Tax season is never a fun time for small business owners (especially wedding photographers working full and part time jobs in multiple states), but it shouldn’t be a painful time either. If you start using some best practices early on, you can ensure that your photography business stays financially healthy and avoids a visit from the friendly-neighborhood IRS representative. Here are five accounting and tax tips that should make your tax season a little easier.*
1. Hire an accountant. A good accountant only costs about $400 to do your personal and business taxes. They are worth their weight in gold. While you might not be able to find one that specializes in the business of photography, be on the lookout for an accountant that deals with freelancers, writers and designers. It’s basically the same type of accounting. If you find an awesome accountant that caters specifically to photographers, please leave his or her info in the comments below.
2. Depreciate Now or Later. You have two options with camera equipment; you can depreciate it over time or you can write it all off in the year that you bought it. This clause was put in place to help stimulate the economy and small businesses (up to a certain amount). The fact is, you are going to upgrade camera bodies way before the five or six years it takes to depreciate them. I choose to write off all camera bodies in the same year that I buy them, and depreciate the lenses (which often last me way more than five years).
3. Bank It. If you aren’t making enough money off your photography business to make quarterly payments, get in the habit of putting 30% of the profits of each wedding into a savings account. Come next April, you will have enough saved to pay your taxes and potentially get a tax return. I keep separate accounts for sales tax, fed tax, CODB, new equipment and retainers. If you use a high interest-bearing savings account, you can also gain a little extra cash on the side.
4. Receipt Snap Shot. Get in the habit of photographing your receipts as soon as you get them. Why spend a fortune on a stupid receipt scanner when you have an 8-megapixel camera in your pocket. When you buy something business related, photograph your receipt and email it to yourself with the subject line “Receipt BH-032914”. Now it’s super easy to look it up when you forget it. Don’t forget to toss the actual receipt in a folder just in case you need to return the item. I took it one step further by creating an actual email account called firstname.lastname@example.org that I sent all my receipts to.
5. Show a Profit. It’s easy to get into a habit of buying a ton of equipment at the end of the year to lower the amount of taxes you have to pay, but you must remember that you are running business that is supposed to be profitable. Pretend you sit on your imaginary board of directors. If you saw very little growth in your company year after year, you would fire your CEO or call him a failure. Too bad you are also the CEO of your company. In 2012, I had my best year ever and invested heavily in my company: new car for business use, new cameras, new lenses. The end result was a profit that was 10% above the previous year. 2013 was terrible year, so I hunkered down and didn’t spend any money beyond the bare essentials. Again, I’m showing 13% growth over the previous year, even though I made about 30% less in gross receipts. A great way to get a visit from the IRS is to have huge fluctuations in profits and losses year-over-year. So check your P&L reports and adjust accordingly.
* I am not an accountant, nor do I play one on TV