Helpful Tax Tips From a CPA-Turned-Photographer

Helpful Tax Tips From a CPA-Turned-Photographer

If you are like me, you don’t necessarily dread your annual trip to visit your accountant. Yes, it brings with it some anxiety, but a big part of running a business is knowing what your tax burden will generally be, and preparing for that throughout the year. Even with all the planning, we all know the feeling of being hit with a larger-than-expected tax bill, or a smaller-than-expected refund. That’s why I reached out to Brandon Scott, a fellow professional photographer who spent years as a working CPA in his home state of California.

While Brandon is a knowledgeable professional with a unique perspective on the tax implications of being a photographer, it’s important to always check with your accountant before you do anything. Laws vary state to state, so treat the advice below as a guideline of things to bring to the attention of your professional accountant. Fstoppers assumes no liability for this article.

With all that said, let’s talk taxes!

Write-Offs

Interestingly enough, when I asked Brandon for one thing photographers should be doing at tax time, he responded with one thing we should not be doing. 

What photographers do a lot (but probably shouldn’t) is spend a bunch of money on gear at the end of the year thinking it provides them a huge and beneficial write-off. 

I can’t tell you how many times I’ve proudly exclaimed “It’s a write off!” I use that as a reason to splurge on a lot of gear that I probably don’t need, and I was shocked to find out how little of a write-off it actually is:

The true value of a write-off is simply the cost of the item discounted by your tax rate. If I’m buying a new Canon 5D Mark IV for $3,800, [I’m only getting about] 15% off. If you were already thinking about making a gear purchase, by all means go for it, but don’t buy something thinking it’s basically free just because it’s a write-off. All you’re doing in that situation is converting cash into a camera, and you can’t pay rent or taxes with a camera.

Retirement

I very proudly max out my IRA contributions, and my wife and I both keep separate investment accounts where we contribute regularly. However, I’m fully aware both with how tempting it can be to use that money elsewhere, and how difficult it can be to maintain a consistent level of savings. Brandon had some great advice about saving for your retirement:

What more photographers should do at tax time is save for retirement. People who work for companies usually have retirement covered by some kind of pension or 401(k). You’re on your own here in the land of the self-employed. Be sure to prioritize this because you want to at least have the option of retiring someday. Certain retirement contributions are tax deductible, and depending on how much you make, there are even credits available (free money from the government) for contributions.”

Mileage and Expenses

Running a photography business comes with a lot of legitimate expenses. There’s the gear you buy (see above), your office supplies, marketing material, advertising costs, plus all of the miles you drive to get from job to job. These things add up fast, so it’s really important that they are tracked accurately and easily.

I should note that on a personal level, I’ve tried everything. From using Google Drive and keeping track of everything on spreadsheets, to dedicated software for photography professionals like 17 Hats, Agree.com, and ShootQ. For me, there’s been no clear cut answer. Here's Brandon’s take.

Definitely get a subscription to QuickBooks. The software can be clunky sometimes, but it’s still the best bookkeeping option available. I’ve tried the other apps like 17 Hats and FreshBooks, and while they all have their strengths, QuickBooks still comes out ahead. I use QB to send invoices, receive payments, and log all my expenses. You can sync your bank accounts and credit card accounts with the app too so balances update automatically.

He added that the latest version of Quickbooks is cloud based, and thus does not work without internet access. I can see how this could be a deal breaker for some people.

My method for keeping track of mileage is a bit less cool. When I’m about to head out for a business errand or shoot, I simply reset the odometer and then write down in a spreadsheet the drive details. It’s very simple, just three columns: Date, miles driven, and a quick memo explaining what the drive was for. I know friends who use MileIQ also and love it. The QuickBooks app also tracks drives, making it easy to log mileage automatically.

I love MileIQ and use it for my business. But there’s nothing wrong with a simple logbook either.


How Important is it that We Keep Our Receipts?

I have entire file cabinets filled with receipts. Brandon told me the recommended amount of time that you should be keeping them is seven years. A lot of photographers, he says, mistakenly believe that a bank statement is enough to prove a purchase. If it ever came down to an audit, however, the IRS would not accept this as a provable expense. Think about it this way. If you shop at Target, you can buy almost anything. Brandon jokingly used the example of underwear. If I’m being audited, how does the IRS agent know whether or not that $50 purchase was underwear, or a legitimate business expense? They don’t, and the write-off would be invalid.

I find myself buying whatever I can on Amazon or elsewhere online so I don’t have to fuss so often with paper receipts. The beauty of Amazon is that all your orders are archived right there on the Amazon site and sent along to your email.

I shop on Amazon almost exclusively for this reason. As much as I would love to support smaller retailers, Amazon has really simplified the process of tracking my expenses. Right before I meet with my accountant I simply run off a list of my purchases for the previous calendar year on Amazon and include it in my file. 


Cash Payments

This question comes up every time I teach a workshop to photographers. I don’t know why cash payments seem so unofficial and off the record, but they do, even to me.

The IRS basically says that all income is taxable regardless of it’s source - cash tips included. Cash should always be deposited into your business checking account, but since it will only show up on your bank statement as “deposit,” and since it can hard to remember what the deposit was for, I always keep a little cash log to remind myself what that deposit was for.

I’ll just keep a little Field Notes book with me and write the date of the deposit and a quick memo, something like “tip from Nate and Brynne’s wedding.”


Here’s the bottom line. Most photographers aren’t like Brandon Scott, and don’t have an intimate knowledge of how the tax system works. So my advice is to hire a seasoned professional to work with you on how to best run your business, and how to best approach your tax burden every year. There are lot of legitimate ways to lower your effective tax rate, and having an accountant on your side to explain things like write offs and mileage expenses is extremely helpful. Either way, April is coming quick, and you know the old saying, "Only two things in life are guaranteed..."

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2 Comments

michael andrew's picture

If you have a great year then you absolutely should spend some money upgrading gear or anything if you anticipate the next year being "worse". Of-course its not always possible to know when a year is going to be good or bad.

Look at it like this, if you make 80,000$ in 2014 and 45,000 in 2015 when do you think writing off 10,000$ in upgrades would have been more financially sound? Obviously in 2014 when your tax burden is not only higher but a higher percentage, making the gear purchase more sound.

Of-course all of this is assuming you "need" to upgrade, but gear is not the only thing a business needs.

Brandon Scott's picture

Obviously there's a lot to consider when trying to figure out the most advantageous time to make large gear purchases. It's not always as simple as assigning the gear purchase to the year with more income. Things like tax status changes (marriage...), new tax legislation, and myriad of other external factors need to be considered. The main take-away though is just that gear purchases don't have the 1-to-1 tax effect most photographers think they do.