Should Photographers Incorporate? Here’s How To Tell.

When starting a photo business, is it better to incorporate or work as an individual (sole proprietorship?) This is a question that many photographers ask as they start their photo businesses, so we decided to get the answer.

As part of the free report “Starting a Photography Business” created by the PhotoShelter Research Team, I interviewed Matthew T. Whatley, also known as the “Tax Ninja.” (The interview can be seen, below.) He’s a San Francisco-based tax expert and attorney who specializes in working with small and medium-sized creative businesses like photographers.

Because this can get confusing, Whatley starts off by asking a very basic question:

“Do you need to incorporate? Will you receive any benefit from it?”

The main reason for incorporating is not for any tax benefits, but to protect you (and your spouse), in case your business gets sued. There are many different types of corporations, each with a different set of rules designed to work with various businesses, large and small. So if you’re looking for a layer of protection that incorporating can bring, it’s important to choose the type that’s right for you.

Whatley suggests that a small business, or a business that doesn’t have a lot of income avoid choosing an S or C corporation simply because they won’t provide any tax benefits.

“You’re not going to have enough income to pay yourself a salary from the corporation, which is what you are required to do,” he said.

“If you’re going to incorporate, you probably want to consider the Single Member LLC as your best entity choice. The reason being this is the simplest thing to operate and it will allow you to still utilize all of the common deduction that an individual as a sole proprietor can utilize,” he said.

“If you are an S corporation or a C corporation, you won’t be able to deduct your home office or your health insurance. These are things that could be very large deductions to you as an individual, but when you’re a single member LLC you can basically get treated for tax purposes just like you would if you were a sole proprietor.”

Whatley also cautions that even if you do incorporate, it doesn’t protect you fully. There is still a risk that the company itself could be sued, and financial stress could be placed on the business.

“If you do need to operate as an individual, having insurance is probably the most important thing that you can have. Because even if you have an LLC in place, and somebody wants to sue your LLC, you still have all your gear and everything else that they can take from you.”

“If you’re onsite, and you damage something, or somebody you work with damages something, knocks over a light or something really expensive, then you’re insurance is going to pay for that for you. If you have the LLC, they’re going to try and come after the LLC for this money, it’s still going to cost you something in the long run,” he said.

Whatley typically recommends that people just getting started out operate as a sole proprietorship until they have larger clients, or find themselves with more liability that they can incur from operating with other people on their team.

“So you have to worry not just about yourself, but you have to keep track of other people,” he said.

Learn more by downloading our free guide “Starting a Photo Business”