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3 Tax Tips for Your Photography Business (Made Easy) - PPA Today

3 Tax Tips for Your Photography Business (Made Easy)

By Guest Blogger Rachel Brenke

Taxes can be extremely overwhelming, exhausting and downright annoying. In fact, figuring out how to do taxes can feel like one big ball of these emotions with no real path to navigate. Unfortunately, we have no choice but to make it happen. The downfall for many photographers is that they don't take the time to pick apart the needed tax information and strategies that are available out there, including keeping up with remitting the proper tax, identifying your deduction strategy and keeping up with reporting.

Remit the proper taxes 

Paying the proper amount of taxes is scary. You want to do it right, but may not be sure if you are. There are three major tax categories to keep in mind: federal income, state income, and state sales. 

Income taxes at both the federal and state level are taxes on the money that is determined to be your income. As you'll see at the end of this blog, you can identify certain expenses as deductions to help reduce your personal income tax liability. On a state sales tax level, figuring out what rate to take and what products/services are taxed can seem tedious. You are a middleman between client and state, but you need to fulfill the duty of ensuring that the sales tax is collected properly. Other information for sales tax includes whether the state is a destination based, origin based, or hybrid state, as well as whether use or franchise taxes are needed for your business. It is highly recommended you engage in a yearly review of this information to ensure you're walking the tax lane on the straight-and-narrow. Whether you feel comfortable and competent enough to handle it yourself or hire a trusted accountant, it will avoid you getting penalized for failure to fulfill the required duty of remitting accurate taxes and while this seems taunting, it truly is needed as it protects your photography business and ends up saving a lot of time, money and energy in the long run.

Keep up with reporting

Keeping a handle on reporting your income and expenses can help you be more efficient at tax reporting time, as well as identifying appropriate pricing and paralleling to evaluate marketing strategies for effectiveness. The baseline information to get your head around is the monies coming in the bank account, as well as the monies going out. These outgoing amounts include overhead expenses such as the cost of goods, insurance, legal fees, hosting, marketing materials, subscriptions, etc. Without getting your arms around these numbers, you'll end up shooting in the red. But not only that, you're unable to accurately and easily deduct (see tax tip #3 shortly) these expenses, resulting in paying taxes on money you didn't really "pocket".

However, many business owners write down their costs and income - then they stop there. Don't! Because by drilling down into client receipts to include the session date, order, sales tax, cost of goods, sale amount and mileage, you will find a well-rounded view of client value. On top of this, income should be paired with a year-and-month view for goal sales, gross monies, net monies, goal sessions, the number of photographed sessions, the number of inquiries, and the number of converted inquiries. This information helps  tie your business actions with the money flow. 

Identify your deduction strategy

Having a tax deduction strategy plan for paying federal taxes can help  "stretch" what you've earned. This is a plan that utilizes all the credits, loopholes & deductions allowed legally. The goal is to maximize the money that stays in your pocket at the end of the year. 

In certain situations, strategic tax planning can save as much as $15,000 per year. Everyone's tax situation is different. But either way - strategizing will always put more money in your pocket and less in Uncle Sam's.

An example of a tax deduction strategy would be converting a traditional IRA to a Roth IRA. Withdrawals from traditional IRAs are taxed as your ordinary income tax rate while all withdrawals from Roth IRAs are tax-free and penalty-free, as long as you're at least 59.5 years old and the converted accounted has been open at least five years. Other deduction strategies are available at the direction of the IRS; it is up to you to implement the best strategies to make your money go the farthest.

As you can see, taxes are more than just receiving and paying money. There are intricacies that can help you, but once you drill down into each of these tips, you'll have  better financial health in your photography business. Take it one step at a time. If you need more 1:1 help on tax information, check out TheLawTog for sales tax guide, accounting spreadsheets and more!

Rachel Brenke is a lawyer, photographer and business consultant for photographers.She is currently helping creative industry professionals all over the world initiate, strategize and implement strategic business and marketing plans through various mediums of consulting resources and legal direction.

Disclaimer: Rachel is a lawyer, but not your lawyer! View the full disclaimer here

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About this Entry

This page contains a single entry by Professional Photographers of America (PPA) published on November 17, 2015 4:55 PM.

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