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When do I get a sales tax permit for my photography business?

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I hear this question asked time and time again by both new photography business owners and existing owners doing business in new locations – when do I get a sales tax permit?

Starting Your Photography Business

If you are just starting your photography business, then you should get a sales tax permit for the location in which your business is located. For most people this is the location of their studio, or possibly their home. Depending on where you live this may just be a state level sales tax permit, or it could be a county and city sales tax permit as well. You are going to need a sales tax permit as soon as you start your business. This is because you may be purchasing some items that you will be using in your business tax-free over the internet, and you will possibly, depending on your state law, need to pay a use tax for those items you are consuming your business. Additionally, you need to be ready to collect sales tax from your customers when that time comes and hopefully it will come sooner rather than later. Don’t delay!

Photographers Doing Business in New States

For those photographers that already have a photography business, and who are already registered to collect sales in the location of their photography business, you may be asking this question for a different reason. Some of you may have discovered (perhaps from this blog post on Nexus or this podcast on Nexus and other sales tax pitfalls) that you are obligated to collect sales tax in other jurisdictions, in addition to the state in which your business is located. And this is because you may be a photographer who travels to other states to photograph, and has clients that reside in those other states. These activities have availed you to the obligation to collect sales tax from your customers in these states or even local jurisdictions on behalf of the the authorities in these other locations.

If this is your situation, tread cautiously. Don’t just go out and register in every state that surrounds you, because you will then have to file a zero tax return in all of those states on a quarterly, and possibly monthly basis. You don’t want to deal with that administrative hassle if you don’t have to. If you are about to have a client that resides in another state, contact that state’s Sales Tax Commission, Department of Revenue, or other similar named department that handles sales tax. Ask them if this will avail you to the duty to collect sales tax in their location. Explain to them the specifics of the transaction, and your activities as a business as it pertains to their state. The reason you need to do this is because every jurisdiction has different requirements as to what threshold you need to cross to be obligated to collect sales tax. In some states, just that ONE time of photographing a client in that state, and having a client in that state will create this obligation. In other states, it may take THREE occurrences of this situation to create the obligation.

If you find out that you have the obligation, then make sure to register with that jurisdiction to collect and remit sales tax. Basically you do not want to register until the obligation exists. But you also don’t want to wait to register until after that obligation exists because if you have failed to collect sales tax from your client, you generally have to pay it out of your own pocket to make things right. And paying it late means also paying penalties and interest, which makes the liability more than it needs to be.

I hope this information helps. I know it is quite general and that is because sales and use tax laws vary from state to state, and even from one local jurisdiction to the next. Just remember that many states and local jurisdictions try and provide resources to assist small business owners in understanding the particular requirements of doing business in that location. Use Google and look for those resources!

sales tax permit photography

1099 for Second Shooters & Photographers

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Just returned from Sal Cincotta’s Shutterfest 2014 last week, it was an amazing experience. I met so many great photographers and felt like I was genuinely able to pass on knowledge to help them with their photography businesses. Educating is a great thing, but beyond that, being part of Sal’s mission to help photographers be successful by providing non-bull$hit information, that’s priceless.

When I was first learning wedding photography, I definitely wasted some of my time and money on people and events I thought would help me further my business. I didn’t know any better and I was trusting. After all, these were professionals doing what I wanted to do, carrying on successful businesses just like I wanted to have. The problem was, that didn’t make them good educators. And in fact, some of them really didn’t even know exactly how they achieved their success…

The problem is that everybody wants to make a buck on new photographers, and the number of folks delving out bad stuff continues to grow. One photographer who attended a class of mine told me they liked my no bull$hit delivery of awesome information. That’s the best compliment, seriously.

Keep your eyes open for information about Shutterfest 2015. Sal and his amazing team are shaking things up in our industry in a good way. You won’t want to miss out on this event. Trust me.

One of the classes I taught at Shutterfest was “Sales Tax. Income Tax. Don’t be scared $hitless.” During that class, some questions surrounding preparing a 1099 for second shooters came up. I thought the topic would make an excellent blog post.

What is a 1099?

The 1099 is a way for the IRS to record income from other sources, beyond salaries and wages. There are several types of 1099 forms, such as the 1099-INT which banks issue to be sure you claim your savings account interest as income on your tax returns. The 1099 that photographers are interested in is the 1099-MISC. This is the 1099 that addresses miscellaneous income.  If you hire second shooters, web developers, album designers, blog posters, or any independent contractor to provide services for your photography company that equal $600 or more in a single tax year, you will need to complete a 1099-MISC for them.

And guess what, a 1099-MISC should also be given to an independent contractor that is an LLC. And while generally you do not need to send out a 1099-MISC to an S Corporation or C Corporation, there are certain exceptions there as well… [you should consult with an accountant or attorney in your state if you have questions about this]

The why…

The whole idea around the 1099-MISC is that independent contractors do not get W-2’s like most employees get from their companies. Therefore, the IRS (or the government) is concerned that income earned won’t end up getting reported. If income is not reported, income tax will not be paid to the authorities. When income tax is not paid, governments are not happy. As I always say, the Taxman wants his money!

Self-employed taxpayers, once they receive the 1099-MISC, will report that income on their Schedule C, which is attached to their tax returns. This also means that business expenses and allowable deductions can offset this income. If the second shooter, for example, only does two weddings a year and sporadically each year, and doesn’t have their own business presence nor intends to, this income may be reported on their tax return as other income.

Again, think about the reasoning as to why photographers are required to issue a 1099-MISC to independent contractors. It is to help document income for the IRS. When a photographer issues a 1099 to a second shooter, they are required to mail a copy of it to the IRS. If the second shooter fails to note that they received 1099-MISC income on their tax return, the IRS will know there is income tax money owed to them. So if you get a 1099, make sure you document that income in your tax return!

Employee or Independent Contractor?

Things can get a little hairy here for second shooters and assistants. Often photographers are not clear on whether they are hiring an independent contractor, or whether they have established an employee relationship with their second shooters. Here are some tips from the IRS to help business owners determine the relationship. And here are some great tips for second shooters to determine their relationship.

Figuring this out is going to be critical for your photography business. If you have an employee relationship, you will then be required to set-up payroll for that person and take out a variety of taxes, as well as issue them a W-2 at the end of year. And actually the list goes on and on once you take on employees. Fess up to this now versus later. The IRS and state governments issue steep fines and penalties to business owners that wrongly misclassify employees as independent contractors. Unfortunately there is no defense to not knowing what was an is required under the law.

The W-9

Have you heard of the W-9? This is the form the photographer must use to get the taxpayer information of the person they are going to be paying income to.  In most of our examples today, this would be the second photographer’s taxpayer information. The second shooter may have an EIN [Employer Identification Number] or may choose to use their social security number for identification. Either one is acceptable on Form W-9.

Many photographers choose to get an EIN which is easy, quick and free to do right here. The purpose of doing that is to protect yourself from having to utilize a personal social security number on form such as these.

** In so many discussions, I have heard photographers who have been asked by business clients for their social security number freak out. Don’t freak out, it’s a part of doing business. Just as you are paying independent contractors for services and getting W-9’s and issuing 1099-MISC forms — folks hiring you as an independent contractor are doing the same.

But be careful here, I have heard stories of business clients trying to claim that personal photos of their family, or a wedding, were 1099-MISC income for the hired photographer. This means they are trying to expense your fee as a business expense for them…and it is quite unlikely that their wedding photography expense is a business expense!

1099-MISC Form for Second Shooters

 

Further questions?

If you are in a situation where you are paying second photographers and assistants for services used in your business and are not sure exactly how to create a 1099-MISC, or whether or not your relationship with that person or company is actually an employee relationship, definitely consult an accountant or an attorney. A professional in your state can help you determine what the requirements are and how to comply with them.

Making the Switch to USB Flash Drives

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Starting a Photography Business using Flash Drives

Early on in my photography business I made the switch from delivering images to clients on DVD’s to these nifty wooden USB flash drives. I was tired of burning DVD’s and printing disc labels out from my printer that always seemed to get screwed up some how. I figured there had to be an easier and more impressive way to deliver images to my clients!  Luckily there was and that’s where PhotoFlashDrive.com came in.

Through PhotoFlashDrive.com I added my logo to both a wooden USB flash drive, as well as a wooden presentation box and I was all set to deliver images on flash drives. You just send them the artwork, they do the rest, it’s easy. I do a lot of weddings and knew that I needed 8gb drives to deliver wedding images, but I also ordered a few smaller drives for portrait shoots. The larger the flash drive, the higher the cost.

Overall, it does cost a bit more to present your images to clients on drives BUT it looks so much more high end, so the investment is worth it. While the wooden USB flash drives and boxes can be costly, note that there are other less costly options like branded plastic USB flash drives and cardboard boxes.

If you are charging a client $4000 for wedding photography services (or $1000, $2000, etc.), the extra $20 to $30 you spend on a flash drive vs. using a DVD is money well spent. Think about how the client will feel when they receive this awesome wooden drive… They will think the presentation is awesome, my brand is cool, and they will tell their friends. That’s what I want. If I had given them a boring disc, they might not have even been able to insert it into their computer because many new computers don’t even have  disc drives!

If you are still delivering images to clients on discs, you might want to consider stepping up your game and moving to flash drives. It’s easier for the photographers and saves time, it’s easier for the client that might not even have a disc drive in their computer, and it makes your brand look top notch! Check out PhotoFlashDrive.com today and design the USB flash drive that speaks to your brand.

USB Wooden Flash Drive Box

USB Flash Drives for your photography business

 

If you were looking for a photographer, would you hire yourself?

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would you hire yourself as a photographer?

Let’s face it, if you are a bride or groom planning a wedding, a parent looking for custom family photography, or even a pet owner desiring a gallery wrap of their canine (or feline) friend, you have lots of choices when it comes to hiring a photographer. There are many, many, many photographers out there in this world. So I am wondering…

Would you hire yourself?

This is an important question that all photographers, whether wedding, portrait, pet, senior, or other niche need to ask themselves…  Seriously, not only would you hire yourself, but WHY would you hire yourself?

I challenge you to answer this question with specifics. You need to know why (or why not). By doing this exercise you can help your business become more profitable. It will help your brand and customer service experience become better. Try and see what your customers are seeing, from the look of your website to how their experience feels from the first time they make contact with you to inquire about hiring you as their photographer to what they feel when you deliver their images to them.

How do your potential clients / clients feel?

From a customer’s perspective, take a look at how the list of items outlined below look and feel. If you aren’t satisfied with something, tweak it so that you think it rocks. After all, as a business owner you want your potential clients to want to hire you because you rock. Along with getting new business, you also want your current clients to become ambassadors for your business and tell everyone else that you rock!!

The end result is that YOU should want to hire yourself and YOU should know exactly WHY you would hire yourself!!

Study your business and ask yourself:

  • Look, feel, ease of navigation for website
  • Can potential clients find information about what you do…
  • Look, feel, and ease of use in online client galleries
  • Can clients easily purchase prints and products?
  • Is it easy for clients to hire you, sign contracts, make payments?
  • How do clients feel once they have hired you (are you sending a thank you card?)
  • Are your marketing materials and take-aways consistent with your brand image?
  • Are the products you are offering consistent with your brand?
  • Packaging for your products, files, etc.
  • How does the experience feel when you present your products or images to your client?
  • Are you skimping on anything, does anything feel cheap or undesirable as a consumer?

These are just some ideas, use your experiences as a consumer to help you think of others. Think of the stores or brands that you keep going back to and study them.

There are plenty of choices when it comes to clothing and department stores, but personally I love Nordstrom’s because I always feel “taken care of” there and that people actually care about making sure I get the clothing I want…

What brands do you love and why?

What do you do for your clients that makes them love you? Would you hire yourself as a photographer and why?

Leave a comment below and let me know!!

Photographers: Do you have a Hobby vs. Business?

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Do you have a Hobby or a Business?

That seems like an easy question for photographers, do you have a hobby or a business? But hobby vs. business is not always that easy to figure out, and the answer can change over time.

Determining whether you have a hobby or a business is important for income tax reasons. If you have a hobby, you can only deduct expenses related to that hobby up to the amount of income that you make from your hobby in that tax year. Expenses that are more than the income you have made are considered personal losses and can not be deducted like business expenses.

Business expenses or business losses can offset other income on your tax return, such as income from a full-time salaried position because perhaps photography is your part-time business. However, in order to be considered a business, the IRS presumption is that you are participating in that business activity to make a profit.

That is the key language, “you are in business to make a profit.” Hobbies cost money. Businesses make money. And you can bet that the IRS pays close attention to whether you have a hobby or a business. Why? Because they want their money and if you are getting tax breaks on your hobby, they aren’t going to like that!

IRS Guidance

The IRS has set out several factors taxpayers should be considering when determining whether they have a hobby vs. a business:

  • Does the time and effort put into the activity indicate an intention to make a profit?
  • Does the taxpayer depend on income from the activity?
  • If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
  • Has the taxpayer changed methods of operation to improve profitability?
  • Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
  • Has the taxpayer made a profit in similar activities in the past?
  • Does the activity make a profit in some years?
  • Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?

You have probably heard about the infamous three out of five year rule — the IRS presumes an activity is being carried on for profit if it makes a profit during at least three of the last five tax years, including the current year.

For more information on determining whether you have a hobby vs. business, check out these resources:

IRS Website Publication
Publication 535 – Business Expenses
Can you Deduct Your Expenses From a Hobby on Nolo.com

Note that hobby expenses are deducted as itemized deductions on your income tax return, on Schedule A as a part of miscellaneous itemized deductions. If you have any questions regarding whether you have a hobby vs. a business, talk to your accountant. It can be costly if you find out later that you have taken a deduction for business expenses that you should have because you actually have/had a hobby.

Check out this short video about the topic of hobby vs. business:

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Hobby vs. Business Video on Youtube