Tax season is one of the trickiest and time-consuming tasks of the year for small business owners for many reasons. And this year is no different.
From following complicated regulations to determining which deductions you're eligible for, it can all get a bit overwhelming. That's why the team at Picsello has put together three quick yet helpful tax season tips for photographers!
With thorough preparation and solid knowledge of the basics, you'll feel more comfortable and confident heading into tax time.
If you think it's possible to go it alone with your taxes, do so. However, we highly recommend hiring a CPA or consulting with a professional during tax season. Some people opt for automated tax programs, which will walk you through filling out tax forms. But be aware that these programs tend not to understand the ins and outs of your business like hiring a CPA will.
Tax professionals take the time to understand your business needs, ensuring complete and accurate filing of both federal and state taxes. In addition, they can expertly navigate complex tax forms and help you get as many deductions as possible.
Being organized is the most crucial step for a manageable tax season! Ideally, you should have a separate business bank account to quickly identify business expenses and earnings. It's essential to track and categorize your business income and costs to report information on your taxes accurately. Plus, you can ensure you don't miss out on any valuable deductions.
Accounting software provides an easy way to manage and sort your business transactions. Excel is another option, but it's more time-consuming and a bit of a pain. So whatever you do, have a system in place. And make sure it's a more efficient system than keeping piles of receipts in a shoebox.
Finally, remember to schedule time each week to keep track of these details. By investing a little time regularly into bookkeeping, you'll set yourself up for fast, simple, and accurate tax preparation at the end of the year.
Assess your level of comfort with tax forms. If you're in doubt, bring in the professionals. Taxes are confusing, and hiring a pro often will save you more than they cost your business!
Are you wondering what you can deduct? The examples below aren't a complete list, which is why you hire the pros, but it's a great start.
First, let's look at some of the most common deductions for photographers.
Cameras, tripods, lighting, lenses, computers, editing software, and data storage are deductible. Of course, this only applies if the item is used for your business. However, If you use the equipment for business and personal use, only deduct the percentage you use for your business.
Your phone and internet are also partially deductible, assuming you use them to do business. Keep track of these bills and expenses to include a portion for deductions. Other bills to track include your cell phone, business landline, and internet charges & set-up fees.
Business-related travel expenses are eligible for a deduction.
Note that this doesn't include commuting, like driving to and from a studio each day. However, driving from your home to your off-site photography sessions counts as a write-off.
The easiest way to calculate your transportation deduction is to multiply your business mileage for the year by the standard mileage rate.
Who knew that advertising could be deducted but be sure to track the money you spend on Google Ads, Facebook Ads, or print advertising throughout the year.
You can easily pull your spend reports on each site under your account settings. For print advertising, save the receipts and add the costs to your total spending when calculating this expense.
Additional marketing costs, like business cards or website expenses, can be written off on your taxes as well.
Finally, pay close attention to anything that supports your business, like trade shows, local advertising, or signage.
Business fees are deductible. For photographers, this can include LLC or corporate filing fees, dues for professional associations, professional certifications or licenses, copyright fees, local business permits, or any expense you wouldn't have to pay if you didn't own your business.
As mentioned above, you can write off money spent on hiring editors, second shooters, assistants, web designers, or any other support. Just be sure to keep track of these expenses as they occur so you can easily submit them as deductions.
If you have a studio outside of your home, you can write off expenses like rent and utilities.
If you work from home, you can only write off your workspace if used 100% for business purposes.
This one can get a little detailed, so always check with a tax professional. It can be done, but look to them to explain how it works.
If you have any legal or accounting fees, including tax preparation fees, you can deduct them when you file taxes (another reason to hire a professional!). Business insurance and liability insurance are also tax-deductible.
Write off office supplies like labels, pens, paper, and toner. The cleaning supplies now, including masks and hand sanitizers, may sound silly, but they can add up over the year!
Do you attend conferences or take classes to improve your craft or grow your business? You can write off those costs too. And if you didn't take classes or go to conferences this year, try to fit some in next year. They'll help you improve your business, and they're tax-deductible!
Child Care that you pay for while working is another tax deduction. You can deduct daycare expenses or money you spent on babysitters during work engagements throughout the year. Daycare centers typically provide a record of annual expenses for tax purposes. But, again, check with your CPA on how that applies to your taxes!
Tax season can feel scary and stressful but take a deep breath. With organization and preparation, you can handle this! And if you're still unsure, there are plenty of experienced professionals who can guide you through the process.
By utilizing these tips, this complicated season will feel much less taxing.