It is that time again… tax time! As a small business owner, it is easy to get stressed this time of year but it is so very important to be prepared. We have put together some tax tips for photographers that will help you as a small business owner to be ready to get your taxes done easily on by that April 15th deadline. We have also included a few resources that may be beneficial to you as well.
Here are some tax tips for photographers and small business owners to help you ease the burden of preparing your taxes:
Make sure to have a copy of all your records and deductions.
Make sure you have all the paperwork you will need to back up everything you need for your deductions and other company profit records. Do you work from your home office and will be writing off some of your work space and other various items such as equipment, phone and internet? Keep a copy of each monthly bill handy because you must have proof of those items. Also, has your business donated money in 2014? Be sure to have copies of those donations as well.
Be sure to avoid common audit traps.
There are a few red flags that auditors are looking for with taxes from small business that you want to make sure you avoid.
Employees VS. Independent Contractors - Do you have any employees or independent contractors working for you? Make sure you know the difference of both because you do not want the IRS to flag you as misclassification in an attempt to avoid payroll taxes.
Deductions for a Home Office - Not every home business qualifies for these deductions so it is important to determine if you are eligible and the various types of business expenses that are able to be deducted.
Keep Your Business Separate - Make sure you keep a separate bank account and credit card account for your business. Even be sure to keep company vehicles separate.
Do you know if you qualify for the health care tax credit?
As a small business owner, you could qualify for a 2014 health care tax credit of 50% if your business meets criteria that includes: if your annual wages are less than $50,000 per person, your business employees fewer than 25 full-time employees, your business contributes at least 50% to the employees’ self-only health premiums, or if your business health insurance is purchased through the Small Business Health Options Program Marketplaces.
Make sure your business is actually qualified as a business and not just a hobby.
If you have recently started a photography business, the IRS expects that you intend to make money at it. If not, your business is simply a hobby. The IRS looks at many factors to determine if your business is just a hobby including:
Do you put in the necessary time and profit to turn over a profit?
Have you made a profit in the past with this activity, or do you expect to make one in the future?
Do you have the knowledge you need to succeed in this business?
Do you depend on the income you make?
Are the losses you have beyond your control?
Are you a sole proprietor with your business?
If you are a sole proprietor, and as far as taxes are concerned, you and your business are a single entity. You will have additional taxes (like the self-employment tax) and reporting requirements but you can also be eligible for other tax deductions for your business (such as health insurance deduction and various business expenses). Also, as a sole proprietor, the IRS pays special attention to make sure the lines are not blurred between your business and personal expenses… so be sure to keep your business expenses separate!
Wondering what you may be able to deduct?
As a business owner, you want to make sure you take every single deduction you can, but you need to make sure it is legit. You do not want to get yourself into an audit with the IRS. Here are things you may be able to deduct when doing your taxes: home office, office supplies, furniture, other equipment, software and subscriptions, mileage, travel/meals/entertainment and gifts, insurance premiums, retirement contribution, social security, phone charges and any child labor (in case your child under 17 helps out with your business)!
Having a business is such a great thing. You are doing what you love, you can be your own boss, but you also have to deal with taxes… which can be a very stressful time of year for many. We hope these tax tips for photographers will help you when it comes time to file!
Here are a few additional resources if you have other tax questions:
Also, we recommend you ditch the photography accounting software and get simplified and organized with this accounting spreadsheet for photographers from The Law Tog. These spreadsheets went through a multi-level process between photographers, lawyers and CPAs to get it right.