How To Start A Photography Company Tax Exempt

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This article includes over $20,000 of mistakes that I’ve made in the last six years of running my photography concern.  This commodity is also the result of hundreds of hours of trying to figure out the business, legal, and financial side of photography on my own.  And then hopefully this will help!

Fortunately, I successfully waded through the red tape of starting my business half dozen years ago and the concern has processes for the legal and taxation requirements that were then complicated at kickoff.  Now I’thousand a licensed attorney, but run my photography business full-time.  And then I’g in a unique position to walk you through all the steps yous’ll need to go through to get your photography business fix up legally.

First and foremost, while I am an attorney, I’1000 not your attorney.  Laws regarding small concern differ in each country and land, so you’ll demand to seek the advice of a licensed attorney in your own jurisdiction before making concern decisions.  This is strictly legal didactics.

You’ll demand to walk through vii steps to get legally set up as a photographer:

  1. Decide on a proper name and check trademarks
  2. Create an LLC or stay every bit a sole proprietorship
  3. Get an EIN
  4. Set up your business finances
  5. Make up one’s mind your tax strategy,
  6. Make a determination about insurance
  7. Go some cheap photography contracts Contracts will practise more to protect yous legally than
    annihilation else!

That may all audio intimidating now, but as you’ll see in the article, the truth is that 90% of photographers can run through this whole process in just 24 hours.  Information technology’s really not hard equally long as you carefully follow the steps.

Stride 1: Choose a Concern Name

Every photography business has a name, even if it’s equally simple as “Jim Harmer Photography” (that’south how I started out).  But pick something.

If you pick your ain name, you’re gratuitous and clear.  Don’t worry about the residuum of this.  If there’southward already someone with a concern named “Jim Harmer Photography”, they just have to deal with it because I always have the rights to my own proper noun.  There was a court example where someone with the last name McDonald opened a eating house named McDonald’s, just non THAT McDonald’s.  He won.  The courtroom ruled that you always have the right to your own name.

If you choose annihilation other than your own proper name, you accept to have a couple extra steps.  These are the steps I had to follow when I fabricated “Better Photography” after graduating from the simple “Jim Harmer Photography.”  As an example, permit’s say I select something like “Still Frames of the Mind Photography.”

I need to make sure that someone else does not have trademark rights over that proper noun.
I can find out in two ways.  The showtime step is to cheque USPTO.gov and perform a TESS trademark search.  It works like a normal search engine.  But choose “basic word mark search” and and then type in the proposed name of your business organization and hit “search.” When I practise that, I meet that the lame name I’ve chosen brings back no results.  That’s a good matter!

Simply that doesn’t mean I can use the proper name.  I also need to run across if any other businesses are named something confusingly similar.  For example, what if in that location is a “Still Frames of the Heed VIDEOgraphy”?  That could confuse customers about which business organisation they are hiring.  So I’ll practise a few searches with like names to make sure.

If you observe someone with the same name or a confusingly similar name, it’s really best to just not use the name and avert problems downwardly the road.  Y’all may exist able to even so utilise the name if you are geographically separated, do a different type of concern, etc, but it’s best to just move on and cull something different.

If at that place are no matches in TESS, so nosotros demand to use Google.  Do the same affair, searching for other businesses with the aforementioned name.  If at that place are, it’southward really all-time to merely avoid information technology.  Just because they oasis’t REGISTERED their trademark doesn’t mean they don’t HAVE a trademark.  Trademarks are earned through use–not registration.  Registration simply adds another layer of protection.

llc

Step 2: LLC vs Sole Proprietorship

Time to protect your assets.  This is where things can become complicated if you let them, simply it really shouldn’t.  We need to make up one’s mind if you want to dissever your business organisation from your personal assets.  The benefit of doing then is that it will protect your house, cars, and personal bank account from some lawsuits.

The truth is that virtually photographers don’t need to go through the piece of work of creating an LLC.  The risk of a photographer being sued is actually quite low, and the dollar amounts of such suits would usually keep it in small claims courtroom anyway.  However, if y’all’re in a special state of affairs, an LLC is certainly a good idea.

An LLC is the about popular form of carve up entity that separates personal and business responsibilities and assets.  A sole proprietorship only means a person who does business.  If you lot don’t register an LLC, you’re automatically a sole proprietorship.

Which law suits would information technology protect you from?  Allow’s hit on a few examples.

  • You lot accept a contract with a client to shoot their wedding ceremony, just you’re in a car blow on the manner there and miss the ceremony.  The client tin can’t become your personal assets.
  • You’re shooting a wedding and a lite stand tips over on a invitee and hurts her harm.  Your LLC won’t protect you at all because the guest did not contract with your business.  The guest is just a person Yous harmed.  Your LLC is useless.
  • You lot are having a bad day and do a terrible task taking wedding photos.  The couple can’t sue you personally-only the business concern with whom they signed the contract.  The contract was breached.
  • You don’t collect sales tax for your photography jobs and the state sales tax commission audits you.  Your LLC does goose egg.  The IRS will get your personal avails without skipping a beat out.
  • A same-sex activity couple calls y’all and yous feel your religious behavior prohibit you from calculation to the commemoration of their wedding ceremony by photographing it.  They are mad and say if yous don’t photo their wedding, they’ll sue.  Your LLC will do nothing to stop a homo rights adapt, but it could deter some other suits.  (Side note: I’g Non advocating ane side or the other on this issue.  Information technology’s only an example of something that photographers have been sued over lately.)

And so every bit you lot tin can see, having an LLC is an splendid fashion to protect y’all from SOME just not ALL law suits.

In full general, get an LLC if you…

  • Own a home and have significant equity, or have other major assets that you lot don’t desire to risk (cars, boats, depository financial institution accounts)
  • Volition participate in higher-dollar photography endeavors (doing shoots that earn over $four,000)
  • Volition photo celebrities (celebrities are law conform MAGNETS!)
  • Do commercial photography (some businesses are very litigious)
  • Accept a low tolerance for risk (Like I do.  I similar the security of an LLC.)

Yous probably don’t demand an LLC if you…

  • Don’t have much coin in your personal account and don’t have significant assets
  • Will photo part fourth dimension
  • Expect to earn nether $80k in your photography business
  • Won’t participate in higher-run a risk shoots worth more money or for higher-risk clients

For many of you, the “no LLC” option is the simplest and probably the best.
Yous can always switch to an LLC subsequently if your business organisation grows.  If you don’t want to make an LLC, you still need to do some work.  You lot need to annals a DBA with your secretary of country.  A DBA just means “Doing Business organisation As.”  Information technology normally only costs $25 and is a unproblematic i-page class where you say that “Jim Harmer” is doing business concern as “Jim Harmer Photography” or “Improve Photography” or whatever business organization name I chose.  It’s dead simple.  But google the proper name of your state and “secretary of state”  there will exist a elementary form y’all fill out and post with a $25 check and you’re ready.

If you decide you lot want an LLC, and so yous have a tiny fleck more than complexity, but it’southward non too bad.
Google the name of your country and “secretary of state” and you’ll find a uncomplicated form for registering an LLC.  Information technology usually costs about $100.  It’s actually quite simple.  The only “insider trick” y’all should know near is that on the line that asks for the purpose of your business, just write “To earn money.”  The reason is that if you lot’re ever sued, you want it to be crystal articulate that you don’t ONLY do portraits, for example.  If you lot write something too narrow, the plaintiff may argue that your business is just a pass-through account and that you were engaging in other business organisation endeavors.  If the purpose of the company is simply “To earn coin” then you lot can practise whatever you desire with the company.

File the form and your $100 with the secretary of country and you’ll be on your way.  In Idaho, this is a simple 2-week turnaround.

The only matter you’ll need to do long-term is in one case a year y’all’ll accept to make full out a little card they electronic mail you about saying that you lot’re still in business.  Information technology takes well-nigh v seconds per year.

As well, I should add that the LLC is inappreciably the only option for nugget protection.  There are many others, simply for 99% of yous reading this, the LLC will exist the right choice.  If your business is bringing in loads of money, you’ll definitely desire to talk with an accountant.

money2

Pace 3: Get an EIN

Non everyone needs an EIN.  It’due south really just for a specific set of issues in dealing with the IRS, but I detect that it’s tough to do a lot of business concern endeavors without i.  When you get insurance, sign upwards with a credit card payment processor, or set upwardly a bank account, they’ll want an EIN.

It takes about 5 minutes.  Just go hither and fill out the simple form and you’ll get your EIN.  It’s costless.  Save it somewhere y’all tin can observe it.  You lot’ll need information technology pretty regularly.

money

Step 4: Separate Your Finances

Whether you choose to gear up an LLC or not, yous need to divide your personal finances from your business finances.  If y’all are going to gear up an LLC, then this is besides necessary to get your protection as a divide entity, simply even as a sole proprietor this is a necessary stride to keep your books in order for the IRS.

Go to a banking company and set up a banking company account for your business.  Yous’ll need your LLC documents and EIN if you went that route.  If you’re a sole proprietorship then just the DBA will be all you lot need.

Admittedly every single penny your business earns needs to be put in the business banking concern business relationship.  Every unmarried penny yous spend on business items needs to come up from that same bank account.  Never, ever, ever use your business business relationship to buy a personal item.  E’er.  Ever!

If you lot mess up the above rule, your LLC is COMPLETELY USELESS!  If you set up a dissever LLC and business concern bank account, but but apply the business card any time y’all’re out of coin in your personal account, your LLC is destroyed.  Anyone who sues you can “pierce the corporate veil” and get your personal assets.  If you are a sole proprietorship and you violate the dominion above, then yous’ve set yourself up for a NIGHTMARE of an audit when you try to show the IRS your books.  Everything is much easier if you continue these two things separate.

Wondering what you tin justifiably brand a concern expense?  Anything that y’all purchase that has a substantial business purpose and is ordinary and necessary in your field.  Photography workshops, buying new camera gear, purchasing props, and paying models are all examples of good business expenses.  Only there are others that can really help out as well.

A business organization expense ways you’ll get to deduct the purchase from your taxes.  And so if I earn $twoscore,000 in my photography business and my tax charge per unit is 25%, and I accept $10,000 in expenses, then the 25% revenue enhancement rate is but practical to the $xxx,000 in net turn a profit.  So basically, whenever yous buy something on the business account rather than your personal account, you lot’re getting it at a 25% off auction.  That’s fantastic if you would have bought the particular anyway, but information technology never makes sense to purchase something just because it’ll be a taxation deduction.

Now yous need to decide how much money your business will pay you.

If you are an LLC, it’south really best to set a consistent monthly salary and non alter it.  For example, you may put $500 of your personal money in the bank business relationship to get it started.  Then yous do some work and earn about $one,000 per month.  You may choose to set your bacon to whatever you want equally long every bit the business has that much to pay you.  At the commencement, it may be as tiny as $100 per calendar month.  Don’t worry, you tin can always change information technology subsequently.  Just keep it consistent each month.  If you get to Dec and meet that yous’ve merely taken a tiny corporeality out of the business and you accept a lot of retained earnings (coin left in a business organization account), you lot tin can give yourself a special yearly distribution to your personal account.  Y’all pay yourself by simply writing yourself a check from the business business relationship to your personal account each calendar month.

If you are a sole proprietorship, then you lot can really have money out whenever yous please.  The business IS you, so yous don’t have to be as careful.  Just when you want to use the money in the business organisation, write a check from the business concern account to your personal account.  Then buy whatever you lot want out of your personal account.  That mode it’s still clear what is a business expense and what is a personal expense.  You’ll need that for taxation accounting.

The concluding step here is to meticulously track every unmarried mile you bulldoze as a lensman.  Going to the mountains to take pictures?  Write off the miles!  Driving to a java shop to meet upward with a potential customer?  Write it off.  Driving to one of my gratuitous photography workshops?  Write it off!  Just go on a simple ledger that says where you started, where y’all went, how many miles, and why you went in that location.  Then, at the end of each quarter, write yourself a check from the business to your personal account for the cost of the miles (56.5 cents per mile).  Buy your gas, car, and all machine maintenance with your personal business relationship and then we do these reimbursements.  I’ve never seen a car that really costs 56.5 cents per mile to operate, then yous actually Brand money when you go on a photography route trip.

I use an app called MileIQ to track my miles. It creates an easy report to give to your accountant or use yourself if you file on your ain.

Not keeping track of my miles very well has cost me several thousands of dollars over the last few years.  Don’t make the same mistake.

sales-tax

Step 5: Register to Pay State Sales Tax

This is the #1 about-skipped step by photographers, and information technology’s the one that comes with the biggest penalties if y’all mess this i upward.  Fines for failure to pay sales tax can be HUGE, and photographers are slap-up targets for the state sales tax commission considering photographers rarely understand how sales tax works.  Every photographer needs to do this footstep–even if you are just a sole proprietorship.

Most people know that products are subject to sales tax, just services are non.  That’s a general rule, only it has a host of exceptions.  Photography is about always 1 of them.  Yous may think you are providing a service by taking pictures for someone, but near sales tax commissions say y’all’re selling a product.

This gets extremely tricky!  Each state deals with the sales tax question differently.  For example, some states may allow you to itemize your services so you collect sales taxation for the impress sales but not for the act of going to do some of the shooting, etc.  It’s a state-by-state outcome.  Your best bet is to talk directly to your country sales tax commission and just ask.  They are usually cautious about giving legal advice, but they’ll usually show you lot what to do.

My proffer: If you aren’t sure what to collect sales tax on, just collect sales revenue enhancement on everything yous do.  I’ve never met a sales tax commission who got upset nigh existence overpaid.

To pay sales tax, you take to first annals with the state.  Google your country sales tax committee and at that place will be directions on how to get a Sales Tax ID and how the process works in your state.  It’s really not hard.

Some states don’t take any sales tax, but most states charge about 6%.  So you’ll need to update your pricing page with a little asterisk and a note that says “All sales subject area to state sales tax.”  Then when you become payment from the customer, add together six% to the price.

At the end of each quarter (usually), y’all’ll run into how much sales tax you collected and y’all’ll pay information technology to your land sales tax commission.

taxes-for-photographers

Stride vi: Taxes, Taxes Taxes!

When yous work a day job, your employer withholds revenue enhancement for you lot and pays it on your behalf.  Now that you’re self-employed (even part-time), you have to do this for yourself with the income your business earns.  This is true whether you lot are an LLC or a sole proprietorship.

Each quarter, you need to total the amount of money yous’ve earned and pay quarterly taxes to both your country and the federal government separately.
Merely to make it tricky, the regime doesn’t do this on the typical ends-of-quarter.  You’ll pay on April 15, June 15, September 15, and January 15 of each year.  Hither’south what you do: full the amount of money you lot earned since the last payment.  Take about 25% of that amount (or whatsoever the tax rate is–differs for everyone) and pay it to the IRS.  You lot’ll also withhold for your state.  Commonly this is about 5 to 8%.  Go to the IRS website and print out a voucher.  It’s just a little one-half-sheet of paper that y’all mail service forth with your bank check at the finish of each quarter.

All taxes except sales revenue enhancement are paid through your personal account–Not the business account.  An LLC is a pass-through entity, so you pay the taxation personally.  A sole-proprietorship is merely Yous doing business, so pay your taxes from your personal account.  Eventually this tin can become difficult to manage your personal finances to take enough in at that place to pay the quarterlies.  You tin can set your company so, in addition to your monthly distribution (bacon), you also get a quarterly distribution from the business to your personal business relationship that simply then happens to be the exact amount of revenue enhancement you owe.

If you pay the right amount in quarterly taxes throughout the yr, you won’t have any additional tax bill at the end of the year.  But if you lot get your quarterlies incorrect, y’all could stop up with a whopper of a revenue enhancement bill!  It’s better to over-pay and get money back than to under-pay and end up with a big pecker.

If your business is on rail to earn nigh $80,000 in the course of a twelvemonth, y’all admittedly positively need to go see a CPA immediately!  It’due south very likely that you lot’ll want to modify your corporate tax election to exist an Southward-corp.  You stay an LLC for liability reasons and your business concern proper noun is all the same the same, only for tax purposes y’all are treated equally an Due south-corp.  This tin salve you a STARTLING amount of money on taxes because y’all’ll avoid self-employment tax, merely it also means more fees to your financial advisor and more complexity.  Only do this if you’re earning effectually the $80,000 marking.  Some CPAs will want to talk anybody into doing this so they can rack upwardly more fees.

I made the mistake of trying to salvage money by not hiring a CPA until it was too belatedly.  I lost about $13,000 in taxes betwixt two years that I could have saved if I’d made the switch to an southward-corp sooner.  Only I saved a whopping $200 past not getting a CPA!  Ug.

For all the little "oops" moments in life... there's insurance :-)
For all the picayune “oops” moments in life… in that location’south insurance 🙂

Pace vii: Insurance

Y’all don’t demand insurance to be a legitimate business, and I’m not aware of whatsoever states that crave photographers to hold insurance.  However, it can be a smart business decision depending on your state of affairs.

At that place are 2 unlike types of insurance that most photographers should consider: liability insurance and equipment insurance.  Merely visit any insurance broker and they can walk y’all through both of them.

My general take on equipment insurance is non to get information technology, IF you are in a financial position to buy new gear if yours gets cleaved or stolen.  For instance, if someone bankrupt into my home today and stole my computer, Drobos, laptops, and cameras, it would really stink.  It’d cost a lot of money.  But I’grand in a very comfy financial position and could just get out and buy replacements tomorrow.

Pro Tip:
If you equipment gets stolen, check with your homeowner’s or renter’s insurance and run across if stolen items are covered!

However, if I were but starting out my business and the aforementioned affair happened–I’d be up a creek.  I wouldn’t have the coin to supersede the equipment necessary for my business organization, and then I’d have to shut my doors.  My business would be washed with.  And so get insurance if this is your situation!

The reason I don’t recommend equipment insurance if you have the coin to supersede your gear is because information technology’ll salve you money.  The insurance companies are smart.  They figure out the chances of you losing your gear and the cost of replacement, and so they add some margin in there for them to make money.  By not buying the insurance, you take on the risk yourself so you can keep the margin.  But if you aren’t in a good financial position, then get the insurance.

Liability insurance is probably non necessary for virtually photographers.  It covers a lot of the errors and omissions that could come in the situations we described in a higher place.  However, y’all have to call up nearly what the real risk is.  If you have an LLC and you mess up someone’s wedding photos and get sued, the only amount they can sue yous for is the amount your concern has.  For most photographers, that’southward only a few yard in equipment and retained earnings.  The risk is very low, so don’t pay hundreds of dollars a year to transfer that risk to an insurance company.

However, if yous take far more substantial income and assets in your business, then business organization insurance would be an extremely smart movement.

contract

Step 8: Everything Goes In Writing!

Never, always accept a shoot without having a written contract betwixt you and the client.  Also, go a substantial initial payment before you concord to book the shoot.  Noticed how I called it an “initial payment” and not a “deposit” or “downpayment?”  That’due south very significant.

In most states, if a client contracts with a photographer to practise a shoot and pays a deposit, and then the client after cancels the shoot for any reason, they are entitled to go the deposit back.  But if you write in your contract that it is an “initial payment” and specifically say that the payment is to reserve the time slot in your schedule and that y’all will decline other clients who endeavour to book the same fourth dimension slot, so you can keep the coin if the wedding ceremony gets called off or if the client cancels the shoot.  I love it when shoots are canceled because I get gratuitous money 🙂

You lot’ll also need model releases for when yous photo someone and want to utilise their images to advertise your business, or to sell their images to a company.

The good news is that I’ll take care of all the contracts you’ll need.  I’ve already written them for you and I’ll sell them to y’all actually cheap.  Get your photography contracts hither.

I spent dozens of hours writing them (I’thou an attorney), but I make them really inexpensive because I want every photographer to accept access to good contracts.  If you were to come up to me as a legal client, I’d charge y’all $250 PER CONTRACT, and the inexpensive bundle I’k selling has several contracts in it.

There is Zero you can do in setting up a photography business that will protect you lot ameliorate than having a unproblematic contract with every single client!
If you always have any outcome with your photography business, I guarantee the first thing out of your lawyer’due south oral cavity will be “Please tell me you had a contract!”  Information technology’south such a simple thing to do, and volition provide you a lot of peace by knowing you’re doing things right.

Maintaining an LLC

But setting up your LLC is only role of the battle.  If you don’t maintain your LLC, it will be worth nothing.  The
nearly of import matter you can do
is to go on your personal and business organisation finances carve up, but nosotros’ve already discussed that.

The next steps are for more advanced users.  First, yous’ll desire to
keep corporate minutes.  Once or twice a yr, sit down with your spouse and a Google Doc and just have a coming together about the business.  Write downward your plans for the adjacent twelvemonth, review your financial position, etc.  Some states allow you to file those minutes with the state, merely at to the lowest degree take the minutes and keep them.  It shows that yous are a legitimate business.

Next, you’ll probably want to file
Articles of Organization.  This is the large document that explains exactly what’southward going on in your business.  This is VITAL if yous have a business partner, merely still important fifty-fifty if you don’t considering it makes the business concern look more legitimate.  You can find cheap and easy forms for doing this on any of the inexpensive legal forms websites.

Concluding, you lot accept to be clear that your business organisation is an LLC and not a sole proprietorship or you’ll be discipline to something called “undisclosed main liability.”  Undisclosed principal liability is where a client does non know that he or she is working with a company, merely thinks it is a sole proprietorship and since the visitor didn’t tell the customer it was a company, the client tin can sue the individual business possessor personally.

Here’s an instance of when you lot’d see that.  Y’all are at a customs event and someone comes upwardly to you and starts chatting about their daughter’due south wedding.  You say you’re a photographer and agree to the price and date.  You lot shoot the wedding and they aren’t happy.  They sue you personally.  You say “Expect!  I’thousand an LLC!  You tin can’t sue me personally!  You can only sue Stolen Moments In Fourth dimension Photography LLC!”  Since there was never a point in your interaction that you said you were Stolen Moments of Time Photography LLC, they tin still sue you personally.

The easiest mode to solve undisclosed principal liability problems is to GET A GOOD CONTRACT!  By merely stating it in the contract, you’re set!  As well, put on your business cards and on the footer of your website the full legal name with the LLC.  You don’t have to put LLC in your logo if you don’t want to.  Merely make sure that everyone volition meet that at some point earlier they sign the contract, or that they could detect that out with reasonable effort.

Conclusion

Nosotros’ve been through a lot of information, just if you lot just go step-by-step yous can have this done in merely a few hours.  Information technology really isn’t hard.

While all of the things in this commodity are important to do, Nada is as important as merely having a expert contract between you and the customer.  99% of law suits would never happen if the photographer and the client had a clear contract, and you have no excuse considering I wrote all seven of the most common photography contracts for you and am selling them for just $15.

Your business organisation is gear up up with all of the legal details perfectly in place.  Now information technology’south time to shoot some pictures!

Source: https://improvephotography.com/35114/how-to-set-up-a-photography-business-legally/

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