Tax codes can feel like foreign languages for everyday taxpayers. While already complex for employees of companies, they get even trickier for self employed, small business owners such as photographers and other creatives. To help, here are some tax tips to help you avoid headaches and maybe even save a little money at the end of the year. For this article, we’re going to avoid the obvious, generic tax tips and get straight into the tips that we feel are the most important, beneficial, or often overlooked for many photographers. Here’s what we’ll be covering:
- Create separate bank and credit card accounts
- Use a good studio management software
- Save for Retirement
- Understand what you can expense/deduct
- Understand common misconceptions
- Research other deductions
- Consider hiring a professional
Disclaimer: The information contained on this article is not intended as, and shall not be construed as, financial advice. I am not an accountant or financial advisor, and this is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation.
Create separate bank credit card accounts
Creating a separate bank account and a separate credit card for your business is one of the best ways to keep all of your business revenues and expenses separate from your personal finances. I know it’s annoying to set up, having to research options and fill out forms, but you can find free options and you’ll thank me later when it’s time to track down that expense years later. This is recommended for all photographers, whether you’re a full time professional or a part time contractor with another studio.
Use a good Studio Management and Other Software
A good studio management software is critical for many aspects of a photography business, including scheduling, lead conversion, staffing, and yes … financial reports. For example, a platform like Honeybook keeps track things like Sales Tax Liability, Profit & Loss, Expense Reports, and more. It also integrates with Quickbooks, Freshbooks, Making Tax Digital Software (MTD Software for UK tax payers) and other accounting software to making things easy for small business owners. You might also consider Tave, Shootproof and other studio management software.
Save for retirement
Professional photography can be a physically demanding job, and while you might be able to handle long work days now, you may not be able to forever. No matter how much or how little you can spare for your retirement, the most important thing is to get started. The sooner you do, the more time your money has to grow between now and retirement. Look into an IRA (tax free upfront, taxed when you take it out) or a Roth IRA (taxed upfront, tax free when you take it out).
As a general rule of thumb, you can double your money every 12 years at an average of 6% return, so $1,000 would become $2013. With more frequent contributions and/or a higher rate of return, which is likely according to historical data of stocks and real estate, you can see how the return can be even higher than that.
IRAs (both traditional and Roth) are inexpensive to setup and many banks don’t have minimum balances, so you can get started no matter where you are financially.
Understand what you can expense/deduct
A general rule of thumb for taxes is to find legal ways to maximize your deductible expenses to reduce your tax bill. Here are some common deductions for photographers:
- Contractor/Employee Fees
- Insurance (Equipment, General Liability, Etc)
- Tax, Filing Fees, Licensing
- Vehicle Expenses
- Rent for your Studio
Since there is common confusion with the last two, let’s get into more detail on vehicle expenses and home offices.
Deductions – Vehicle Expenses
If you’re driving to and from your photography locations and not deducting the vehicle expense from your taxes, then you are likely leaving money on the table. In the US, for example, you have two options for claiming your deductions on your car expenses used for business:
- Track all actual expenses – With this method, you would document all fuel costs, oil changes, any maintenance and repairs and depreciation.
- Deduct the standard mileage rate (less work) – With this approach, you can deduct your business mileage multiplied by the standard mileage rate throughout the year. While there are several apps to keep track of your business miles, MileIQ is one that has worked well for me.
Check with your tax professional on this, but most photographers will find that the second option is better because of the simplicity. Be sure to do it! The deductions/savings quickly add up. For example, if you drive 100 miles and if, for example, the standard mileage rate is $0.58, then that’s $58 of expense that you could be deducting for that single shoot!
Deductions – Home Office Expenses
If you have a home office or studio in your house, you may claim related expenditures. However, this one may not be applicable for all photographers, as it requires the following criteria in the US:
- It must be your primary place of business – This means that if you have a main studio outside of the home and a home studio as well, you are not allowed to deduct home office expenses.
- It must be used exclusively for your business – This means that if you use a room for both personal and business use, you may only deduct the portion of the room dedicated entirely to your business.
In addition, much like the vehicle expenses, there are two ways to deduct your home office expenses, the simplified method, which doesn’t require you to have a detailed record of your expenses but is limited to a $1,500 deduction, and the regular method, which allows you to deduct the value of your exact expenses.
Understand common tax misconceptions
Next on our list of tax tips for photographers is to understand common tax misconceptions. This list could go on and on, but let’s focus on two that are commonly misunderstood.
Clothing – In the US, clothing generally can’t be an expense since it is suitable for everyday wear. So even if you use your suit exclusively for your wedding photography, for example, you aren’t allowed to deduct the cost. However, if that suit (or hat or other item of clothing) is embroidered with your business logo, that may be another story. Again, check with your tax professional in regards to this one since there are differing opinions on this.
Cash – Cash payments and tips are considered revenue and must be reported as income. Because it’s difficult for the authorities to track down, some people think that they don’t need to report it. But technically, any and all income, including cash payments, tips, Venmo payments, Cashapp payments, etc are taxable.
Research Other Deductions
A full list of all possible deductions is extensive and beyond the scope of this tax tips for photographers article. So to simplify, here is a short list of commonly missed deductions that that apply to many photographers and other small businesses. Do a quick Google search and ask your accountant if these make sense for you.
- Health Savings Accounts (HSA) – HSAs are accounts that you can contribute to and withdraw from, tax-free, as long as funds are used to pay for qualified medical expenses.
- Charitable contributions – Certain charitable contributions, to a limit, are tax deductible.
- Student Loan interest – Interest on your student loans are generally tax deductible.
- Mortgage Interest – Interest on your mortgage for your personal residence is tax deductible.
- Moving Expenses – Moving expenses are generally tax deductible.
Consider hiring a professional
At the end of the day, we recommend hiring or at least consulting with an accounting professional. This ensures that you avoid potential penalties and maximize your savings. Tax code is ever changing, and unfortunately, ignorance isn’t an excuse that the IRS or other governing body will accept. However, we recommend that even if you do hire a tax professional, you should take some time to better understand the basics of your tax law. If “Nothing is certain except death and taxes,” according to Benjamin Franklin, then it’s something that will affect your life in one way or another for the rest of your life. So the more educated you are, the more you can identify opportunities and be more proactive in your approach to your business and taxes. When daily business decisions can have tax implications, it pays to be informed!