Taxes For Photographers: 3 Things You Need To Do Now So You Don’t Owe Next Year
Hopefully, by now, the sting of this year’s taxes have subsided and you have dried your tears, or perhaps you are one of the lucky business owners who has dodged the IRS bullet this year and either owed zero taxes, or received the mythical tax return (it does exist!). When it comes to taxes for photographers, the subject is unpleasant at best, painful and drawn out at worst, but it doesn’t have to be either.
It’s every small business owner’s dream to end the year owing nothing to the IRS and it is possible, but you need to start planning now. The plan for many photographers is to cross their fingers and hope for the best, so how is that working out for you? To owe nothing in taxes requires dedication to staying on top of your numbers, and as such we spoke with Rachel Brenke, aka TheLawTog, who gave us three tips on what you need to do so that come April 15th, you won’t owe a penny.
1. Monthly Admin Day
At the beginning of the month, schedule 1-2 days for administrative tasks like paying employees, studying and compiling reports, and comparing reports with what you’ve done in the past month. Also look at the numbers for the entire quarter to see where the trend is going. Track your bank accounts – money that’s going in and out – and your receipts to make sure you are sticking with your budget for that month. and more importantly, your budget for the year. This ensures that you are staying on track, spending the proper amounts in certain deductible areas and not going over too much to where your deductions stop benefiting you.
Look at these figures side-by-side with your marketing calendar, the number of inquires and converted clients…whatever you’re trying to track. List it all in one place on a spreadsheet so that it’s easier to send to your CPA and have a record for yourself. By looking at these numbers and reports monthly, you are able to evaluate and make sure you are staying aligned with your budget, your goals, and maxing out in each deduction area as needed.
Having a monthly admin day also helps to insure that your business is working according to plan. Ask yourself, “Am I seeing a return on last month’s marketing efforts or am I just throwing a bunch of money into something that isn’t working?”
2. Attention to Detail
Identify some major key points in your business:
- Have you made more than this time last year? This is important to note because if you are making more and paying quarterly taxes, that estimated percentage may not be enough and you’ll end up having to spend more at the end of the year.
- Make sure you are on track with your tax expenses so that if you are making more, you are also increasing your quarterly payments as well.
- Have you made more than last month? Will this be a continuing trend? Is the slow season coming? Consider it all and adjust your plan accordingly.
- This can also crossover to help you adjust your marketing plan to fill the slow months with other income generating activities.
Rachel personally prefers to pay more for the first three quarters and less at the end, instead of having to scramble in that last quarter to figure out how much would have to be paid. But if you are properly putting your money in your tax savings account and keeping on top of it monthly, you won’t need to worry about it.
3. You NEed to Be Willing To Save
This should be common sense, but many photographers miss these three areas when considering their savings:
- Rainy Day Savings: making you are saving for a “rainy day,” in case an emergency arises, your equipment breaks and needs to be replaced, you have the funds to do so.
- Regular Savings: you may want to look at some educational opportunities or you may need a larger or more frequent deductions that will benefit and work for you without having to scrap for the funds
- Tax Savings: If you’re not breaking down your cost of doing business to include the savings for taxes, that’s when you’ll get into trouble come tax season. There isn’t a set percentage to save as it’s specific to each business, which is why the admin days are extremely important so you can plan properly with your CPA to save the correct amount for your projected income.
It’s always wise to have a buffer of a little extra savings in case you get an explosion of clients at the end of the year, which is a great thing, but increases your tax liability as well.
Many photographers are scrambling at the end of the year because they spent too much or too little money; They didn’t project out how many clients they planned to have; they didn’t look at their previous year’s trends; they didn’t adjust their marketing actions, or were not specific on their tax savings. In short, they failed to plan. Don’t let that be you.
TheLawTog is offering SLR Lounge Readers a free Tax Deduction Checklist which you can download here. You can also check out the “More Than Accounting Spreadsheet” for photographers to help you easily input the necessary information to make your monthly admin days a little easier. It’s on sale now and you can find it here.
*SLR Lounge is not a financial or legal advising entity, and information provided within does not replace proper legal counsel.