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1. The taxman cometh! Like a barbarian horde, auditors from the federal, state and local governments are roaming the countryside looking for any unpaid taxes to help defray the increasing cost of public services. They can easily identify the major businesses and individuals who are delinquent, but now the tax departments have turned their penetrating eye on smaller businesses, such as photographers, who have been below the radar or simply not worth chasing. Be warned, you are now on the list!
You can remain below the radar (or barely noticed) if you spend some time tightening your business practices, especially when it comes to maintaining good records, understanding the tax laws that apply to the photography business, filing correctly and then paying your fair share, and on time.
2. One of the most confusing tax challenges for many photographers is charging and collecting state sales tax. Most photographers are in the service business. They give clients their time in exchange for a dollar-amount rate, which is defined as an intangible product. Typically, you don’t charge sales tax for “intangible” services.
In most states, however, you must charge, collect and send to the government a sales tax on any tangible item you sell to your clients. A tangible product could be physical media, such as a CD or DVD, framed prints, a wedding album, etc.
Now that you do business in the digital photography age, you can deliver products to your clients without physical media. If you shoot a series of photos for a company’s Web site, send them to the designer as digital files, then these products are not tangible and charging sales tax is not required. If the same client wanted prints to hang in its offices, however, then the total amount you charged your client would be subject to the approximate sales tax rate.
Another scenario is being hired by an ad agency or graphics house to shoot photos for a client project. Even if you provide prints, you don’t charge sales tax to your client because the state wants the ad agency to charge the rate on the higher value of the “retail” amount the agency will invoice its client, or the end user. What you receive in this case is a “wholesale” payment, which is not taxable.
One of the most important subtleties of sales tax is that you serve technically as an agent of the state, which makes you responsible for not just charging the tax on an invoice, but collecting and managing it, and then finally sending it to the government.
3. A major oversight of small business owners is not maintaining good records. The two positive benefits of doing so is that you are able to take all the deductions allowed, so you pay the lowest taxes; and if you are audited, then you know you can prove your deductions are valid and you won’t find yourself suddenly liable for more taxes and maybe penalties and interest.
An accountant is your best source of information about what records you should maintain and how. Generally, you want to save all receipts for expenses related to doing business. These make take the form of equipment you’ve purchased, meals you bought with clients, expenses for being on-location during a shoot, etc.
4. You can make the task of keeping well organized records much easier by opening a separate bank account or designating one credit card for the business and paying for business needs and expenses just from that account or card. Never lump your personal and businesses expenses/receipts together.
5. As a photographer (compared to a writer, for example), you could easily drive a significant number of miles every year to assignments, client locations, etc., which could total a juicy deduction. Keep a logbook or a digital file that you can access via computer, smart phone or tablet, so you can note your odometer mileage at the beginning and end of any business travel.
6. Photographers typically work as self-employed individuals, meaning they are not an employee of a company or corporation. If you were a “legal” employee, then your employer would match the Social Security and Medicare deductions taken from your check every week. As a self-employed person, however, you are responsible for paying both parts, a total of 15.3%. This is called the self-employment tax.
Some deductions will reduce the amount of income on which you must pay this tax, but, in most cases, it is a higher percentage of your income than if you were an employee.
7. Maybe, the best way to keep your taxes low and the taxman at other businesses is to use an accountant. Regardless of how small a photography business you have, even if it is part time, you should hire an accountant to prepare your income tax forms and advise and guide you through the maze of local, state and federal tax laws.
What you’ll pay him or her is but a miniscule amount compared to what you might owe in additional taxes.
PhotographyTalk.com does not offer advise on personal income tax requirements or issues. Use of any information from this article is for general information only and does not represent personal tax advice either expressed or implied. You are encouraged to seek professional tax advice for personal income tax questions and assistance.
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