Welcome to 2016! As an accountant, to me a new year means new beginnings, fresh resolutions… and the onset of tax season. If you’re like me you truly dread trying to get your personal tax information together each year, ready to either give to your CPA or to input into a tax software program. Truly, I would rather prepare someone else’s taxes than get information gathered to do my own! And yet, with a little bit of effort you can pull together all the information you will need to really know that you’re getting your taxes just right.
Here are four of the biggest, most common pitfalls photographers run into when they’re getting their information together at tax time:
- Not including all of their revenue. The IRS wants to make sure you report all of the income you received during the year from your photography services. Yes, ALL of it. After all, their job is basically to ensure that you pay all of the taxes that you legitimately owe the government! What that means is that you need to keep good accounting records of every penny you get for your business services. Even if you make money in ways that aren’t your normal bread-and-butter photography sessions, you need to report it on your taxes. That extra $50 you didn’t request from your friends for taking their holiday photo but they gave you anyway? Include it. The extra $200 you made as a second shooter at an event? Include that, too! The best way to make sure you get it all is to keep careful accounting records during the year, but if that’s not an option (say, for 2015), make sure you go back through your bank records carefully to make sure you’ve recorded every bit of your income.
- Not keeping track of your business assets. Opposite of revenue, deductions reduce the amount of your income that is considered taxable. You want to increase your deductions as much as legally possible. One place photographers might overlook is if you purchase any assets during the year, you may be able to deduct all or part of their cost. An “asset” is anything that will benefit your business on a long-term basis; think lenses, camera bodies, computers, printers, etc. One caution on this is that if you purchase an asset but use it part of the time for business and part of the time for personal use (as in, sometimes you take pictures just for yourself rather than taking client photos 100% of the time), you will want to record how much of your use is for your business and how much is for yourself. You should be able to take a record with the details of your purchase commonly found on a receipt or invoice, like the date of purchase, cost, etc…, and your business use percentage, and your CPA should be able to take it from there.
- Not recording your business mileage. Photographers commonly travel for their work, particularly to drive to sessions. There are some rules that can be a little bit complicated surrounding this, but in general if you’re driving somewhere that’s not your daily place of work you can take a deduction based on your travel. The easiest way to do this is simply to track your business mileage – it can be as easy as keeping a piece of paper in your car with starting and ending odometer readings, plus the name of the client you’re traveling to photograph. Each year the IRS gives a set mileage rate, and at the end of every year you can simply add up your total mileage and multiply it by the IRS rate, and voila! Instant tax savings.
- Not keeping track of information about a home office. This is another one where there can be some confusing rules, but basically it boils down to if you have one set spot in your home that you have set aside only to run your business, you may be able to deduct part of the costs of running your home. Yup, that means the cost of your rent, your utilities, your internet, anything that supports your business. You will definitely want to consult with a CPA and at least chat about how you can make this work for you, but it is an easy way to really pile on savings without costing you an extra penny (since you’re already paying for the cost of your home regardless). Because the rules can be complicated, often if you don’t set things up the right way you may not meet the requirements so this is one where you’ll want to be proactive for next year’s taxes now in order to jump on the savings.
Are you a victim of any of these common tax pitfalls? Do you feel like you could use an extra bit of guidance to really get your business set up and going in the right direction? Feel free to ask me anything in the comments!
Her best adventures always happen with her handsome husband, her kindergartener who is too smart for his own good (or hers!), her brave toddler who seems to have no fear whatsoever, and her brand new baby girl. She loves photography and how it allows her to capture all her adventures, big and small, and to keep them forever. In order to fund her love of all things photography, she works part-time from home as a CPA.
Latest posts by Deborah Nash (see all)
- When Do I Need A CPA? - May 24, 2016
- Intro to the Income Statement | Five Minute Friday - April 29, 2016
- How to handle a second shooter? - April 5, 2016