When Uncle Sam beckons each year, having an accurate record of every cent you've spent to keep your photography business up and running isn't just a good thing--it's a necessity. Claiming the wrong expenses can get photographers in nearly the same hot water as bad record keeping, so it's easy to see why having a solid system for capturing and reporting money spent on supplies and equipment is just as critical as making certain the bride in her wedding photos looks even prettier than she does in person.
Know what business-related expenses qualify for tax breaks. The list for photography businesses include: cameras, lenses, studio lighting systems, light meters, paper sweeps and other backdrops, props, darkroom equipment and supplies (if you're processing film), film, batteries and backup systems. Everything directly related to photos you take requires receipts for the IRS.
Establish a recording system to keep tabs on business-related expenses. Whether it's a pad of 12-column accounting paper or a software program that's capable of capturing, factoring and tallying individual lists of expenses, choose what's comfortable for you. If you're already comfortable with QuickBooks or Quicken, you're ahead of the game. Using Excel would help your accountant, so don't discount this MS Office program.
Resist the temptation to think that everything is deductible in the eyes of the IRS. Photo businesses are unique--yours may include travel if clients require your services in exotic places, but be prepared to prove that travel expenses you've run up are legitimate. For instance, if you buy film, eat lunch on location or rent a car, keep receipts to verify every cent. An easy way to do this is to bundle your client's invoice with travel receipts from the job to verify claimed purchases.
Keep an eye on retainers received for prebooked photo shoots, and include them when you account for all of your expenses and income in a given year. It's not unusual for a photographer to get a check in November as a down payment on a June wedding. Claim the deposit in the year in which it was given to keep things on the up and up.
Turn to a professional for photography equipment depreciation. Cameras, strobes, meters and other sophisticated equipment are subject to complex depreciation tables, and those calculations are best left to a tax professional. Another reason to put depreciation into the hands of an accountant has to do with ever-changing tax law: if you're using old depreciation tables, your write-off may be less than the amount you're entitled to receive.
Track your business mileage. This can get tricky, so keep a detailed mileage log. Visit the IRS website to get the current rate before you start calculating driving expenses. If you own a vehicle that's used exclusively for business, expenses incurred for upkeep, maintenance and depreciation can be written off on your business return, but it's been proven that photographers fare better financially if, instead of writing off gas, oil and the rest, they take a per mile deduction. On average, a photographer travelling 15,000 a year for business--and using a per mile calculation--gets a bigger tax break than one who itemises car upkeep costs.
Always account for reimbursed expenses so you're not caught inflating your write-offs. Some photographers charge clients for mileage, lodging, travel and food expenditures while on a job and receive compensation via reimbursement. Billing out these costs as a separate invoice can help you separate them from fees you receive from the client. You can't ask for reimbursement twice, so if you've already billed your client and been paid for travel, you can't reclaim it as your expense.
Be clear about where your photography business fits in terms of state and local taxation. Does your state require you to collect sales tax on a full contract amount or only on expenses falling outside actual photo shoots? If you're doing weddings, you might be subject to state taxes on the purchase and resale of the albums in which proofs and photos are presented as part of the wedding's price package. Be vigilant and track such expenses.
Depreciation can be a tricky business, and photographers are often given the choice between taking a one-time write-off for a piece of expensive equipment and spreading the write-off over time. Accountants recommend the latter if you're given a choice. Be cautious about writing off a portion of your home as your workplace. The IRS looks most carefully at businesses claiming square footage of a residence so your chances of being audited will increase.
Tips and warnings
- Depreciation can be a tricky business, and photographers are often given the choice between taking a one-time write-off for a piece of expensive equipment and spreading the write-off over time. Accountants recommend the latter if you're given a choice.
- Be cautious about writing off a portion of your home as your workplace. The IRS looks most carefully at businesses claiming square footage of a residence so your chances of being audited will increase.