I am a photographer. I am a CPA. I understand and love your photography business.
“Would you rather have a CPA who is passionate about accounting, or a CPA who is an advisor, partner, friend, and photographer who is passionate about your photography business?”
I started my photography journey in December 2016 and quickly determined I wanted to turn it into a business. In addition I’m a CPA. I knew that although I loved photography, it was a business just like any other business, and a variety of factors needed to be considered in order to maximize my success. Did I do all of these things? Nope. It was a side hustle at the time and I had a full time job, a husband, two teenagers, two dogs, and not a lot of time. But I did think about all of these things and make conscious choices.
My goal with Photography Accounting is to share and leverage accounting, finance, and tax experience with other photographers and provide a one stop resource for information. There is so much incorrect information out there when it comes to accounting and tax, oftentimes provided by well meaning friends and fellow photographers. I want to make sure you have a place to turn to in order to get expert advice for a fraction of the cost.
Before you launch your photography business, please consider this list of 10 critical items. You may have thought of all of these questions, or some of them, or none of them. And whichever is true for you, it is okay. You can do this, and you can get all of your questions answered, and those that you haven’t thought of yet. Even if you’ve already started your business, you can resolve anything that you forgot.
- My business name
- Should I form a separate legal entity (LLC, Corporation, S Corporation are the primary forms) or operate as a sole proprietorship?
- Do I need insurance?
- Do I need an EIN and separate bank account?
- Do I need a sales tax account?
- What’s my budget – how much money do I want to make and how much will I need to spend?
- What’s the best way to track my income and expenses for tax purposes?
- When do I need to pay taxes?
- How should I bill my customers and collect payment, and how should I track my interactions with prospects?
- What business licenses do I need and where do I need to register?
(1) My business name
Maybe you have the perfect name in mind. Can you use it? It depends. Here are a few considerations:
- Domain – Is the domain name available? You can do a quick search on any domain provider site. I use GoDaddy. Once you secure your domain name and start building your business, just make sure your domain stays active, and that you renew prior to the expiration so that someone else doesn’t buy it out from under you. Once you get yourself high up in search engine rankings, you aren’t going to want to change your name without very good reason.
- Trademark – Does someone else have a trademark on the name you want to use? This could get you in a bind if you don’t check before you start using the name. Even if you’re using your first and last name, like Jane Smith Photography, there could be someone else already using that name. Once you do secure your name, it would be a good idea to trademark it. Here’s a link to search the data base: Trademark Search
- State Entity – If you are planning to create a separate entity like an LLC or a corporation, you should check the name database in whatever state you plan to set that up in. You can go to the state’s Secretary of State website to check this.
(2) Should I form a separate legal entity (LLC, Corporation, S Corporation are the primary forms) or operate as a sole proprietorship?
It depends! I’m a big fan of keeping things as simple as possible. The most simple option is to operate as a sole proprietorship. This is the default and means you don’t have to set up a separate entity. However, before making this decision, you should understand the implications. Aside from simplicity and complexity, there are two things to consider:
The Legal Side – Please remember that I am not an attorney and am not licensed to give legal advice. If you’re new to all this, you should really consult with an attorney to get legal advice specific to your situation. That said, generally speaking, forming a separate legal entity may provide you with legal protection above that of a sole proprietorship or general partnership.
This is a topic that deserves its own separate blog post, but basically, if you form an entity, any liability that is incurred by the business is limited to the business’ assets (assuming you aren’t personally negligent or personally guaranteeing a debt). If you have outside assets, this offers some protection of those assets if you were to be sued in the course of your business. Of course there are lots of conditions on this, such as maintaining the business as a separate legal entity, but that’s the general idea.
Taxes – This one deserves a separate blog post too! There may be tax benefits associated with the different types of entities, and the benefits depend on your overall tax situation. There may be instances where a C Corporation may save you money in taxes, and instances where it may cost you more. The same is true for S Corporations and sole proprietorships. An LLC’s default taxation is that of a sole proprietorship (for a single member LLC) or partnership (if there is more than one member), but you can elect to be taxed as a C Corporation or S Corporation.
Basically, as a sole proprietorship or partnership, all of the taxable income from your business flows through to your personal tax return, and you pay self-employment and income taxes on all the earnings, whether you take them out of the business or not. A sole proprietorship is filed on Schedule C on your personal Form 1040, and a partnership (unless it’s a husband and wife who have elected to be treated as a Qualified Joint Venture), gets filed on a separate Form 1065.
An S Corporation is filed separately on Form 1120S. All of the taxable income from an S Corp flows through to your personal tax return and you pay income tax on that (again, whether you take money out of the business or not), but you only pay employment taxes on the wages the business pays you (and there are rules around what those wages should be).
A C Corporation is filed on a separate Form 1120 and pays taxes on its own – i.e., the taxable income does not flow through to your personal tax return. You may have heard of double taxation, and that applies to the C Corp. The entity pays income tax, and you pay tax on any money you take out of the entity in the form of dividends and wages. But in certain circumstances, this may still be beneficial.
So you can see that it depends, and you really need the help of a professional to help you evaluate the options. Paying for professional advice could save you a lot of money in taxes over time.
(3) Do I need insurance?
Yes! You should consider:
- Insurance on your equipment.
- General liability insurance.
- If you have employees, you will need workers compensation and unemployment insurance. These two may be handled differently depending on what state you are in.
- If you have a studio in your home, you will likely need to change your home owners’ insurance or renter’s policy to cover the commercial use. If you have a studio outside your home, you should consider insurance protection on that.
- Commercial automobile insurance on your car.
- Disability and life insurance – This isn’t particular to your photography business, but you should consider these two. If you can’t work, how will you pay your bills?
(4) Do I need an EIN and separate bank account?
Probably. An EIN is an Employer Identification Number obtained through the IRS. If you form a separate legal entity, you will need both an EIN and a separate bank account (which can’t be set up until you get the EIN).
If you don’t form a separate legal entity, it’s still a good idea to get both. It’s nice to be able to have something other than your social security number to provide to those you do business with. Customers may need it for 1099 purposes. The separate bank account just makes tracking your income and expenses easier.
Getting an EIN is easy – follow this link and the instructions will walk you through the process. Apply for EIN
(5) Do I need a sales tax account?
Probably! Sales tax definitely deserves a separate blog post and one will be following in the near future. For now, just know that sales tax laws are set at the state level and you can read about yours on your state’s Department of Revenue website. In most cases, digital photographs are considered tangible property for the purposes of sales tax, and are taxable, assuming your client lives in the same state as your business. If your client lives in another state, you may not be responsible for collecting sales tax.
Take my photography business for example. I live in NC in a destination resort beach town about an hour south of the VA border. My client base consists of local families, visiting families, and weddings. My clients may come from NC, VA, MD, DC, PA, NJ, OH, NY. If my client lives in NC, I need to collect and pay sales tax. If my client lives out of state and I deliver her photo gallery after she gets back home, the sales are not subject to sales tax. It took me a lot of reading and a long phone call with the state to figure this out.
It’s not always easy and you may need help, but a good place to start is TaxJar. This product helps you file sales tax, and you may or may not need that, but it has good information on state requirements regardless.
(6) What’s my budget – how much money do I want to make and how much will I need to spend?
This deserves your time and careful consideration. What do you want from your photography business? Is it a hobby that will bring in a little extra money for luxury items like vacations? Or do you want to replace your six figure income and quit your day job? This is something that needs to be decided on up front, because if you don’t know where you’re going, you could end up anywhere.
Start with your expenses. What are your start up costs such as licenses, legal entity registration, legal fees, accounting fees? What equipment do you need to buy – cameras, lenses, carriers, Speedlites, tripod, SD cards, batteries, computers, monitors, space heaters, infant bean bags, wraps and blankets? What are your ongoing monthly expenses such as phone, internet, education, insurance, travel, WPPI and other trade association fees, automobile expenses, taxes? How much money do you want from the business to support yourself and your family? Add all these up plus a 10%-20% cushion. That is what you expect to spend over the course of a year.
Next, think about how you are going to fund your expenses. Will it be from the operations of the business, savings or gifts from family, or debt? Personally, I would stay away from debt, and if you want to read a good book about this, please consider Dave Ramsey’s The Total Money Makeover.
My goal was to fund my business expenses entirely from the operations of the business. If that’s the case, your total spend as calculated above will be the revenue you need to bring in from your business. If you are using external financing options, just subtract that amount from the total expenses, and that is the revenue you need to generate.
Next, break that revenue down into parts you can see and understand. How much do you charge for your sessions? How many sessions do you need to complete in a year at your average rate in order to earn your revenue number? This might make you raise your prices!
Finally, consider cash flow – When does the cash from your customers come in and when do you have to pay your expenses? You can keep track of this in a simple spreadsheet or use a more effective option such as Futrli to forecast your cash flow and sync it to your actual numbers so that you can revise your forecast with real, live data throughout the year.
(7) What’s the best way to track my income and expenses for tax purposes?
Xero. There are a lot of options out there, but Xero is my favorite. It is relatively inexpensive, built for the cloud, and intuitive. I used Quickbooks for years – Xero is my favorite. You can use a spreadsheet for free, yes, but I guarantee you you’ll save so much time and be far more effective if you use an accounting program. Xero pulls in your bank transactions automatically and all you have to do is code them, which you can teach it to do on its own for the most part. Set aside 30 minutes per week to do this, and the end of year and tax time will be no big deal.
(8) When do I need to pay taxes?
It depends. I know it’s annoying right? “It depends” is so often the answer. You may need to pay quarterly estimated tax payments to the IRS and/or your state, or you may just need to pay once per year on the annual deadline. It depends on your overall tax situation, how much you owed last year, and what you expect to owe this year. Here is a link that gives you some information on the federal side. Federal Estimated Taxes
(9) How should I bill my customers and collect payment, and how should I track my interactions with prospects?
Currently I use Xero to bill my customers, and include a link right on the invoice that allows them to pay via Paypal or credit card. I use Hubspot to track my interactions with my customers and prospects. I’m looking into 17 Hats or Honeybook or Hey Ned for the combined invoicing and Customer Relationship Management (“CRM”) functions.
I highly recommend you use accounting software CRM to bill your customers and keep track of your interactions with them. Again, this saves you time, and time is your most valuable asset. You can get swallowed up in the minutiae of running a business, or you can automate as much as possible and spend your time doing the part that you love.
There are so many excellent options available today to help you, and most are not terribly expensive. CRMs will allow you to set up email templates, schedule automatic, personalized emails, and help you keep track all of your follow ups and leads. They will also take you through a sales pipeline so that you can more effectively move prospects through your sales process.
(10) What business licenses do I need and where do I need to register?
It depends🙂 This is usually determined by the county and/or town you live in. I live in Dare County, NC and don’t need a business license for photography in my town. However, I do need a privilege license which is obtained by paying an annual fee to the NC Department of Revenue. Start by searching your town, then county, then state.
So that’s it! Your 10 critical items to consider before starting your photography business. This is meant to give you information, not to scare you, and to show you that you have a resource to get all of your questions answered. If these questions make you think of more questions, please join the pilot version of my Closed Group on Facebook – Photography Accounting. You won’t be charged for the first 10 days, and you can post your specific questions there, and get an answer from me within 24 hours. Or feel free to message me for a one on one consultation.
I would love to talk to you and answer any questions you have! You can find me on Facebook and Instagram as @photographyaccounting and on Twitter as @photoaccounting. I look forward to hearing from you!
DISCLAIMER: All data and information provided on this site is for informational purposes only. The owner makes no guarantee as to the accuracy, completeness, timeliness, suitability, or validity of any information and will not be liable for any errors, omissions or delays in information. It is also not a substitute for legal or professional advice.