A Photographer’s guide to taxation
Spoiler Alert – I’m an Accountant who along the way fell in love with photography . So this post is to give all the aspiring , new and old timers out there a summary on what to look for as regards your business tax affairs and ensuring that you file your taxes in a timely and efficient manner.
Taxes are probably the last thing on any photographers mind. Between Visiting locations, editing pictures and chasing down new business leads and other things taxation is usually the last thing on your mind until tax season comes around .
For a lot of us Photography starts out as a hobby and ends up being a legitimate business. While you may not make enough to live of it , Photography can be a substantial contributor to you annual income. Once you begin charging for your services and intend to make a profit, it’s best to identify your photography as a business for tax purposes.
As an employee at a company, taxes are automatically withheld from your paycheck and submitted to the proper agencies. However as a self employed photographer the withholding and payment of taxes becomes your responsibility.
There are also a lot of benefits that come along with establishing your photography as a business. Being a legitimate business, whether you’re an corporation or just self-employed, can help you appear more established to clients and therefore they may be willing to pay higher rates. Plus, when your business of photography allows you to deduct more of your expenses.
What is taxable income ?
Firstly let’s define what your taxable income is. Not every dollar you receive is taxable. You taxable income is your Gross income less allowed expenses. So if you make $ 50,000 from photography and have expenses of $35,000 you net profit is $15,000. It is your net profit after expenses i.e. $15,000 that is taxable.
Paying Quarterly Installments
Based on your taxable income from previous years you may be required to make quarterly installments . At present the thresholds for quarterly installments are as follows :
If you live in Quebec on December 31 of a year, use a limit of $1,800 of net tax owing.
If you live in any other province or territory on December 31 of a year, use a limit of $3,000 of net tax owing.
Net tax owing
Generally, your net tax owing is the amount you owe on your tax return. The items used to calculate net tax owing (line 17) are listed in the Calculation chart for installment payments for 2020 (open with Adobe Acrobat Reader).
You have to pay your income tax by installments if both of the following apply:
your net tax owing for 2020 will be above the threshold for your province or territory ($1,800 or $3,000)
your net tax owing in either 2019 or 2018 was above the threshold for your province or territory
How Much Should I Set Aside?
You should plan to set aside 20 percent of your taxable income. This is meant to cover any federal, provincial and CPP contributions . Remember this is based on your taxable income and not your gross income.
Tax Deductions for Photographers
As a photographer, you will want to find every way to reduce the taxes you have to pay. In the same way you’d deduct large medical expenses on your personal taxes, you can deduct business expenses related to your photography business.
Photography requires expensive equipment. You’ll have costs for:
· Stands and tripods
· Film supplies
Equipment is a capital expenditure that is used over a number of years . You will not be able to write off the whole purchase cost of such items in the year you buy them. Instead the cost of purchase is written of over the useful life of the items .
Studio and Storage Space
As a photographer, you likely have your own studio or rent space when you need it. You might also have storage space for all your equipment. These costs can be deducted on your taxes each year.
If you use your home for either storage or studio space, there are different rules. We’ll talk more about that in the upcoming section on Home Office, Studio, or Storage.
If you do shoots away from your home, you’ll be traveling as a photographer. Think about all the weddings and other occasions that you’ll need to be on location for. Expenses like airfare, car mileage or rental car, lodging, and meals can all be deducted come tax time.
You may also be able to write off a portion of your auto insurance and vehicle maintenance costs if you use your vehicle for business.
You can only deduct the portion of your cell phone bill that used for your business.
Estimate what percent of your usage is for business and personal. Then, you can deduct the business portion.
Home Office, Studio, or Storage
The space you use exclusively for your photography business can be deducted on your taxes. You can deduct mortgage or rent, insurance, and utility costs as a percentage of the house space that you use for business.
Only include areas that you designate only for business use. The percentage of square footage you use for business can be applied to your rent or mortgage, utilities, and insurance costs.
Home office space often comes with a need for additional office supplies. Photographers can take advantage of deducting home office related supply expenses on their tax returns. This may include common office supplies like Printer supplies and paper, stationery and props for photo shoots.
Training, conferences, books, magazines, and other subscriptions related to your development are all tax-deductible. Keeping up to date with the latest trends is always profitable for business. This includes travel expenses to and from training venues if they are out of town.
This includes all those that contribute towards a successful photo shoot such as the makeup artists, assistants, or models to complete your project. Contracted labor can be deducted.
Seeking legal advice as a photographer is important to help with copyright infringement and other legal issues such as drafting a contract for new clients.
Marketing and Promotions
The expenses that photographers incur to promote their business and market to clients can reduce tax liability at the end of the year.
Photographers can deduct other business-related costs on their taxes. Some common eligible expenses include:
Website hosting and domain fees
Interest on business loans
Transaction fees for credit card processing
Subscriptions to editing software
Insurance on equipment
Feel free to contact me if you are in need of assistance for your photography business's accounting and tax needs.