This post is part of PhotoShelter’s Guide to Conquer the Rest of 2014. We’ve compiled our best business tips to help you get over the mid-year hump and make the next six months count. Plus, don’t miss your chance to win a Fuji X-T1. You have until June 13th to enter. Details here.
The Tax Ninja, aka Matthew T. Whatley, has been helping photographers and other small business owners in the arts manage their finances since 2004. The Tax Ninja is very well versed in the issues photographers encounter when it comes to write-offs and income declaration.
Matthew chatted with us about common tax mistakes professional photographers make, how they can prep now to save money later, and when to invest in new gear. According to Matthew, becoming a tax ninja isn’t all that hard: “It’s not a question of teaching somebody, it’s a matter getting them to actually do it and change their habits.The more people participate in the organization of their own data and the preparation of their tax re- turns, the more they learn how things work.”
1. First, get organized.
The first step in becoming a tax ninja yourself is getting organized. Save receipts and keep accurate records of your expenses (and above all, schedule time to do it). For those in the U.S., the easiest thing to do, says Matthew, is to open a separate business account. Use a credit card associated with that account for every expense. Now is the time to really assess your business. What are your expenses? What are your tools? What gear do you have, and what do you need? Where is your office (in the kitchen or local coffee shop), and how are you getting there?
2. Know your write-offs.
This is what stumps photographers the most. But figuring out what you can and can’t write off can be as simple as reviewing an itemized tax form. If you want a little help, check out the Tax Ninja’s form. “The general rule is, if it’s ordinary and necessary for your business and the generation of its income, it can become a write-off.”
3. Educate yourself, and then get someone to do it for you.
Know how best to file—should you be an LLC or a sole proprietor? Most photographers, says Matthew, don’t need to incorporate (become an S Corp or LLC). There’s no requirement to incorporate to start writing things off. Matthew says that taking out business insurance for $300 will be a more reasonable investment for most photographers than creating an LLC.
Know what sales tax you should be paying as well as what kind of license your city requires. If you’re delivering “tangible goods” (a print, say), then you probably have to charge sales tax. Make sure you have a local license to collect tax, otherwise you could get slapped with a fine.
4. Build contracts.
“The most important thing to deal with in a contract is getting paid: who’s suppose to pay, when they’re supposed to pay you, and how much. And, having some kind of penalty associated with not paying you,” says Matthew. So build “teeth” into your contracts. What does that mean?
It can mean that when you deliver a contract to potential clients, some- where in there it states the legal ramifications of nonpayment, including how legal fees will be reimbursed if you need to go down that road. It could also mean that you write into your contract how much the clients agree to pay in late fees if they don’t pay on time. Make sure to define what services you’re performing—and avoid “scope-creep,” which is a client asking for more and more without paying extra.
If you’re doing the hiring and paying a subcontractor more than $600 a year, know that you have to file a W-9. Make sure your subcontractors know this before they start working for you.They may think that they are working “under the table” and won’t be taxed, but you could be left with a serious fine if you get audited by the IRS or state or local tax authority.
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