It’s that time of year again, and no, I don’t mean last night's Super Bowl. Tax season is upon us and for many creative professionals it can either be a joyous occasion or one filled with dread.
As a tax consultant for creative professionals in addition to being a photographer, taxes are actually something I look forward to particularly because I plan my annual strategy well in advance. Understanding the rules can be daunting but there are a few key areas that photographers can benefit greatly from so long as they are informed and well organized.
Disclaimer: As with any legal advice, please conduct your own research or confer with a local tax professional when in doubt. The content provided here is general and based solely on my own personal tax situation. Fstoppers does not take responsibility for this advice, and does not endorse it. Also, keep in mind many of these tips apply only to U.S. taxation law.
Section 179 Deduction
This is a big one. Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased, or financed, during the tax year. This means that if you buy a piece of qualifying equipment, you can deduct the full purchase price from your business’s gross income thus lowering your taxable base.
As photographers or videographers, it is not uncommon to invest heavily in gear throughout the year. Cameras, light, lenses, and other high value items are considered qualifying equipment and typically, their value is depreciated very slowly over time resulting in very little impact on your tax return. The government introduced this incentive several years ago to encourage business spending and growth as a means of boosting the economy from recession. The law is still in effect and will remain applicable into 2017.
To qualify for the deduction, the assets must have been purchased after December 31, 2015 and prior to January 1, 2017. The total value available for the deduction is capped at $2,000,000 and includes virtually any tangible property used in your business including computers, furniture, and certain vehicles.
Travel Expenditures
Remember that trip you took to Mexico last year? In certain cases, it would be perfectly acceptable to expense a portion of your travel expenses depending on how you spent your time while there.
Let’s assume you spent 50 percent of your time lounging in the sand drinking cocktails with little umbrellas. Let’s also assume that the other 50 percent was spent filming promotional content for your website, photographing models for your portfolio, or attending networking events related to your profession. If this is ever the case, you may be well within the law to categorize some of the expenses from that trip as business related. The key is ensuring you retain the appropriate documentation and being conservative in your deduction. Don’t be greedy or stretch the truth.
What sort of expenses could be deductible? Hotel, airfare, car rental, or even supplies such as water or food used on a shoot. Basically anything related to business and business only. However, keep in mind that because you only spent 50 percent of your time actually working then only 50 percent of your airfare and hotel expenses should be allocated as business expenses. Anything else indirectly related to the trip would be treated in the same manner.
As far as documentation goes, the more the better. Keep everything including receipts, airline tickets, model releases, and even a few of your edits from a shoot to prove you were actually working. This will be important should you ever get audited and it is not uncommon for small businesses to be.
Home Offices or Studio Space
Many photographers designate a portion of their home to an office or even a studio. While this is first and foremost their home, it is also a place of business and the IRS accommodates those with such an arrangement.
To qualify as a deduction, the portion of your residence must be regularly used for conducting business. It cannot be a casual and infrequent occurrence that is commingled with other activities in your home. The space does not have to be your primary place of business but it must be dedicated for businesses purposes only and used as such regularly.
To calculate the deduction, you must first determine the square footage of the dedicated space relative to the total square footage of your residence. This provides the percentage of your home dedicated to business and any expenses related to maintaining your home such as the mortgage, rent, insurance, utilities, or repairs can be categorized as business expenses at this rate. Confused yet?
Educational Expenses
Remember that epic tutorial you purchased of Mike Kelley taking photos of homes you’ll never own? Or perhaps that photography workshop you attended earlier in the year that seemed like a fortune at the time? Well there is light at the end of the tunnel as these expenses can be deducted from your income if they are related to how you do business.
Again, the key is documentation and conservatism. If you are not primarily an architectural photographer, then it may not be wise to include a tutorial on shooting architecture as a business expense. However, if you shoot real estate even 20 percent of the time, this would be a likely investment as you expand your skills and move more into this segment of photography. Keep all receipts and be sure a third party would be able to understand what they relate to.
Conclusion
Many of these tips require consistency throughout the year and organization. Gathering receipts and other obscure documentation for an entire year should not be done one week prior to the filing deadline as it will likely include errors or omissions. Think ahead as you’re planning a shoot or taking a trip. Consider what is related to your business and keep as much documentation as you can even if it may not be relevant. Be consistent and organize periodically throughout the year so you can be confident in your results. They can have a huge impact on the success of your business.
A great read, thanks!
Thank you for reading Jacken! I don't want to give away to much for free as this is part of what I do for a living. But...these would qualify as business expenses so long as you generate money from these photoshoots. If you are not making any money on them either directly or indirectly I would say probably not.
I think if you are a high end retoucher it would be pretty easy to make the argument that you need a high quality camera for composite work and understanding the general workings of your profession. All you need to do is build up a collection of background plates, flares, sunsets and skies, etc to make a valid point that you need it for your business. Usually small start ups get about 2 years in the red for investing before the IRS starts questioning if your "business" is just a hobby or not.
Thanks!
Great Info. Where I always run into problems is itemizing the small stuff that doesn't fit into its own category but is to inexpensive for section 179 deductions.
Thanks Stefano! I usually expense inexpensive items unless they are significant to my operations. An example would be a set of filters I suppose. Not very expensive relative to the asset they correspond to but a pain in the arse to keep track of year over year from an accounting standpoint.