You’re looking at your calendar in disbelief. Where did the year go?!
You’ve been so focused on gifts for the kids, wrapping paper, Christmas cookies, holiday parties, and family gatherings that the last month of the year slipped by you like a teenager trying to sneak quietly into the house past curfew.
Next up on your business to-do list? The dreaded 5-letter word: TAXES.
Here are four tips to help you maximize those last-minute business deductions in this last week of the year:
Timing is Everything
One of the most common mistakes I see small business owners make is that they miss out on the benefits of using credit. While I don’t recommend spending what you don’t have, you can take advantage of “tax-deduction-now, pay-later” by using your credit card. Even if you don’t pay your credit card bill until 2017, any purchases made in 2016 are deductible for this business year. Here is an example of a good way to use credit:
Jen has a newborn session this weekend and knows she will have some revenue coming in the form of digital and print sales, but it likely won’t be until January. She may choose to purchase some new props, templates and presets this week to increase her business deductions, but can pay for her items in January when her sales come in.
Most small business operate on a cash-basis accounting system, which simply means you count revenue when you receive it, and expenses when you pay them. Checks and credit cards function the same way cash does. When you swipe it, it’s the same as cash leaving your hand. When you write a check, it’s like handing over a dollar bill. Don’t be deceived, however, holding a check from your client and delaying the deposit to the next year does not defer the revenue to the next year for income tax purposes. Once you receive a check from your client, you must include it in revenue.
If you’ve been eyeing that Canon 5D Mark III or an 85 mm 1.2 L lens, now may be the time to buy. Here’s the caveat: you should buy only if you need. Spending $3,000 to save $450 on your taxes is silly, BUT if you already need a new camera or lens, and you have the cash, 2016 might be a much better time to purchase equipment. The IRS is slated to change the rules on bonus depreciation next year, meaning that you will likely get a better deduction by purchasing now. Typically, you are required to spread out the cost of large purchases over time, but in an attempt to stimulate the economy by encouraging small business to make larger purchases, the IRS was offering more depreciation in the year the item was purchased. If you have specific questions on what the new depreciation rules could mean for you, be sure to ask your tax advisor as individual tax situations can vary significantly!
If you didn’t already know that you can deduct the miles you drive for weddings, sessions and anything else business-related, you need to read the Photographer Depot Deductions Guide or the Business 101: Setting Up Shop E-book!
Another common mistake I see people make is simply estimating their mileage, which often results in a smaller deduction than the business owner could’ve had by carefully tracking their mileage. Use your calendar & google maps to get an accurate log of business miles you drove in 2016. Next year, try this Mileage Tracker spreadsheet to help you maximize your deductions!
Take Advantage of Year-End Sales
Most vendors will offer year-end sales, so maximize deductions and snag a good deal by taking advantage of the limited time offers! Don't forget that lightroom presets area also a deduction for your business. Always check with your tax professional for the most recent updates to deductions before you file.
Tax Deductible Expenses for Photographers
- Lightroom Presets
- Studio Rent
- Office Supplies
- Promotion + Marketing Efforts
- SD Cards
- Software such as Lightroom or Photoshop
- Tax preparation
Shannan Painter is a newbie photographer who has spent the last 5 years working with the left side of her brain helping small businesses organize their accounting and taxes. She decided to take the big step and pursue her dream of becoming a professional photographer in 2013 after adding a third boy to her house that was already full of super heroes, trucks, and sports equipment. She and her husband, who is a local TV meteorologist, play pick-up games of basketball in their free time and like to take road trips to Lake Minnetonka with all 3 boys, and their dog Growler. Visit her on Facebook!