For part two of the series, I sat down with Karen Schultz of CKS Accounting Services, LLP and asked her all those burning photography-related accounting questions that I know you’re all curious about. Wonder no more, my friends! Check out the first part of this series here.
1. What are the pros and cons of paying taxes annually versus quarterly?
The IRS says if you don’t have 100% of your prior year’s taxes paid in during the current year, you’ll be penalized. For instance, if your tax bill in 2011 was $1,000, you need to have $1,000 paid by the end of 2012, or you’ll face a penalty fee. So if you expect to have a profit, and your income’s going to be substantially more this year than the prior year, then you should be making estimated quarterly payments as you go along. These are due April 15, June 15, September 15, and January 15. The same goes for state taxes.
2. So the more money you make, the more important it is to pay quarterly?
Absolutely. That’s why it’s key, maybe 6 months into the year, to meet with your CPA or accountant and say, “Here’s where I project my income to be this year. Should I make an estimated payment for this quarter?”
3. Do you need the odometer readings to log your mileage?
If you’re going to write off mileage, you’re supposed to keep a mileage log. Basically, it should have your odometer reading when you start and when you end, the date, where you went, and what the purpose was. If you’re ever audited, the IRS will want to see that. Keeping a mileage log without the odometer reading is better than nothing, but much of it may be discredited by the IRS should you ever get audited and you’re unable to prove where you went and why.
4. What happens if I accidentally use money from my personal account instead of my business account? How do I fix that?
One thing you could do is just pay yourself back from the business. You’d reimburse yourself, and then record that expense on the business at that point. If you don’t want to do that or don’t have the money to do that, then you’d have to let your accountant or bookkeeper know this happened. They would record the expense on the business side, and then show it as owed to you, or “due to owner”. If it’s a corporation, then it would be “due to shareholder”.
5. What if someone hires me as a second shooter then pays me in cash?
All income is considered taxable by the IRS. That income should be reported on a 1099 form prepared by the person who hired you. That form needs to go out by January of the following year. You must then pick up that income on your tax return. Typically, if the total for the year is over $600, you’ll receive a 1099 form.
6. Is there anything that can be written off that people might not think of? What if you worked from home… can you write that off?
Some people write off what they call “office in the home”. You can do that, but you have to be able to prove to the IRS that your office space is only used for business purposes. You would take the square footage of your office space, divide it by the total square footage of your home, and then use that percentage to write off a portion of your utilities, house insurance, home phone, and real estate taxes. This is one thing that the IRS really focuses on when they do an audit. They want to make sure you’re taking the right percentages and are doing it correctly. This is where having an accountant or tax preparer is important, because they know what you can and cannot deduct, and can double check your math. Some people take the depreciation of their home as a business expense as well. The only problem with that is when you sell your house, you have to go back and pick that up as a gain.
7. What about clothing or shoes I wear to photograph weddings?
That’s one thing that many people are confused about. The IRS says if it’s something you’ve purchased that you can wear anywhere else, then you can’t deduct it. If you bought something specific for work, but you could wear it to church or shopping, even if you don’t, then you cannot deduct it. If you ordered monogrammed polo’s with your logo on them, that would be deductible. If you had to purchase a hard hat because you’ll be shooting in a construction zone, that would also be deductible. But a plain black dress that you wear to photograph weddings doesn’t count.
8. What if I haven’t tracked anything all year, and I don’t know where to begin?
If you have a pile of receipts, obviously, you could take them to an accountant and say, “here’s my stuff for my business”, and they would gladly go through it for you… but they’re going to charge you for the time it takes. If it were me, I would at least try to go through the receipts and categorize them (office supplies, photography equipment, travel, etc.). I would then add each category up quickly, just to save them the time from doing that. That way, if you’re a Sole Proprietorship, your accountant can just take those numbers and enter them on the tax return. You also have to let them know what your income is for the year. You can get this information from your bank statements (you should be depositing all your income into your account).
What are you wondering about?
If you have a burning accounting question, leave it below, and I’ll try to answer as many of them as I can.
Kelly Benton lives with her husband and two adorable dachshunds in Northeast Indiana, where she works from home as a Wedding Photographer. When she’s not photographing over people’s love, she’s a wannabe-rockstar triathlete with a penchant for funny movies and craft beer. Check out her blog or connect with her on Facebook.