Preparing and filing taxes can be complicated for freelance photographers. While working for yourself comes with countless perks, there’s one major downside: You’re responsible for paying your own taxes.
Before anything, set yourself up for success by keeping good records of everything — and we mean everything. Accurate bookkeeping will only make life easier during tax season, especially in case of an audit.
Next, consider hiring a professional accountant or tax expert to help you through the entire process. “A professional tax preparer has the knowledge to assure all income and expenses are taken to mitigate your tax liability,” says Carlotta Lytton, Certified Public Accountant based in Stokesdale, North Carolina.
With a professional by your side and good bookkeeping practices, you’ve laid the foundation for success. Now, you’ll want to familiarize yourself with everything else you need to know about how to prep and file your taxes as a freelance photographer:
Prove You’re a Legitimate Business, Not a Hobby
Before you jump into the ins and outs of prepping for tax season, determine if your photography endeavors can legally be considered a legitimate business. In the U.S., the Internal Revenue Service (IRS) takes this seriously, since photography is a hobby for so many. You’ll want to ensure you can prove you’re running an actual business.
If you haven’t already, consider a business license. The good news is that freelance photography does not require a federal license in the U.S., as photography is not regulated by a federal agency. And this might even be the case for state business licenses — but always look into your state’s requirements before skipping this step.
To go even further, photography as a business activity isn’t regulated in many countries, but again — always do your homework to find out what’s required in your specific country.
Generally, U.S.-based freelance photographers should consider forming a limited liability company (LLC) business structure. This is one of the easiest, most flexible ways to protect you and your business, especially within a partnership or as a sole proprietor.
With an LLC, you can skip having to complete a corporate tax return and instead claim your income and expenses on your individual tax return. And it goes without saying that you also get legal protection and may look more favorable to future clients if you demonstrate that you take your business seriously.
Quick tip: One popular method to set up an LLC in the U.S. is through LegalZoom.
Once you have your LLC set up, you’ll want to set up a bank account that’s separate from your personal finances. And always remember to keep receipts in case of an audit — or just for good bookkeeping.
If you’re a one-photographer show based in the U.K., you can register as a sole trader. However, while you’re allowed to keep all income made through this structure, you’re still liable for all debts. Another option is to form a private limited company (Ltd.) — this is a good idea if you don’t have employees and want the added benefit of liability.
How to Estimate Quarterly Tax Payments
The IRS states that if you owe less than $1,000 “after subtracting [your] withholding and refundable credits, or paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller,” you may not need to make quarterly estimated payments.
What if you do expect to owe more than $1,000 on your taxes? In the U.S., you might need to make estimated quarterly tax payments. If this is you, start by familiarizing yourself with the 1040-ES form — it’ll be your main tool for estimating what your tax payments will be.
According to the IRS, you’ll first need to figure out your “expected adjusted gross income, taxable income, taxes, deductions and credits for the year.” If this still sounds like jargon to you, reference last year’s tax return to find this information.
“Quarterly estimated payments are based upon the income from your prior year,” says Lytton. “However, if income increased dramatically over the prior year, you should increase the amount remitted each quarter.”
The 1040-ES form will be your best friend to determine your quarterly tax payments. With this form, you’ll be taken through the math needed to determine the payment based on your expected income for the year. Also remember that if you estimate too high or too low for one quarter, you can always fill out the 1040-ES worksheet again for the next. With some trial and error, you can get a more accurate estimate.
Lytton also recommends to keep your payment vouchers in a prominent place to help you remember when they’re due, like where you put other bills to pay. Also look into hiring an accountant to help. For example, Lytton’s system provides a payment schedule that has amounts and payment due dates.
Forms to Remember
Aside from the 1040-ES form, there are several others to consider before you do your taxes in the U.S. As a freelance photographer, many of these forms will be directly related to the types of deductions you can make on your return.
The 1040 is a basic tax form for inputting your gross income, deductions, and tax credits. Think of this form as the mandatory front page of your return.
“Schedule C is the form to report income and expenses,” says Lytton. It includes your income, business expenses as it relates to your home, costs of goods sold, vehicle information and other expenses not otherwise included.
This form must be submitted with the Schedule C form and should be used to determine your social security and Medicare taxes for the year. The form also comes with a flowchart to help you determine if it best fits your tax situation.
If you’ve received or are planning to receive a W-2, use this form to write off your business expenses instead of the Schedule C. With this form, you can account for meal, travel, vehicle and travel expenses.
If you use part of your home for freelance photography such as photo editing tasks, you can use Form 8829 to write off a portion of your rent or mortgage as it relates to the size of your home office.
This form is important to remember if you want to write off the depreciation costs of expensive equipment like cameras and lenses. But before you start, understand how to properly depreciate your property. Here are the three most common methods:
- Straight-Line Depreciation: This is one of the easiest ways to calculate depreciation. Subtract the equipment’s salvage value (an estimate of how much it’ll be worth after its expected life) from the original cost. Then, divide that number by the amount of years you expect to use it.
- Double Declining Balance Depreciation: Helpful for an item that depreciates quicker at the beginning of its life, you can use this method to write off a larger deduction earlier to minimize tax costs. Generally, you can take your straight-line depreciation number and multiply by two.
- Sum-of-the-Years’ Digits Depreciation: This is for items that depreciate right in the middle of the three methods. To determine your annual depreciation, estimate the item’s life expectancy. If it’s five years, add the digits: 5+4+3+2+1=15. With 5 being the first year’s value, create fractions for each year by putting the value over the sum of the years: 5/15, 4/15, 3/15, 2/15, and 1/15. Then, divide your straight-line depreciation number by each fraction to determine the each year’s depreciation cost.
For additional resources, refer to Publication 946, How to Depreciate Property and ask a professional.
If you’re not based in the U.S., check out these resources to help you determine which forms and info best fit your needs for filing your taxes:
What to Deduct on Your Taxes
As a freelance photographer, there’s a lot of expensive equipment involved — from cameras to lighting to props. Track every piece of equipment you bought during the year, including cameras, lighting, stands, tripods, film supplies, lenses and even hard drives and computers.
Studio or Venue Spaces
Running a photography business also means making some pretty hefty investments in venue or studio spaces. If you’ve rented out any areas for photoshoots, remember to deduct those costs on your taxes. And if you rented (or still rent) an area for equipment storage, you can deduct that cost as well.
Additional training and courses you take to beef up your resume and skills can give you a nice tax break — so be sure to deduct the costs of your courses on your taxes. And don’t forget to account for how you got there (mileage or airfare) and any hotel arrangements.
The educational deductions don’t stop there either. Photo-editing software, reference materials like magazines and books, and any annual membership costs may also be deducted if it relates to training and education.
As a freelance photographer, travel expenses can add up quickly — which is why it’s important to keep detailed records of each trip so you can accurately deduct those costs on your taxes. Travel expenses can include mileage, airfare, car rentals, lodging, cab fares, meals, entertainment and even a portion of your car insurance.
And the one travel expense most freelancers forget? “Mileage to purchase supplies,” Lytton says. Even the smallest detail counts.
Whether you rent or own your home, you can still deduct your home office space. And in 2013, the IRS actually made this deduction easier for Americans by providing a simplified way to determine this deduction: “$5 a square foot for up to 300 square feet.”
You may even be able to deduct a portion of your rent, mortgage interest, insurance and utility costs — but always check with a professional before deducting these expenses on your taxes. One thing you definitely shouldn’t forget: office supplies.
A few other expenses Lytton says are commonly forgotten fall under this category: licenses, website fees and, surprisingly enough, tax preparation costs. Along with those, you can also deduct legal fees (if you have a lawyer, for example), insurance costs and promotional expenses.
If you accept payment through websites like PayPal or Square, you’re more than likely hit with a small fee for payment processing. The good news? You can deduct those transaction fees, too.
Depreciation and Repair Costs
Since your expensive photography equipment can be used for longer than a year, it’s considered a capital expense. Capital expenses or expenditures are essentially purchases that are investments in your photography business. For these kinds of purchases, there are two ways to deduct them on your taxes using Form 4562:
- Deduct a portion of the cost: Referred to as depreciation, you only deduct a portion of the equipment’s cost for each year of its expected life. If you go this route, consider maintaining a spreadsheet to keep track of your purchase date and depreciation schedule.
- Deduct all costs upfront: Referred to as a Section 179 deduction, some prefer to deduct all costs upfront in order to receive a larger tax break within the first year as a business. To do so, start by skipping to “Part V” of Form 4562 to deduct what’s called “listed property.”
If you choose not to list your equipment as listed property on your taxes, you might be eligible for a depreciation allowance. The IRS describes this as “an annual allowance for the wear and tear, deterioration or obsolescence of the property.”
If you’re self-employed, you’re eligible to deduct personal costs on your taxes as well. These may include any paid insurance premiums, and a portion of your social security and Medicare taxes, also known as the Self-Employment Tax.
Tips Before You File Your Taxes as a Freelance Photographer
Now that you’ve got a clear idea of what you need to prep for your taxes as a freelance photographer, there are still several things to remember for filing your taxes and how to maintain good bookkeeping practices throughout the year:
- As a freelance photographer, you’re more than likely not handing over any tangible items to your clients. But in the case you physically give your clients images on a hard drive, U.S. residents may need to look into collecting state sales tax on those concrete items.
- We’ve already touched on it, but it’s one of the most important parts to claiming your freelance photography expenses and income on your taxes: Always, always keep receipts. Bonus points for digital copies, too.
- Even if you use your home often for your freelance photography work, never write off your entire home. This can be a major red flag to the IRS, so only claim the literal area of your home in which you regularly do business.
Clipping Path India and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.