Taxes suck. Let’s all say it together. I remember back before I owned my own business and how much I hated to do my income taxes. Then I realize I had no idea how bad it could get back then and I’d take back those days anytime. 1040EZ? Hello! That would be amazing! Now that I’m a business owner taxes get way more complex. I’m assuming if you’re reading this you are a business owner too, otherwise – you probably shouldn’t waste your time too much. This article is for those of you who somehow managed to get through this year and want to take next year by storm. Here’s a few tips to help you prepare better!
1. Organize Your Expense Categories
Don’t just save all those receipts and stuff them in a shoebox for taxes next year. This will quickly become your worst nightmare. Depending on how you file your taxes, which will depend on your business type, you will need to sort out your expenses a little bit more. I like to keep track of expenses by the month. This helps me break down the cost of doing my business and it’s convenient to know for all kinds of fun records like tracking your success. At the end of each month each expense sheet shows where and how I’ve spent money on my business. These would be nice and easy tracking sheets to hand over to my tax guy instead of him looking through receipts to figure it out. However, we can take this one step further and categorize our expenses. This is my preferred method of giving my expense information to my tax guy. Then it saves him some work and me a little bit of money. Your expense categories as a photographer can be broken down into a lot of different things. Decide where each expense is and list it.
- Advertising Expenses – Business cards, signs, cost of expos, booth items for expos, samples and freebies to promote business, fliers, print or media ads (online or in print), anything related to advertising.
- Car/Truck Expenses – Mileage for your Vehicle OR the expenses associated with gas, oil changes, repairs, tires, etc. – You can only pick to expense one or the other. I generally choose mileage because it adds up much quicker.
- Commissions/Fees – Business license fees
- Contract Labor – This is where you put your pay to second shooters
- Insurance – Business and liability insurance. This is only for insurance related directly to your business.
- Interest – Interest on loans used to finance your business
- Legal/Professional Services – Legal fees, Accounting fees, tax preparation fees
- Office Expenses – Office supplies like printer ink, paper, pens etc. as well as fees associated with a studio or office space you may pay for (cleanings, snow removal, lawn care, etc.)
- Rent – This expense category on taxes is divided into two sections for rental equipment and another for renting or leasing an office/studio space
- Repairs/Maintenance – Any fixes done on your computer or camera equipment, CPS or NPS (Canon or Nikon Professional Services)
- Travel, Meals and Entertainment – Any workshops, conferences or other photography events you attend that require travel away from your business ‘home’ as well as any meals eaten during those times. With meals you only get to claim up to 50% of the total paid.
- Utilities – If you have a home office you will be able to deduct a certain percentage depending on if you have a specific space set aside for your home office, how large that space is, and how much of your time spent using your utilities is directly related to business
- Miscellaneous – Any other expenses are generally not listed separately when filing a Schedule C for your taxes. As I said, it depends on how you file and your business type. These kinds of miscellaneous expenses can be camera equipment, fees associated with accepting credit cards for payment, print orders, and more.
There are more categories for expenses than these listed above, however I’ve used these mostly as a business owner. Some may apply to you and others may not. I just listed the most used ones for photographers.
2. Save All Receipts
You can’t claim it if you don’t have proof you spent it. I mean, you could, but if you were to get audited that could get pretty messy. Always keep proof of what you do. Some receipts fade over time so it’s a good idea to take a photo of them and print out that photo later. I take time each week to print off any expenses (receipts emailed to me), expenses I have receipts for in person, as well as any invoices for profit I made. Afterward I divvy them up and file them by month. I list them on a basic tracking sheet, which stays in the file with the receipts.
3. Use a Ledger or Software
If you’re crazy like me, maybe you like to do your accounting by hand. There’s just something really hard for me when it comes to logging in, doing things in Excel or software like Quickbooks. However, there are other business owners who swear by it! Do whatever is right for you. I find accounting quicker and easier to manage doing it on a simple tracking sheet by hand since I have to file paper copies of those receipts anyway for tax records. I have one day a week (it’s usually Fridays) that I call “Print and File” day. On Print and File day I take the time to print out all my receipts, collect them up and file them away as well as mark them on my tracking sheets so my accounting is always current each week. This also helps me remember when I received cash or check as payment so I can be sure to add that into my income.
4. Turbo Tax
Do I recommend it? I can’t really say that it’s worked for me. This year our old tax guy was no longer available to us (sadly). I was nervous about finding a new one. You know how it is, once you find one you really like you don’t want to start the search all over again. What a pain. So, I figured I could try to do my taxes by myself. Turbo Tax is just plugging in the numbers right? Wrong. When you are a business owner taxes are so much more than plugging in the numbers. You may not be getting as much out of your taxes as you can when you do it with this method. I highly recommend hiring a tax professional to do your taxes for you. Remember you can claim that as an expense on next year’s taxes. It will save you time and so much stress. It may even save you thousands of dollars as well (I know it did for me).
5. Pay Estimated Taxes
For business owners that are self employed it can be a really huge deal at the end of the tax season to owe a large chunk of money to the IRS. There’s a great way to prevent this from happening by simply paying out estimated taxes quarterly. Based on your previous income you will pay your taxes that you owe every quarter. This way when you get to the end of the year and you file your annual taxes you may not owe anything, or something may be owed back to you because you overpaid on your estimated taxes. It helps you set aside how much you owe for taxes, but not have a huge bank account building for a year.
Estimated taxes if you are filing as an S-corp, sole proprietor, corporation, or partner are an option for you. If you will end up owing over $1000 or more this year or any year you file you will be asked to pay estimated taxes. If you are a corporation that amount drops to $500 or more. There are some easy forms you can fill out at tax time to let the IRS know you plan on filing estimated taxes for the next year.
6. Business Bank Account
If you want to make your accounting for taxes super easy to track, and if you want to really make your tax preparer happy you can use one simple business account or regular checking account to track your incoming profits and expenses. If you use one bank account you would need to have all of your business profits deposited there and all of your expenses coming out of that account. That way you can print off all your monthly statements and hand them over to your tax preparer. Unfortunately this method, while it sounds simple, isn’t for everyone. It’s okay if you are a sole proprietor to not do this and manage your finances however you like. If you are not a sole proprietor a business bank account may be required depending on the type of business you are as well as your licensing. This can also vary by state as well.
7. Utilize Paypal
What I love about using Paypal across the board and exclusively for business is the fact that it tallies up how much I make at the end of the year and sends me a 1099-K. This is like a W-2, but for self employed people. It makes you appear a little more trustworthy to the IRS heads who want to make sure that you’re not hiding cash under the table. I love the simplicity of being able to report almost all my income in this method and not having to worry about cash, check, or other payment types too much.
8. Claim Your Home
Recently the laws have changed about claiming a home office for small business owners. I think these new laws actually make it easier to claim. If you have a space dedicated to your business in your home you should claim it. It’s best to consult a tax preparer on this because there are still a lot of rules and regulations on how much you can claim and why. You definitely want to stick to these rules.
9. Log Your Mileage
Above where I listed the types of expenses you can claim for your business I talked about car expenses. You can chose to claim either your mileage or your other car expenses. You cannot claim both. Personally, mileage has always paid out better than car repairs, gas, etc. When you are logging your mileage it’s best to keep a log that has the date, location you were going to, the car you were driving, and how many total miles that took and what your odometer in your car read for mileage when you left and when you arrived. You can record mileage driving both to and from a location related to business. This means mileage when you go to and from photoshoots, weddings, client meetings, trips to Office Depot for business supplies, and any other business related travel.
10. Know How You Filed Last Time
There are sometimes a few checkboxes, rules, and policies for business owners. The IRS likes to see you file in the same format each year so make sure you have a copy of last year’s taxes to take to your preparer or refer to for yourself if you want to do them on your own (I hope not).