“Just write it off or take a deduction.” Has anyone ever said that to you? If you're a business owner and you aren't super clear how maximizing this strategy can help you get more of what your photography business needs to grow, get ready to take some notes.
I am not a CPA or a lawyer so I'm not giving you legal or financial advice, but this strategy can change your life and your business and how you look at your business moving forward. There are nuances of how you implement this and that's going to vary based on where you live. If you're operating a photography business and have clients who are paying you, you want to be taking advantage of the ability to write off your business expenses.
The U.S. economy is run on people like us who have an idea that solves someone's problems. We create a solution to solve the problem, and then we sell that solution to other people. The US government loves when people spend their money because it grows our economy. Small business owners succeed and create jobs. Because of this, the US government encourages people to start and run businesses because it simulates the economy. Their belief is that if you're going to take your money and risk it to create a product or service that can help people and make this country a better place then they won’t charge you tax on that money so you can grow faster. The government wants you to buy things for your business because it helps the economy. And to help you do that they give you a tax break to encourage it by writing things off.
Think of all the things you're spending money on each year that go toward your photography business. First, you have something called cost of sales. These are costs that you pay for in your photography business when you have a client. This is your lab fees, ordering prints or framing costs or gas to get to a session. These costs only happen if you have a client. That's deductible, my lab fees, credit card fees, anything that goes to serve the client.
Then there are other expenses that you pay for whether you have a client or not. These are things like insurance, studio rent if you have it, cell phone bill, marketing, accounting, legal help, graphic design, web hosting. These are all legitimate business expenses. It's not just your equipment but it's your car, gas mileage to get to a session, education.
When you add up all of your receipts and then you go to file your taxes, you don't pay taxes on those business expenses. I'm not suggesting this is what you do because I base this on information from my CPA based on the lowest income bracket in Illinois.
Here is an example… Let's say you make $100,000 in income. Let's say you added up all of your expenses from your website, to outsourcing of retouching, to an educational program, to all the things that you use in your business and it came up to $20,000. If you have $100,000 in income at the 42% tax bracket (single filing, you would pay $42,000 in taxes. Isn't that depressing?
Let's say that half of that $100,000 is your small business as a photographer and half of that is other income. So you have that same $100,000 in income but since half of that is for your small business, you can now write that $20,000 off that you spend on your business. So now instead of $100,000 your taxable income is $84,000. You're only paying taxes on the $84,000 which at the same tax rate of 42% would be $33,600 versus $42,000. By investing that $28,000 in your business you're saving $8,400 in taxes.
We often talk about the cost of inaction. It's costing you money not to know how to run a photography business because every year you're not making $20,000 and you're not able to save taxes on that. It's costing you $8,400. You're paying that because you probably already have a computer and a cell phone and a printer at home and a car and all the things that you could be deducting the insurance on your camera, your memberships to different photography organizations or even local groups that you wanna belong to locally for personal development reasons. The key is you have to have that business income to offset that money. So if you've invested $20,000 in your business, you've got to make $20,000 so that you can write it off.
It's not about how much money you're making. It's about how you can make money, get your life back, and write off all the things to become the best version of yourself.
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