Taxes aren’t fun, but by taking a proactive approach instead of putting them off, you’ll establish yourself as a true photography professional. Let’s explore the business aspects of photography that affect your tax preparation. Then, we’ll share crucial advice for accurately completing your taxes while claiming all relevant deductions.
How do you know when you’ve transitioned from a hobby photographer to a full-time career photographer? Let’s review the IRS guidelines on this critical point.
“A hobby activity is an activity not done for profit,” explains the IRS. “This includes activities done mainly for sport, recreation, or pleasure.” So, if you’re earning money from your photography endeavors, the IRS would probably consider it a business—meaning you owe taxes.
As a self-employed individual, you’re responsible for making your own tax payments. If you’re likely to owe more than $1,000 a year, you need to make quarterly tax payments. And if you earn more than $400 in a given year from your photography, you need to file an annual tax return.
Visit the IRS website to explore this topic further.
Put your quarterly tax deadlines on your calendar so you stay current with your taxes. The IRS presents these deadlines on its website. You can pay these taxes using several different methods: online, by mail, over the phone, or through the IRS2Go app.
If you don’t pay your quarterly taxes by these due dates, you’ll probably have to pay a fee at tax time, unless you are eligible to have it waived. But if you’re late for a payment, simply pay it as soon as you can. This may minimize the fee you owe, as interest accumulates for these penalties.
Use the IRS Form 1040-ES to estimate your quarterly tax payments. It walks you through relevant deductions and credits. Use the IRS tax withholding estimator tool to calculate approximate amounts to withhold, too. As a general rule of thumb, try to reserve 30% of your total taxable income for taxes.
Setting up your business as an LLC offers certain benefits, like legal protection and legitimacy. Establishing an LLC can protect you from personal liability for some mishaps. As an LLC, your business becomes its own entity; if you were ever sued by a dissatisfied client, your personal assets (like your home) couldn’t be seized.
Setting up an LLC can also bring tax benefits. As an LLC, you can opt to be taxed as an S corporation or a sole proprietorship, depending on which option is most advantageous to you.
Creating the LLC involves a few key steps, like filing articles of incorporation and writing up an operating agreement. You’ll need to keep your business bank account completely separate from your personal account. Working with a professional will ensure you flawlessly complete each step of the process.
Let’s review several common IRS forms that photographers should know about.
Look up your state’s sales tax rules to be sure you tax all relevant products and services, too. Some states opt to tax services while others just tax products (like photos).
Stay organized throughout the year to streamline your tax prep. Use bookkeeping software or even a simple spreadsheet to track all expenses and income. Specify the date of purchase for equipment, amount, description and serial number, and how you plan to expense it (e.g., as a larger single deduction for the current year or through depreciation over a five-year period).
We’ve compiled a list of common deductions for photographers. Make sure you don’t miss out on any that apply to you!
The IRS lets you use a simplified method of calculating the portion of your home used for business. Using this method, you can deduct $5 per square foot, with a maximum of 300 square feet per year.
Be sure to deduct any trainings you’ve invested in as well, along with conferences, magazine subscriptions, and books related to professional growth. You can deduct meals, travel, and lodging for trainings you attend as well.
Be sure to deduct website costs, insurance for your equipment, software, and professional memberships.
By taking your taxes seriously, you’ll level up as a small business owner. Hiring a pro to help will ensure you don’t miss a beat when it comes to reporting requirements and deductions—like your annual PPA membership!