Top Tax Deductions for Photography Businesses
Keeping track of business expenses is a crucial piece of the tax preparation puzzle. Small business owners, including photographers, can benefit from claiming these costs on annual tax returns to maximize their tax savings. In this post, we’ll offer insight into the tax write-offs you can’t afford to miss.
No matter whether you’re brand-new to photography or a veteran, it’s important to take steps that improve your financial outlook. By following best practices, you can grow your photography business by reaching more clients and having more money to invest in things that matter.
Here's What We'll Cover:
Why Should I Take Advantage of Tax Deductions in My Photography Business?
Deductions work by reducing the amount of taxable income that you report to the IRS. Business owners should consider these write-offs in order to reduce their total tax bill or liability. This can put funding back into your pocket which allows you to increase your business savings or invest in new resources.
If you are a brand new business, you may not have as much cash on hand to cover a higher tax bill, if your tax return requires one. To avoid incurring tax debt (which can be stressful to manage), look for every opportunity to save on your business costs.
How to Prepare Your Tax Deductions
It’s difficult to maximize your deductions if you pull things together right before annual returns are due. In fact, the more that you can think about tax write-offs throughout the year, the better your business will be. The best way to maximize your savings is to maintain an organized record of them over the course of the entire year.
Top 7 Tax Write-offs for Photography Businesses
If you own a small photography company, there are numerous ways to take advantage of legal deductions according to the tax code. Many entrepreneurs and sole proprietors use form Schedule C to record them. The list below includes some of the most common photographers tax deductions you can leverage.
You may want to create a photography business expense list so you can track every expense throughout the year. Accounting for each expense will make completing your taxes much easier.
1. Photography Gear
As a photographer, you’ve likely invested in a significant amount of equipment to operate your normal business activities. From cameras, lenses and editing software, to lighting and stands, you need a wide range of products to meet the needs of each project and client.
Many of these purchases are significant, and they can take up a good portion of a photographer’s overhead budget to maintain. While you should always make responsible purchases based on your business plan and level of revenue, you should also know that many of these investments are tax deductible.
The limit on equipment write-offs is typically around 50% for the first year. The remainder can be written off over the next five years.
2. Subcontractors and Second Shooters
Many photographers operate as single entities, but they hire additional help for larger projects like weddings. When you hire another photographer to help or assist you, the cost of that labor is often tax deductible. The second shooter typically serves in a freelance rather than full-time role.
The important thing to note is that the definitions for employment can be tricky when claiming tax write-offs. If you place any additional staff member on your payroll in a long-term capacity, be aware of how this could influence your abatements.
3. Insurance Costs
Insurance is a necessary expense if you want to protect your company from financial hardship. Photographers often insure different aspects of their business, including having a policy to protect the business itself. If you carry policies on your cameras and equipment, or have other liability policies in place to protect against accidents and mishaps, these costs may be deductible.
Unfortunately, medical insurance is not included in the same category as business-related insurance. Although you might need a record of healthcare coverage for personal returns, it’s unlikely that you can use this on your tax return.
4. Rental Equipment and Space
Based on the scope of photography work that you perform, you may choose to rent additional equipment for specific projects. Many people do this in order to avoid purchasing gear that will only be used a handful of times. In addition to equipment, you may also pay rental fees to have access to certain buildings, studios, or office spaces.
If you operate a home office, you can typically write off a portion of your rent as an expense. This is calculated by dividing the square footage of your home office space you use exclusively for business by the total square footage of your home. If you have a home office, this tax deduction is one you don't want to miss.
If certain equipment rentals are essential to fulfilling work for your clients, then they are considered deductible. If, however, you’re renting equipment for your own projects or curiosity, then you may not be able to claim the full deduction.
This underscores one of the most important things about tax deductible expenses—necessity. Federal tax laws require that deductions are both recurring and essential to normal operations. It’s important to follow these guidelines when completing your taxes.
5. Tax, Filing Fees, and Licensure Costs
In terms of business expenses, the category for “fees” can be incredibly broad. In this category, you might include items like:
- Property and sales tax fees
- Limited liability company (LLC) or corporate filing fees
- The cost of local business permits
- Dues paid to professional associations
- Professional certifications
- Copyright fees
- Professional or trade-related licenses
These are all expenses related to your profession that you would not otherwise need to sustain. Thus, they are all critical to upholding your professional certifications. You will want to claim these on your photographer taxes.
6. Client-related Travel Expenses
As a photographer, you might have a central location or studio where you complete a good deal of work. But, it’s likely that you also travel to a variety of client meetings and shoots that take place in different locations. If your work is travel-based, as in the case of wedding photography, you may end up traveling long distances to get to your job sites.
Travel-related costs can add up throughout the year, especially when you include gas, airfare, mileage, lodging, and meals. Fortunately, these expenses are considered tax deductible as long as you are traveling for reasons directly related to the needs of your business.
Local meetings with current and potential clients can also be included in your tax write-offs. Be sure to save receipts from restaurants and other businesses if you plan to use these abatements. Additionally, take advantage of mobile apps and automated mileage tracking software to monitor your mileage and transportation costs.
7. Interest on Debt
Depending on how you started your business or fund new purchases, you can usually offset the cost of your interest with deductions. This applies to the interest you pay on business credit cards, loans, and other forms of financing.
Be prepared to access your bank and financial statements to provide an accurate record of the amount of interest you’ve paid. The good news is, this write-off can be a huge relief if you’re trying to overcome or pay down your business debts.
Common Mistakes to Avoid
Even though the importance of utilizing tax write-offs is evident, it’s still easy to make mistakes. In many cases, business owners make errors simply because they’re not familiar with or confident in the process. Most business owners want to submit an honest and transparent tax return that meets IRS standards.
Here are a few tips for avoiding some of the most common errors when reporting your write-offs.
- Have a reliable system in place throughout the year. If you only plan for deductions at the moment they’re due, you’ll not only be stressed, but you might also miss important benefits. Leveraging a reliable and powerful accounting software like FreshBooks can help keep you organized year-round. Use this software to track expenses such as mileage, overhead, payroll, and more.
- Save paperwork and receipts. In a digital age, it’s easy to toss and lose track of small receipts and records. Although you might have the option to access some of these records digitally, don’t assume that you can always pull up what you need. A tax deduction can depend on documentation, so be careful when it comes to receipts and paperwork.
- Don’t wait until the last minute. The annual tax deadline is crunch time for everyone. Because of this, it’s best to plan ahead, especially if you know that your deductions are complex. A tax professional can spend more time on your situation if they have the proper documentation and plenty of time.
Taxes for Photographers Made Simple
Whether tax season is right around the corner or still months away, it’s never a bad time to start thinking about how to use deductions to your advantage. As a photography business owner, you have a multitude of options when it comes to claiming write-offs on your business tax returns. As you’ve learned from the list above, everything from equipment and software to mileage and advertising could provide relief.
Invest time into understanding how the tax process works for your photography business. If you have detailed questions, contact your professional financial advisor or CPA, who can provide guidance on which deductions to include and how to do so legally.