Professional photographers love having a camera in their hands. They also love the idea that they can make a living doing what they love. But most professional photographers do not have an accounting or law degree. That’s why photographers need a business pro on their team. Being a great photographer is challenging, but being a great photographer who’s running a profitable, healthy business can be daunting! And here’s how a business pro can help photographers:
What’s the Best Business Structure?
There are many items to consider when growing a business. The first to consider is what type of business entity should be set up. Should you be a sole-proprietor? What is a Limited Liability Company (LLC)? What are the advantages and disadvantages of incorporating? If you incorporate, should you file as a C-Corporation or an S- Corporation?
The right advisors can answer these questions and help it make sense to you.
- A sole-proprietorship is the least expensive and simplest structure to set up for your business. However, it’s also the least beneficial from a tax perspective and it can also put your personal assets at risk.
- Many photographers consider becoming a Limited Liability Company (LLC). An LLC is a “disregarded” entity for IRS purposes, meaning that there are no tax advantages to becoming a single-member LLC. However an LLC does provide added protection that a sole-proprietorship does not afford. This protection can be very beneficial in case of legal action.
- As the business grows, many photographers start to consider the advantages and disadvantages of incorporating. As an incorporated entity, you get all of the legal (personal asset protection) of the LLC with the added potential benefit of tax savings. Corporations (specifically S-Corporations) are not subject to self-employment tax. This can be very beneficial for businesses that use the profits for growth.
The right advisors can help guide through the tax cloud and help it all make sense to you so you can get back to doing what you love – shooting!
Can I deduct that?
It is important to know which items are tax deductible purchases and which are not. If you use your home for business, what can you legally deduct on your tax return? First, you need to understand what portion (percentage) of the house is legitimately being used for business purposes. Once you’ve established that percentage, you are now able to write-off many items that normally would not be tax deductions.
- Utility bills
- Repairs and maintenance expenses
- Telephone fees, etc.
- What if you use your car to travel to and from appointments, is the mileage tax deductible? Absolutely – but it may not be your best bet for a deduction.
- You may be better off deducting out-of-pocket travel and auto expenses you are incurring; items like gas, tolls, parking and repairs.
- If you buy the latest Canon or Nikon, how will that benefit you on your taxes? The tax law currently allows for direct write-off of most fixed asset purchases. So if you purchase a camera for $3,000 in 2013 and your marginal tax rate is 25%, then you will get back $750 in taxes for purchasing that camera. Not too bad! With so many factors to consider, the right consultant can help you get the most for your time, money, and effort.
Is my business healthy?
Once you have answered these questions, how do you know if your prices are right? How do you know if your profit margins are correct? Your sales are growing by 10% a year but your expenses are growing by 20% – why is this happening? Can you afford to hire an employee? Do you need to put someone on payroll or can you pay them as an independent contractor? Every professional photographer deals with these questions at some point. Having someone to answer these questions leaves you to focus on doing what you love while continuing to expand your business.
Assemble Your Dream Team
The bottom line is: there are so many things to consider when running a business. It is important to make sure that you have people you trust on your “team.” Every business owner needs someone to look at their numbers, someone who is well-versed in current tax and legal issues that affect businesses. Develop a relationship with your accounting professional to the point where you trust and value their opinion. This is an invaluable resource that every professional photographer should tap into.
About the Author
Michael Klipper graduated Northeastern University magna cum laude with a double major in accounting and finance. He is a certified public accountant (CPA) and has been working in the field for 10+ years. Over the last 7 years he has specialized in working with professional photographers across the country. His goal is simple; help his clients grow their business while making sure they pay the absolute minimum in taxes. Along with a vast knowledge of the ever changing accounting and tax regulations, he brings honesty, integrity and a genuine desire to see his clients succeed.
Michael currently resides in Skippack, PA with his wife Morgan, daughter Sadie and dog Fezzy. They are expecting their second daughter to arrive in March of 2013. He enjoys golfing, drinking a glass of red wine on his front porch and spending time with anyone that makes him laugh.