We all love photography, and we all love to share our images. Eventually, some of us end up sharing them professionally. It may start when someone says, “I would love to hang that on my wall!” or “My family hasn’t done a portrait for a while. How much do you charge?” or you may jump into weddings with a whole business plan already prepared. Regardless of how it all began, all the IRS wants you to know is that if you’re selling your photography or services, you’re supposed to pay taxes on that income. This includes one-off shoots that you do as a hobbyist—file under “Activity not engaged in for profit.”
I’ll be writing from the assumption that you’ll be filing for self-employed income (as a “sole proprietor”) using a schedule C on your 1040, meaning that these will be filed in conjunction with any other personal income you have. If you’re involved in a partnership or have incorporated, things may look a little different!
If you haven’t submitted your taxes yet, don’t panic: you’ve still got a week before the individual deadline, and with a little grinding at the books, you’ll breeze right through.
Note for NON-professional photographers: Most of this content is related to photography-related income, but everyone needs to be aware of new regulations regarding “Use Tax.” Starting with the 2018 tax year, Colorado requires self-reporting and payment of taxes not already collected on all taxable goods used, stored or consumed within the state of Colorado. Other states, including California, have already enacted use tax requirements.
In plain English, that means that anything you bought online is subject to the full sales tax rate in your area (8.0% for me, for example) and it’s your responsibility to keep track of any amount not collected by the retailer and to report it to the state.
In the future, you can click here to find a local retailer where you won’t have to do any extra accounting when you buy cool stuff. 😜
If you’ve got a long-established photography business, hopefully you’ve already got this stuff down, but for newbies, it can be a little daunting. (I know, because we just filed taxes for my wife’s photography business for the first time.) It’s well-worth putting in the time to do it right, however, and “going legit” is a satisfying milestone in your progress to professionalism.
Please be aware that I am not a tax professional and none of this advice should be accepted as if I were. I’m simply sharing results of my own research. You should find reading this more useful than digitizing an old VHS of your accountant uncle’s speech on taxes in ’95—incidentally, video tape transfers are 40% off all month!—but I urge you to bring any questions you have to a professional.
What is owed
Aside from use tax as a consumer, here are four taxes you’ll need to worry about as a working pro. Protip: if you make below a certain amount of money, you are eligible to use certain assistive software for free. Click here to make life easier!
- Federal income tax. As a W-2 employee, this is normally withheld from your paychecks automatically, allowing you to pay in increments throughout the year and receive a return if you overpaid. You’ll have to pay this on your own throughout the year, then file as normal to reconcile your estimated payments with the actual amount due.
- State income tax. Essentially the same deal as the federal income tax. Estimate quarterly, reconcile when you file your annual return.
- Sales tax. Sales tax can get tricky, as the so-called “tax rate” is the sum of overlapping tax rates which may include a state-wide sales tax as well as taxes imposed by counties, cities, or “special districts” (some RTD projects are financed this way, for example). Usually the location of final delivery of goods is the location for the purpose of sales tax calculation, which is why you may see your tax rate vary by address when purchasing goods online. Once you figure out the rate, you’ll also have to figure out what to tax at that rate. Pure services generally are not subject to sales tax, but if you provide a deliverable good (e.g. a USB drive of a photo shoot) it may make the associated services (i.e. the whole shoot, not just the flash drive) taxable. Make use of the resources provided by your home state’s department of revenue, as well as any other states (or countries) in which you’re doing business—it’s in their interest to make sure you can confidently collect the correct amount of tax, so they are happy to help you navigate the sometimes murky waters.
- Self-employment tax. Finally, the hidden cost of being the boss. All of your self-employed income is subject to a 15.3% flat tax to fund Social Security (12.4%) and Medicare (2.9%). W-2 employees split this cost with their employer, and the part for which the employee is liable is deducted before payment, so a lot of people don’t think about the cost, but when you’re the boss as well as the employee, it’s your responsibility to contribute the full amount.
When to pay
As a general rule, you’ll be paying taxes quarterly. For federal income tax and self-employment tax, this is the estimated amount due as calculated using the 1040-ES form, information from which trickles down and can be used at the state level. Paying quarterly helps prevent you from forgetting about your tax obligations—an important safeguard for many artists!—and it protects you from the threat of an additional fine which may be assessed if you wait until the end of the year. (If it’s your first year and you didn’t realize, don’t panic; it’s not guaranteed. Just settle up for this return and make sure you do it right going forward!)
You may be obligated to submit the sales tax you collect on items you sell anywhere from monthly to annually, depending on the volume of your sales. For example, if you collect between $15 and $300 per month—which translates to about $190 to $3750 in sales at an 8% collection rate—you would be required to file your sales taxes quarterly. Click here for more details about Colorado sales tax schedules, or consult your own state’s department of revenue.
How to pay less—use deductions!
Deduction of business expenses from your taxable income is one of the great bastions of equivalent exchange: the more work you put into your records, the less you’re going to be liable for come tax time!
Lesson one? Save your receipts (you’ll be glad you did if you ever get audited), keep great records, and think critically about everything you do to make sure you catch ’em all. For example, here are some of the “little things” that can add up quite a bit over a year.
- ink and/or toner
- paper (including plain printer paper for invoices, records, etc.)
- matting/framing supplies or services
- optical media or USB drives
- backdrops and props
- lighting equipment
- SD cards or other memory
- computer upgrades like RAM, SSDs, etc.
- camera repairs
- domain registration and web hosting
- software purchases or subscriptions
- business cards
- labor (e.g. second shooter fees)
- office rental
- accounting services
- business insurance
- a very limited scope of meals required by work
And what about the big stuff? Of course your gear is deductible! And, thanks to a change in 2017, anything that cost you less than $2500 falls into a “safe harbor” for single-year deductions. (In most cases, any single items that cost more than $2500—computers, lenses, cameras, printers, etc.—would have to be amortized and the deductions for the costs of each item would have to be spread out over several years.)
Mileage is most simply deducted using a per-mile flat rate, but you can also deduct your work-related driving based on real-world expenses. Either way, make sure that your records are impeccable!
Finally, if you have a home office, you can save majorly on your tax liability, but you’ll have to be very strict about your usage of the space. If you have a room or building on your property which serves as your primary place of business and which you use for no other purpose—not even storage!—then: ding ding ding! You may deduct a portion of your rent/morgage payment, utilities, and upkeep as a legitimate business expense.
Steps for the future
We’re in the home stretch for 2018 taxes. After you’ve successfully filed, take some time to relax and reward yourself for making it through the year-end crunch of numbers, receipts, and big words with significant implications.
Then, take stock of your record-keeping. The better your records are, the easier this process will be next year. This is especially true if you use a tax-preparer or tax-preparation software (which one you need will depend on the complexity of your business, of course). Keep refining that process, and by this time next year you’ll probably be long-done already. 😎