As a new photography business, you need to first decide on your name, and we went over this in the previous post incase you missed it you can find it (here). Aside from this, One of the first major decisions you need to make is choosing which legal form you want to operate your business. There are four basic legal forms to learn about and they include; Sole proprietorship, partnership, corporation, and limited liability company. Now this is probably going to seem very boring and hard to follow but you cannot skip this step!
In this article, I will only be discussing Sole proprietors and LLC.
But first,
Disclaimer:
The information provided in this blog post is intended for general informational purposes only and should not be construed as professional legal, tax, or financial advice. While I strive to ensure the accuracy and timeliness of the information presented, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the content for any purpose.
Readers are advised to seek the advice of qualified professionals, such as lawyers, accountants, or tax advisors, regarding their specific legal, tax, or financial situations. Any reliance you place on the information provided in this blog post is strictly at your own risk. We disclaim any liability for any loss or damage, including without limitation, indirect or consequential loss or damage, arising from reliance upon the information contained herein.
Choosing a Business Structure for your New Photography Business
So First you’ll need to understand these two legal forms. We will start with Sole proprietorship.
Sole Proprietorship
This is the simplest, most common form of business because there are no forms to file and the taxes go right on your personal tax return. This is the least costly way of getting into business. This means you are personally responsible for all business debts and liabilities. There is a danger to this, it means that if you get sued, your personal holdings can be at risk. This includes your house, your retirement, your car, and everything you own is at risk.
Advantages of Sole Proprietorship:
- Easy and Inexpensive
- Full control over all business decisions
- Minimal legal restrictions
- Owns all profits and reaps all benefits as owner
- No requirement to pay unemployment taxes
Disadvantages of Sole proprietorship:
- Personally liable for all business debts.
- May have difficulty obtaining long-term financing
- Success of business depends on the efforts of the sole proprietor
- Illness, injury, death will directly threaten your business
- No unemployment benefits if the business fails
If you do operate as a name other than your legal name you should register the business name (DBA – doing business as) with the register of deeds in your county. More on DBA’s here: https://www.forbes.com/advisor/business/what-is-a-dba/
Limited Liability Company
The LLC is a hybrid business form that has some advantageous characteristics. The LLC gives a legal separation of liability which protects your personal assets. If you are a single-member LLC, which most photography businesses will be, you can have your taxes just pass through your personal tax return – just as a sole proprietor would work. If you have more than one member then you are taxed as a partnership (You’ll have to find more resources if that is the route you are going as I am only explaining a one-person business). LLC does require yearly paperwork but it’s not really that bad.
Advantages of LLC
- Profits and losses pass through the company to its owner for tax purposes
- Personal assets are protected from business liability
- There is no limit on the number of owners
- LLC is simpler than operating a corp
- Owners may participate in management of the business
- Some tax advantages result from business losses or high profits.
Disadvantages of LLC
- An LLC may be recognized differently in different states
- Limits of liability have not been extensively tested in litigation
- Legal assistance is needed to properly set up and structure an LLC
Registering Your Business
Once you’ve chosen a Sole proprietor or Limited liability company you will need to register your business. Every state will be different. I am in South Dakota, so I will include what that is going to look like for someone residing in this state. https://sdsos.gov/business-services/
Depending on if you’ve decided to do an LLC or sole-proprietorship, you’ll choose either Register a Business (for L.L.C.) or File a DBA (for sole-proprietor). You should also Search for Business name availability before you register. Again, this is only for South Dakota but I dare to bet all state pages should have similar options.
If you choose sole proprietor/ DBA this will be the next page.
You can see here they want to make sure you are only choosing this if you are not doing an LLC. The state website is pretty helpful and clear to new businesses wanting to open!
Here is what choosing Register a new business is going to look like (LLC)
Here is what a Business information search is going to look like, you’ll want to do this to make sure your name isn’t already being used.
Tax ID/EIN
The next thing you’ll want to do, if you are getting an LLC is apply for an EIN number. Please refer to this professional YouTube video on the topic.
Professional Checking Account
While you are doing all this, it would be wise to open a business checking account. You will want to keep your business purchases, payments, transactions, etc. separate from your personal account.
This was one of the best pieces of advice I got when I started my business. It is a mess if you try to go through it all at the end of the year! You will simply just pay yourself from your photography account to your personal account when you want to transfer income over to your personal account! Trust me, don’t skip this step!
Understanding Tax Obligations for your New Photography Business
If you are entering the world of photography you probably lean toward having a creative mind, which means taxes are probably the last thing on your mind.
I am not qualified in the area of taxes so please see the disclaimer I’ve included in this post, but I can give you some ideas and tips as well as some great reference links written by professionals! Also see this website for deep explanations https://www.bastianaccounting.com/blog/5-taxes-creative-entrepreneurs-should-know
So getting into it, once you start charging and making an income you need to identify your photography situation as a business for tax purposes.
When you work for a different company taxes are withheld from your paycheck and submitted automatically. This includes federal, state, etc. When you are self-employed (photographer, etc) it is your responsibility to withhold and pay your own taxes.
It really does suck to deal with taxes and all the things but to put it in a brighter light, it’s going to level up your photography business because people will view your newly formed L.L.C. business as legit and feel more confident about booking a real professional business! There is also another perk to leveling up to being a real business, you will be able to deduct most of your expenses!
Quarterly Taxes: You most likely won’t need to worry about this for the first year and maybe not even the second year if you are just getting into photography and haven’t established a client base yet, etc. Quarterly taxes are what self-employed people need to pay as an estimate to owed taxes. You are required to make estimated tax payments each quarter if your tax liability for the year will be 1,000 or more. You will want to do this to avoid paying any IRS fees at the end of the year.
And, again, because I’m a creative mind, not a tax professional this is a great resource:
Tax Forms to know:
- 1040
- Schedule C
- Schedule SE
- Form 8829
- Form 4562
Website for deeper insight : https://phlearn.com/magazine/photographers-guide-filing-taxes/
Sales Tax & Use Tax: Depending on how much you make you’ll need to also pay your sales tax either monthly or quarterly. The state of South Dakota makes it easy for me to do all of this online and if you do it early they even refund you a small percentage. You will want to search Google to find your official states page and info regarding sales tax. I will attach South Dakota’s so you can see what it’s going to look like. Not every state charges the same Sales Tax so it is critical to see what your State Charges!
Quickbooks
I use and love Quickbooks for all my accounting needs. I have been with them since I opened my business over 10 years ago. Quickbooks online is great because if you decide to hire an accountant they can log right into your account to manage it. Now I have a blog post on my streamlined photographer blog that explains more about Dubsado and Quickbooks integration here. You probably aren’t using Dubsado yet if you are reading how to start a photography business, but chances are you will want to use Dubsado in the future so choosing QuickBooks now will help with streamlining Dubsado once you step into that!
If you want to try QuickBooks – click on the image above to follow my affiliate link for a discount! Not sure yet? That’s okay just bookmark this page and com back to it. Here are a few more resources to help you with your decision.
This is a great article explaining 5 reasons why QuickBooks is great and I did read it and I do agree with it: https://photofocus.com/reviews/five-reasons-i-chose-quickbooks-online-for-my-photography-business/
Want to expand your knowledge on accounting programs for photographers and see what else is out there? …. Here is another article on all the accounting software available for photographers – I am biased toward QuickBooks but want you to be able to explore all the options just as I did before coming to a decision!
https://www.format.com/magazine/resources/photography/accounting-software-photographers
Want to get started in QuickBooks but feel so lost? Hiring someone to get you started, such as tidy books, might be worth looking into: https://www.tidybooksboutique.com/blog
Disclaimer: I have not personally used tidy books and I am not an affiliate I just like what their business offers and think it’s worth looking into.
Intellectual Property and Copyright
This is very important, but as you know I’m a photographer, and this is a little out of my realm. Please look over these links and don’t skip over this. These are reputable links for you to look over copyright information.
Lawtog is one of my favorite resources for legal information for photographers. I have purchased contracts from her as well.
https://www.thelawtog.com/blogs/news/top-10-copyright-tips-for-protecting-your-photography-business
And the PPA is a non-profit photography association created by photographers, for photographers. So this is a link worth checking out as well!
https://www.ppa.com/articles/copyright-law-your-rights-as-a-photographer
Contracts and Client Agreements
This is a big one! Do not do any work without a legal contract in place! I use Dubsado for all my contracts. I had to get my own legal contract but then I put it into Dubsado and it allows the client to electronically sign, it then kicks the signed copy back to me to also sign. It is simple to email it to the client and to keep all the forms organized.
This contract needs to protect you the photographer, but also protects the client. Having a contract establishes exact expectations to both parties involved and helps provide efficient communication. It also promotes client confidence because they know that their end of the deal is protected. With all the scams these days – they will be at ease knowing you won’t just run away with their money and that you are also going to show up to the session!
If you do not have a contract in place you risk possible legal battles, loss of income, copyright infringement, tarnished reputation and relationships, and the list keeps on going.
You absolutely have to budget for a legal contract. You can seek out a local Lawyer or you can visit the Lawtog – who specializes in legal contracts for photographers. Here contracts for purchase can be found here: https://www.thelawtog.com/collections
Do not skip this step!
Insurance Coverage for Your New Photography Business
Do I need photography insurance? YES!!! YES, you do!!!
You need to be prepared for the worst-case scenario. Let me tell you a little story of what happened to me a few short years ago! Back when I was still shooting weddings, I was exhausted after a long day of shooting the previous day. I had just gotten back home because the wedding was out of town. Went in the house to relax and eat, etc. I came back out and grabbed my main shooting camera and my computer to look at the images I had captured and to transfer images over. Did not lock the car because I intended to go back out and get all my equipment from the wedding after a little bit. Well I got tired and didn’t make it back out.
Next morning, I woke up to an empty car. I was so confused when I got out to my car because all the papers I had in there were scattered everywhere. Almost like a mini tornado swept through my car. I finally realized what happened, and I instantly felt so violated. I suddenly remembered I had left my equipment in the trunk. Went back to look and it was all gone, all of it. 10,000 worth of equipment gone in the blink of an eye. All I had left (thankfully) was my computer and main shooting camera/ 1 lens. So I had inland marine insurance and they covered a certain percentage of what my equipment was worth. Insurance wrote me a 9,000 check.
I was sweating bullets and couldn’t even describe to you how thankful I was to have committed to getting insurance. Had I not had the insurance my career would have been over. Also, had they stolen those wedding photos (had I not gone back out for my computer and camera) my contract we talked about earlier was in place and I would have been protected from the client suing me because I lost all her images. It’s worded that they get a refund and nothing more if something like that were to happen.
You have to take this seriously and cover yourself – it could be career-ending without these important legal aspects in place.
Seeking Professional Advice
I think my point on this has been made with the real-life story I just laid out. Please use these online references to professionals I have put all through this article – or look up local lawyers, accountants, and tax advisors in your area and seek their advice.
We want people to hire us as photographers for our creative abilities and skills – then we need to do the same and hire professionals who specialize in their skills and can help protect our business. Most of us are creative-minded so all this tax and legal stuff isn’t all that fun or intuitive, so just budget to hire professionals and do it the right way so you are protected!
Summary
In wrapping up this discussion on legal and tax considerations for new photography businesses, let’s recap the essential steps we’ve covered. Before entering into client sessions, it’s crucial to lay a solid legal and financial foundation for your business.
As mentioned in our previous post, choosing a memorable name for your photography business sets the stage for your brand identity. Moving forward, the focus shifts to understanding the legal structures available for your business. We explored the two primary forms: Sole Proprietorship and Limited Liability Company (LLC).
A sole proprietorship offers simplicity and direct control but comes with personal liability risks. On the other hand, forming an LLC provides a level of personal asset protection while maintaining a streamlined taxation process. Each option has its advantages and considerations, which is why it’s vital to weigh them against your business goals and circumstances.
Remember, while I’ve provided insights into these legal structures, it’s essential to consult with qualified professionals for personalized advice tailored to your specific situation. Legal and tax regulations vary by jurisdiction, and professional guidance ensures compliance and mitigates risks.
Once you’ve decided on the appropriate legal structure, the next step involves registering your business. Whether it’s filing for an LLC or registering a DBA for a sole proprietorship, familiarizing yourself with the process ensures a smooth start to your business journey.
Establishing a separate business checking account not only simplifies financial management but also reinforces the distinction between personal and business finances. It’s a small step with significant implications for your financial organization and tax reporting.
Taxes, while daunting, are an unavoidable aspect of business ownership. While I’m not a tax expert, I’ve shared resources and insights to help unveil the tax obligations of photographers. From understanding quarterly taxes to familiarizing yourself with essential tax forms, staying informed empowers you to navigate through the tax world with confidence.
Lastly, I emphasized the importance of protecting your intellectual property through copyright awareness and client agreements. Contracts are crucial for setting expectations, preserving client relationships, and safeguarding your business interests. Likewise, insurance coverage offers essential protection against unforeseen events that could jeopardize your livelihood.
In conclusion, while the legal and tax considerations of running a photography business may seem daunting, they are essential elements of the business. By seeking professional advice, staying informed, and taking proactive steps to protect your business, you’re laying a solid foundation for long-term success. Remember, investing in the legal and financial aspects of your business is an investment in its sustainability and growth. As you embark on this exciting journey, may your passion for photography be matched by your commitment to professionalism and legal compliance.
Go to next article: Designing a Business Plan for Photographers
Go to previous article: Naming your Photography Business
Leave a Reply