This time of year, pretty blooms are opening up everywhere. We admire their beauty, but we don't really think of all the things we can't see that have provided that tree with the ability to blossom. A lot of time and energy has gone into that bloom, but the visible results are what attract our attention and thought.
Photography is the same way. We see the pictures, but what we don't see is the enormous amount of time and energy that goes into the business aspect of opening and maintaining a business. It can feel overwhelming when new photographers realize that there is a lot more to running a business than taking pictures, editing, and getting paid. There are questions about income tax, sales tax, property tax. There are questions about pricing and how to attract clients. And there are questions about whether you need a business license or liability insurance or LLC versus sole proprietorship. And then there is the whole question of websites and social media and invoicing. It can be overwhelming at first. Where does a person even start?
But first, a disclaimer: I am not an authority on this subject, and things vary a lot depending where you live. I can point you in some general directions, but you need to do your own research. Some of your best resources are going to be your accountant, your county or city website, your state department of revenue website, business blogs of other photographers in your state, and google. Tax laws can be confusing, so don't just get your information from one source. I highly recommend reading sales tax laws and bulletins that apply to photographers or digital sales.
Let's look at a list of the most basic essentials to make sure that you are conducting business legally and legitimately. Even if you are a hobby photographer, if you are making any money from your photographs, you need to know what the laws and regulations are. Let's hit the biggest question first.
1. Should I be charging sales tax?
This depends on your state and what you are offering customers. The way things are going, I'm afraid eventually photographers everywhere will need to be charging sales tax on all services and products, even if they are just offering digital products. In all states, if you are offering any physical products to your clients (even a USB drive), you must charge sales tax. Now, the next part gets a little tricky, and requires some research to figure it out. Many states are going to a model where all digital products (and the service that goes into producing them) is sales taxable. Virginia is one of those states. There is still some debate among photographers here, but after reading the latest tax laws pertaining to digital downloads and respected photographer's blogs, it's pretty clear that if you are a photographer in Virginia you need to be charging sales tax on the entirety of all packages. Charging and filing sales tax is a pain, but it is not extremely difficult to do. In Indiana, I did this once a year, but in Virginia, I have to file (even if I didn't make anything) once a month. You can go to your state's tax website and fill out all the necessary documents online. Even if you're a hobby photographer making less than $10,000 a year, you are still required to do this. This should be one of the first things you figure out when opening a business and is no expense for you. Your clients should be the ones paying the sales tax.
2. Do I need a business license?
Again, it depends. This is a question your accountant or county offices can answer. I did not need a license in Indiana, but I do have one in Virginia. The process and paperwork were outlined clearly on the county website. In our county, a business grossing under $10,000 a year does not need a license and is qualified as a hobby business. Even though I might fall under that for this year, I still needed to get a license and register the name of the business at the courthouse in order to open a business banking account. I had to go to three different offices to do all the necessary paperwork, but it was only $30.
3. What about a bank account?
I highly recommend creating a separate business banking account, even if you aren't a full time business. It makes things so much easier for tax purposes to keep your personal and business accounts separate. If you are ever questioned on anything or audited, you will be really glad you did that.
4. What about other taxes?
No matter how small your business, you may need to pay personal property tax on equipment. This is another thing that's easy to miss in the beginning. The first step is to create a spreadsheet for equipment you buy. Write down the name of the camera or lens, the price you bought it, and what year you bought it. An accountant can use this to figure your depreciation, and what you owe the county for property tax. In Indiana, I had to pay property tax until two years ago when the county changed their property tax rules. In Virginia, I will be paying property tax on my gear.
When it comes to income tax, you need to know if you will be required to pay estimated income tax quarterly as someone who is self-employed. Again, something an accountant can tell you. The IRS doesn't like people to get to the end of the year and owe a bunch of taxes.
You can get a lot of free accounting programs for photographers or small business owners to keep track of income and expenses, and if you set aside one day a week or month (depending how busy your business is) to do bookwork, it makes for a lot fewer headaches this time of year!
Bonus Question: What about a website?
This isn't a question of legality, but it's one of the first things you should probably think about. Websites can be a complicated thing to figure out if you're not a super techie person, and the options can be overwhelming. Even if you're not ready for a website, I highly recommend purchasing your domain name, especially if your name is a part of your business name. You never know when someone else will snatch it up and when you will need it. Again, this is not a large outlay of cash for a beginning business owner, and it's not difficult to do.
It can look like a mountain if you're the kind of non business person (me!) who struggles to balance a checkbook. But if you take it one task at a time, it is doable!