Tax Season Tips
Tax Season Tips
10 Tips To Make The Most Out Of Tax Season
Tax season, the most dreaded time of the year, but the good news is, it doesn’t have to be! If you stay organized and fully understand the details of your business, it can be a great time to take inventory and reflect on your year!
Photography in many ways is a grey area. Because it can also be considered a hobby as well as a profession you’ll need to take extra steps to prove that you’re running a legitimate business in order to deduct business expenses. It is important to register your business with your state, local licensing agencies and set up bank accounts that remain separate from your personal accounts.
Here are some helpful tips I use throughout the year that help me prepare for tax season. I hope you find them helpful too!
Organize In A Way Makes Sense To You
The biggest thing to consider before we even dive into tax details is to organize in a way that makes sense to you. If you have a system in your own “language” you will be able to easily find and keep track of your business books. There are SO many software programs out there, but if it doesn’t make sense to you, it’s just not worth it. This was probably the best advice given to me. It was a total game changer for how I organize my books.
State vs. Income Tax
The first thing to consider is there are two main categories of taxes, sales tax, and income tax. It’s best to think about these separately and as entirely different forms of tax. Income tax is paid on the income you earn as a photographer whereas sales tax is local and at state levels. It’s imposed on the sale of tangible personal property and specified services.
State taxes is the elephant in the room in the creative industry. We know it’s there but not quite sure what to do with it or what is taxable. Am I right?! Because photography is a physical service as well as a tangible product (albums, USB, prints) it’s important to keep up on the exact laws where you are conducting business. There’s a lot of misconceptions on what is taxable.
In most states, for photography, if you are simply providing a service and not providing a physical item there is no sales tax. However, if the set price is closely connected to the final product it may be subject to sales tax. For example, if you charge $2,000 for a wedding (the service) but also include a USB (the final product of images) the entire service may be subject to sales tax pending the state. This also goes for client gifts. Client gifts or tangible items are considered to be taxable. Also, digital services (ex. online gallery) are changing in most states to become taxable. You can find the sales tax information on the Business of Revenue for your state.
In some states, you need a permit to collect sales tax. Check with your local sales tax rules for photography. It’s also important to remember that laws are subject to change all the time! Keep up on your local state laws!
If you conduct business in other states (ex. out of state wedding), the rule to remember is wherever you’re feet are planted that is where you are conducting business. Yes, that means you need to pay sales tax to that state (pending their specific rules for the photography you are servicing). Look up the state rules for sales tax and whether you’ll need to pay or get a permit to conduct business in that state.
For state taxes, I keep all my filings in a folder for easy access if needed. The biggest thing is to be consistent. Even down to how you itemize your client invoices and contracts, it matters when thinking about state taxes.
Categorize Everything
I personally break down my expenses by year, but also by categories. This is not only helpful when it comes time for tax season but it also gives you insight into your business. From how much you spend on shipping to other purchases, by categorizing it helps you understand your business. Here are the categories I use:
- Advertising – Marketing
- Advertising – Website
- Business Travel
- Car Expenses/Gas
- Credit Card Fees
- Education
- Film Processing
- Florals
- Insurance Payments
- Legal & Professional Services
- Meals
- Milage
- Phone Bill
- Rental Expenses
- Repairs & Maintenance
- Shipping Expenses
- Software- Business
- Software – CRM/Accounting
- Software – Editing
- Software – PASS
- Software – Presets
- Supplies – Camera & Gear
- Supplies – Client Gifts
- Supplies – Office
- Supplies – Styling Proprs
- Supplies – Templates/Info
- Taxes & Licenses
- Virtual Assistant
- Wifi
Save Receipts
Save your receipts, for EVERYTHING, but really. I use the same organization system to save my invoices and receipts. In case you are ever audited, it’s so important to have all of your paperwork in order. I use an app called TurboScan to scan my receipts from my phone to my computer. I name my receipts by date then item. For example “2019-01-12 Adobe Cloud Subscription.”
Remember The % Rule
Even though there are a lot of things we can write off in our business, remember the Percent Rule. For example, your living space (if it is also your office space), phone usage, meals etc… think about the percentage of that usage dedicated to the business. Maybe 80% of your phone bill is business and 20% personal. Take that into account when calculating your deductions. It’s better to be safe than sorry when figuring out how much of an expense is a business expense.
Be Consistent
It seems simple enough but be consistent in your organization system. It took me a while to figure out what worked best for me, but make sure it is consistent over the years. This will only make your bookkeeping accurate and easy to follow.
Mileage Matters
Mileage matters! Keep track of your mileage. For my mileage, I use Mile IQ. It is so easy to input my car’s meter readings at the start of every year and track my business related rides. You have two options here: you either can track the mileage you travel for photography purposes and deduct the government rate per mile (currently $0.565), or you can calculate what it costs to operate your vehicle for the year and apply the percentage that you use it for photography to determine your auto expense. For either method, make sure to record the starting mileage for your vehicle each year.
Take Inventory To Your Equipment
If you have business insurance, you’ve probably already done this, but take the time to create an Excel sheet of all your gear categorized by type, date purchased, place purchased, value, and serial number. This is SO helpful, not only if you need to make an insurance claim but also for tax deductions. I also photograph all of my gear as an extra layer of proof, that I did own that item. My equipment photos are categorized by:
- Bags
- Batteries and SD Cards
- Camera Bodies
- Electronics
- Flashes
- Lenses
Gear you will use for more than one year is considered a capital expense. You can either annually deduct a portion of the cost over several years and receive a small tax break or you can deduct the upfront costs at one and get a significant tax break for your first year.
Use a CRM Software
My CRM of choice is Dubsado. Recently they added an entire bookkeeping system which I love. Since my income is already tracked in Dubsado, all I do is input my expenses by my category lists. The program has “accountant access” which my accountant can log into and have my entire business information in one convenient place. This makes tax season so easy and I don’t need to use another software program to keep everything in one place.
Consider Hiring An Accountant
Even though I have learned a lot about the financial aspect of my business, I personally don’t like to deal with the numbers. I hire an accountant. It just makes everything so much easier for me. AND it is a plus that I can deduct the accountant fee for the following year as a professional service! Remember it’s never too late to start a system that works best for you. Taxes can be overwhelming at first but if you take them one step at a time I promise it will be so worth it in the end. Don’t be afraid to ask questions (lots of questions) or seek help! I hope this post was helpful for you! If you have any tips you use for tax season I’m always excited to learn more!
10 Tips To Make The Most Out Of Tax Season
Tax season, the most dreaded time of the year, but the good news is, it doesn’t have to be! If you stay organized and fully understand the details of your business, it can be a great time to take inventory and reflect on your year!
Photography in many ways is a grey area. Because it can also be considered a hobby as well as a profession you’ll need to take extra steps to prove that you’re running a legitimate business in order to deduct business expenses. It is important to register your business with your state, local licensing agencies and set up bank accounts that remain separate from your personal accounts.
Here are some helpful tips I use throughout the year that help me prepare for tax season. I hope you find them helpful too!
Organize In A Way Makes Sense To You
The biggest thing to consider before we even dive into tax details is to organize in a way that makes sense to you. If you have a system in your own “language” you will be able to easily find and keep track of your business books. There are SO many software programs out there, but if it doesn’t make sense to you, it’s just not worth it. This was probably the best advice given to me. It was a total game changer for how I organize my books.
State vs. Income Tax
The first thing to consider is there are two main categories of taxes, sales tax, and income tax. It’s best to think about these separately and as entirely different forms of tax. Income tax is paid on the income you earn as a photographer whereas sales tax is local and at state levels. It’s imposed on the sale of tangible personal property and specified services.
State taxes is the elephant in the room in the creative industry. We know it’s there but not quite sure what to do with it or what is taxable. Am I right?! Because photography is a physical service as well as a tangible product (albums, USB, prints) it’s important to keep up on the exact laws where you are conducting business. There’s a lot of misconceptions on what is taxable.
In most states, for photography, if you are simply providing a service and not providing a physical item there is no sales tax. However, if the set price is closely connected to the final product it may be subject to sales tax. For example, if you charge $2,000 for a wedding (the service) but also include a USB (the final product of images) the entire service may be subject to sales tax pending the state. This also goes for client gifts. Client gifts or tangible items are considered to be taxable. Also, digital services (ex. online gallery) are changing in most states to become taxable. You can find the sales tax information on the Business of Revenue for your state.
In some states, you need a permit to collect sales tax. Check with your local sales tax rules for photography. It’s also important to remember that laws are subject to change all the time! Keep up on your local state laws!
If you conduct business in other states (ex. out of state wedding), the rule to remember is wherever you’re feet are planted that is where you are conducting business. Yes, that means you need to pay sales tax to that state (pending their specific rules for the photography you are servicing). Look up the state rules for sales tax and whether you’ll need to pay or get a permit to conduct business in that state.
For state taxes, I keep all my filings in a folder for easy access if needed. The biggest thing is to be consistent. Even down to how you itemize your client invoices and contracts, it matters when thinking about state taxes.
Categorize Everything
I personally break down my expenses by year, but also by categories. This is not only helpful when it comes time for tax season but it also gives you insight into your business. From how much you spend on shipping to other purchases, by categorizing it helps you understand your business. Here are the categories I use:
- Advertising – Marketing
- Advertising – Website
- Business Travel
- Car Expenses/Gas
- Credit Card Fees
- Education
- Film Processing
- Florals
- Insurance Payments
- Legal & Professional Services
- Meals
- Milage
- Phone Bill
- Rental Expenses
- Repairs & Maintenance
- Shipping Expenses
- Software- Business
- Software – CRM/Accounting
- Software – Editing
- Software – PASS
- Software – Presets
- Supplies – Camera & Gear
- Supplies – Client Gifts
- Supplies – Office
- Supplies – Styling Proprs
- Supplies – Templates/Info
- Taxes & Licenses
- Virtual Assistant
- Wifi
Save Receipts
Save your receipts, for EVERYTHING, but really. I use the same organization system to save my invoices and receipts. In case you are ever audited, it’s so important to have all of your paperwork in order. I use an app called TurboScan to scan my receipts from my phone to my computer. I name my receipts by date then item. For example “2019-01-12 Adobe Cloud Subscription.”
Remember The % Rule
Even though there are a lot of things we can write off in our business, remember the Percent Rule. For example, your living space (if it is also your office space), phone usage, meals etc… think about the percentage of that usage dedicated to the business. Maybe 80% of your phone bill is business and 20% personal. Take that into account when calculating your deductions. It’s better to be safe than sorry when figuring out how much of an expense is a business expense.
Be Consistent
It seems simple enough but be consistent in your organization system. It took me a while to figure out what worked best for me, but make sure it is consistent over the years. This will only make your bookkeeping accurate and easy to follow.
Mileage Matters
Mileage matters! Keep track of your mileage. For my mileage, I use Mile IQ. It is so easy to input my car’s meter readings at the start of every year and track my business related rides. You have two options here: you either can track the mileage you travel for photography purposes and deduct the government rate per mile (currently $0.565), or you can calculate what it costs to operate your vehicle for the year and apply the percentage that you use it for photography to determine your auto expense. For either method, make sure to record the starting mileage for your vehicle each year.
Take Inventory To Your Equipment
If you have business insurance, you’ve probably already done this, but take the time to create an Excel sheet of all your gear categorized by type, date purchased, place purchased, value, and serial number. This is SO helpful, not only if you need to make an insurance claim but also for tax deductions. I also photograph all of my gear as an extra layer of proof, that I did own that item. My equipment photos are categorized by:
- Bags
- Batteries and SD Cards
- Camera Bodies
- Electronics
- Flashes
- Lenses
Gear you will use for more than one year is considered a capital expense. You can either annually deduct a portion of the cost over several years and receive a small tax break or you can deduct the upfront costs at one and get a significant tax break for your first year.
Use a CRM Software
My CRM of choice is Dubsado. Recently they added an entire bookkeeping system which I love. Since my income is already tracked in Dubsado, all I do is input my expenses by my category lists. The program has “accountant access” which my accountant can log into and have my entire business information in one convenient place. This makes tax season so easy and I don’t need to use another software program to keep everything in one place.
Consider Hiring An Accountant
Even though I have learned a lot about the financial aspect of my business, I personally don’t like to deal with the numbers. I hire an accountant. It just makes everything so much easier for me. AND it is a plus that I can deduct the accountant fee for the following year as a professional service! Remember it’s never too late to start a system that works best for you. Taxes can be overwhelming at first but if you take them one step at a time I promise it will be so worth it in the end. Don’t be afraid to ask questions (lots of questions) or seek help! I hope this post was helpful for you! If you have any tips you use for tax season I’m always excited to learn more!
