http://business.marylandtaxes.com/newbusiness/new.asp
VIRGINIA
http://www.dba.state.va.us/smdev/launchpad/starting/1.asp
BUSINESS NAME
If you use any name other than your own, you have to file a Trade Name (a.k.a. Fictitious Name, Assumed Name, or DBA - 'doing business as') Certificate. Check with your city or county court clerk's office, or the tax office.LOCAL BUSINESS LICENSE
You'll also need an annual Business License from your local tax office. Illustration is not specifically regulated, so just get a general Class B or 'other services' license. It's either a flat fee or a sliding percentage every year based on your gross receipts. In your first year, it will be based on an estimate and adjusted up or down in the following year.HOME OCCUPANCY PERMIT
Believe it or not, you may also need a permit to run a business out of your own home. Zoning laws can be very restrictive. Also, certain conditions are imposed to prevent any nuisance or hazard to your neighbors in a residential area.BUSINESS PROPERTY TAX
Virginia and DC freelancers working at home: You must report the cost (excluding sales tax paid) of every piece of furniture, fixtures, machinery, tools, and electronic equipment (computers, scanners, printers, fax machines, etc.) you use in business, so that it can be taxed annually by your friendly local governement. Electronic equipment is depreciated at a greater rate than other items, if that's any consolation. Special rules may apply to software. The good news is, you can deduct those taxes in full on your federal Schedule C.Maryland freelancers, you're in luck: If the total cost of the business property used in your home is less than $10,000, you're exempt from the tax. But you must file an initial return, Form AT3-51, and it must be approved.
SALES TAX
This has always been a can of worms. Some illustrators and their clients try to argue that the sale involves services or intangible reproduction rights (similar to leases), and thus is not subject to the sales tax. This argument is risky, and usually rejected by the tax authorities. Courts may or may not agree, but ultimately it's you who has the burden of taking the case to court and, if you lose, paying all the back taxes, penalties and interest (Good luck getting reimbursed from clients).The better course is to register to collect the sales tax and file returns periodically according to your volume of sales. The current rates are 5.75% in D.C., 5% in Maryland and Virginia.
You only have to charge the tax if the client is in your state, and not tax-exempt. Governments and many nonprofits are tax-exempt and should provide you with their exemption certificate. If the client is in another state, you don't have to collect a sales tax from them, but they will have to report the sale to their own state and pay a 'use tax' (same rates as the sales tax). Just to be safe, you can note on your invoices: 'Client is liable for any applicable sales or use tax,' and get a written acknowledgement or signature from them.
If you don't live in D.C. but solicit clients there, you may have to register to collect a sales tax if you do over $10,000 in sales per year.
NOTE: Resale Exemptions. Because a sales tax is only charged once, and to the 'end user,' any materials that go into the making of a final product are exempt. So you don't need to charge the tax to design firms and ad agencies that incorporate your illustrations into another product for resale to their clients. And theoretically you should not have to pay sales tax on your art supplies either. But you need to show the art store a resale exemption certificate, which you can get at the time you register for the sales tax.
IMPORTANT!!! ESTIMATED TAXES
This is another commonly overlooked requirement among beginners. Freelance income is not usually subject to withholding, so you're required to estimate what you expect to make in the upcoming year and pay one-fourth of both the fedral and state tax on it on April 15 (May 1 in Virginia), June 15, September 15, and January 15. Check the threshold amounts, but bewareof the stiff penalties for underestimating and underpaying. Get IRS Form 1040-ES and the equivalent DC, Maryland and Virginia forms.FINALLY, GETTING DOWN TO BUSINESS
Once you've gotten all your paperwork in order, it's time to turn your attention to the matter of making money. That's beyond the scope of this article, but here are some quick pointers:
- Make cold calls, set up portfolio reviews, be persistent.
- Buy a mailing list and send out samples, follow up with phone calls.
- Attend marketing lectures and workshops.
- Go to trade shows & social events, and give out business cards & samples.
- It IS who you know: Network, network, network.
Also, work on cultivating a professional image: well-designed business cards, stationery, invoices, phone and e-mail manner. Brush up on negotiating skills, learn contract and copyright issues. Consult the latest edition of the Graphic Artists Guild Handbook on Pricing and Ethical Guidelines. Use the resources in this website. Don't be afraid to ask questions, especially to fellow Club members.
LEGAL
Coming soon: Articles on contracts, copyright and collection issues. Meanwhile, please send any questions to Joe Azar at the Legal Hotline: legal@illustratorsclub.org.
For general copyright information visit http://www.copyright.gov