Because adulting is hard.
Let me start by saying that I am neither an attorney nor a CPA, and you should probably consult with both at some point during this process. Please don't take anything I say as actual legal or tax advice. I'm just sharing my experience as a fairly new business owner in getting my business up and running and wanted to share the details and steps I went through to hopefully help another new business owner avoid the stress (and tears - an embarrassing amount of them) I went through trying to figure all of this out on my own.
I followed six major steps on the road to becoming a legit, law-abiding, tax-paying business, and I'm covering those here. Again, if you're having trouble or have questions about your specific situation, please consult a licensed attorney and/or CPA.
1. Make your photography business an LLC
This was at the top of my to-do list. Why form an LLC? Because of what it stands for - limited liability. If something were to happen to your photography business - legally, debt-wise, credit-wise, or other, your status as an LLC means the liability falls to your business and its assets, not to you personally.
It works a little differently in each state, but businesses are formed through your Secretary of State's office. In Texas, the fee is $300, and in Oklahoma, it's $100. You'll mail or personally deliver your form and payment, and soon you'll get your Certificate of LLC in the mail. Step 1 = done!
2. SET UP PHOTOGRAPHY Contracts
Contracts may seem like more hassle than they're worth, but it comes down to the old adage of "better safe than sorry." It's a means of protection for everyone involved and your clients should expect to sign one when they purchase your services. There are approximately 4,739,852 google-able ways to write up photography contracts, but at the minimum, make sure yours cover:
What happens if there's a cancellation by either party
Force majeure (circumstances out of your control like say, a tornado, that would keep you from fulfilling your duties)
Limitation of liability (this is where your LLC comes in handy)
Other things to consider covering include safe work environment, delivery of images, model release, copyright, and a clause about clients not editing the photos (hello, Instagram filters on professional photos). I've heard of other photographers including clauses about cooperation (i.e., drunk groomsmen) and even about getting a piece of cake (smart!). I require both my brides and grooms to sign, even if they aren't the ones paying - it just helps for us all to be on the same page.
I have several versions of my contracts saved, because a newborn shoot and a wedding involve vastly different circumstances, but still require many of the same clauses. Have these documents reviewed by a licensed attorney and then start getting those signatures!
3. Apply for an E.I.N. and fill out a W9
If you're a single-member LLC like most one-person photography businesses are, you can do most everything tax-related acting as an individual - a.k.a., using your social security number. However, at some point, you may be asked to provide a W9 to get paid (often if another business is paying you and invoices are involved), on which you can put an Employer Identification Number. Your bank may ask for one when you open a business checking account, so it wouldn't hurt to go ahead and apply for one here (free). It's also not a bad idea, once you receive your EIN, to have a W9 filled out and ready to go in case you're ever asked to provide one.
4. set up a business checking account
Because your husband may not appreciate a new lens coming out of your joint checking account :)
Just kidding. A separate business checking account is a smart way to help you stay organized and know how your business is doing financially. Put your deposits into this account, buy equipment out of this account, pay taxes out of this account. When I went to the bank to set one up, they asked for an EIN, but the process may differ depending on where you bank. The branch I went to also printed me out a fancy business debit card right there the same day, which felt pretty awesome.
My business checking account has no fees as long as I keep a certain minimum balance, which they required me to have from day one, so be prepared to make that deposit up front or transfer it from another account.
5. File a Sales Tax Permit and Pay Sales Tax
This will be different for every state. If you're doing business outside of Oklahoma, skip to the last section because this specific information won't apply to you, but do look into applying for a sales tax permit and paying sales tax within your state! (Texas friends, Sales Tax is handled through the State Comptroller’s website.) Yes, photography is a service, which typically isn't subject to sales tax. But because the product of our work could potentially be turned into something tangible (prints, albums, etc.), sales tax usually applies.
First things first; the Oklahoma Tax Commission website is stuck in 1997 (what? a government website not updated?) and things work better if you use Internet Explorer as your browser. Trust me -I found out the hard way. I believe Safari will work fine too, but I tried using Chrome and ended up on a 45-minute phone call with them, so just don't go that route for this.
Step 1 is filing an application to register your business with the Oklahoma Tax Commission. I used my EIN during this process - not sure if you can use your SSN or not. Once you receive your permit in the mail, go back to the website and register your business account. Finally, you'll log in to file your monthly return and make a monthly payment.
Payments for the previous month are due on the 20th of the current month - so April's taxes are due May 20th, May's are due June 20th, and so on. I put a recurring reminder on my phone for the 15th so I don't forget to sign on and pay. Even if you don't collect any sales tax in a particular month, you still have to file a return showing zero.
Once logged in, your screen should look like this:
You'll click on Sales Tax under the Accounts tab , and it will take you to a new screen with a tab at the bottom labeled Periods. You'll click on the most recent date available (not Make Payment - that's coming later). When you click on the date (in this case, March 31), look in the upper right hand corner. You have to first file your return before you can make a payment.
When you click on File or amend a return, it will take you to a table where you'll input your sales tax income for the previous month.
Click Edit Table at the bottom to input your numbers. It will automatically calculate for you the amount of sales tax you owe. Once this is finished and you've submitted the return, you can then go and make your payment.
6. pay Quarterly estimated Taxes to the irs
Last but not least, as a small business owner, you'll need to pay quarterly estimated taxes to the IRS using form 1040-ES. The idea is to prevent you from reaching the end of the tax year and having a whole bunch of taxable income that you haven't paid a dime on. Instead of owing a huge chunk of money at once, you guesstimate how much you'll owe and split it into four payments. These payments are due April 15, June 15, September 15, and January 15, and can be pre-paid if you choose.
Before you can make an online payment, you'll need a pin number from the IRS. To get one, go to the IRS's Electronic Federal Tax Payment website and click on ENROLL. Now here's where I messed up the first time. When it asks you if you'd like to enroll as an Individual or Business, the logical answer is Business, right? Wrong. Yes, you are a business. But the 1040-ES, like the regular 1040, is an Individual income tax form. And because a single-member LLC is essentially an Individual for these purposes, Individual is what you should choose (please verify your own situation with a tax professional).
You'll go through the enrollment process using your social security number, and after about a week, you'll receive your pin number in the mail. Once you have your pin, you'll come back to the EFTPS site and log in. The login screen displays the form below. Use your SSN and on your first time logging in, select Need a Password.
On the screen with the drop-down menus, you'll select 1040 US Individual Income Tax Return, and then when it asks you to select a Tax Type, you'll choose Estimated 1040ES.
Estimated Taxes means just that - there's not an exact science to knowing the correct amount to pay. My CPA suggested this method:
Look at the number for total taxable business income on your previous year's tax return.
Add some to that number if you think your business will grow this year.
Multiply that by 25-30% to get estimated total tax owed.
Divide the result by 4 to get your quarterly payment amount.
If you have a quarter that's more profitable than usual, it'd probably be wise to pay more in estimated taxes for that period. In my opinion, it's better to overpay and get a return later than underpay and owe some, or not pay ahead at all and owe a penalty.
Paperwork, contracts, and taxes are just some of the not-so-fun tasks every small business owner deals with behind the scenes. Thankfully, once you have a system in place and can stay organized, the processes just become integrated into your workflow.
Thanks for reading.