I bet when you were imagining your journey as a freelance photographer, filing taxes never crossed your mind. At that time you were thinking of the beautiful moments you would capture. Stunning pictures that would make anybody looking at them linger for a while just to appreciate the artistry.
But, here you are wondering if you might find yourself on the wrong side of the Internal Revenue Service (IRS). Is it time you started paying your income taxes? What about your self-employment taxes?
Don’t worry. In this post, we will cover all the basics that a freelance photographer needs to learn to file their own taxes. Most importantly, we will discuss how you can take advantage of tax deductions to pay less tax.
It's not a walk in the park but with the right preparation and with the right tools, tax filing day will just be another normal day at work.
Note: The best way to stay on top of your freelance photographer taxes and maximize your tax savings, is with an app like Bonsai Tax. Our software will help you calculate your self-employment tax liability, send you filing reminders, and track all your business expenses for you (we'll scan your bank/credit card receipts to organize all your deductions automatically). Users typically save $5,600 from their tax bill with our services. Try a 7-day free trial today.
When should you start paying self-employment taxes as a freelance photographer?
Does your tax bill start accumulating immediately when you earn your first dollar from photography?
No, regulations state that if you are the sole proprietor of your business and you are below the age of 65, you become obligated to pay taxes if you earn a minimum of $12,000 per year.
Additionally, If your annual income, after deducting tax credits and business-related costs, is $400 or more, the government expects you to pay self-employment tax to the tune of 15.3%. This exclusively to caters to your Medicare and Social Security taxes.
Note, if you haven’t legitimized your photography business, you will still be liable to pay tax for its income but you can’t claim deductions from its expenses. This is because the IRS no longer allows deduction of business expenses against hobby income.
Become a legitimate business
If you have been doing photography as a hobby, consider legitimizing it either by getting a sole proprietorship license or registering it as a limited liability company (LLC).
Difference between quarterly and annual tax return
Business tax is calculated annually. The option to make quarterly payments exists to avoid a situation where the taxpayer can’t afford to pay the full annual debt.
Let’s say you are estimating your tax bill for this year to be $1600. It makes more economic sense to pay four installments of $400 across the year than to make one large payment when tax season rolls in, right?
Federal tax withholding is the amount withheld from your paycheck by your employer to cater to federal taxes. You are self-employed but one of your clients may be automatically withholding a percentage of your pay as withheld tax.
If the taxes withheld cover more than 90% of your estimated tax debt for the current year or 100% of your tax debt for the previous year, you don't need to make quarterly payments.
How to estimate quarterly tax payments as a freelance photographer
To estimate your quarterly tax payment, use Form 1040-ES. It’s one of the six IRS forms that every freelance photographer needs to be familiar with. I will be telling you what each of these forms does in a short while.
Form 1040-ES contains everything you need to know to determine the estimated taxes for each quarter. It prompts you to enter your financials such as your expected gross income, list of tax-deductible expenses, and your federal tax withholding.
It will then guide you through the math process of coming up with the quarterly estimate by telling you when to subtract, multiply, or divide.
The form also contains additional information such as the date when each payment is due and situations that may lead to penalties.
Don’t worry about overestimating or underestimating your due tax in one quarter. You can always correct it when you do your estimates in the next quarter. And if at the end of the last quarter it turns out you have overpaid, you can request a refund or have the overpayment apply to future tax payments.
IRS forms for photographers to file their taxes
Form 1040 - This form is also known as the US Individual Income Tax Return and is used by the IRS to collect information about your income, deductions, and credits to calculate your taxable income and annual tax liability. Form 1040-ES that we discussed above is a variant of Form 1040 to estimate quarterly taxes.
Schedule C form - This is the IRS form that helps self-employed individuals to determine their taxable income by prompting that they report income and business expenses in detail. You'll file a Schedule C on 1099 income.
Schedule SE - This form accompanies Schedule C and is used to estimate your social security and medicare taxes for the year. The form will prompt you to enter all the relevant financials and guide you through the calculation process.
Form 2106 - This form takes the place of Schedule C for people that have received or are planning to receive a W-2. This only applies to freelance photographers that also have regular jobs where taxes are withheld from their paychecks.
Form 8829 - If you conduct your photography business from your home, Form 8829 is there to help you claim a portion of the expenses you incur. For instance, if you pay a rent of $700, and you have a home office. Form 8829 will help you write off a certain percentage of the rent as a business expense.
Form 4562 - This form helps you write off the depreciation cost of your photography gear. Your camera and lenses will depreciate over time, right? Well, you can calculate how much they have depreciated each year and deduct that from your income. We will discuss the different methods to depreciate your property in the next section where we look at expenses you can write off as a photographer to reduce your taxes.
Business Expenses You Can Claim To Reduce Your Taxable Income
As a photographer, there are multiple expenses that you can deduct from your photography income. This will consequently reduce your taxable income translating to reduced taxes. Here are some of them.
Depreciation cost of photography equipment
All equipment that you'll use for more than a year is considered capital expenses. Your camera is a capital expense IRS allows you to annually deduct a fraction of the cost of these expenses from your gross income over several years. This process is called depreciation.
There are three methods used to depreciate your equipment.
This is the simplest depreciation method and forms the foundation for all the others. First, you need to determine your equipment’s salvage value. That’s an estimate of how much the equipment will be worth after it has served its purpose.
Next, subtract the salvage value from the equipment’s original cost. Finally, divide that amount by the number of years you expect to use the equipment.
Let’s say you bought your camera for $3500 and you plan to use it for 5 years before upgrading. Assuming that after these 5 years the camera will be worth $1000, then that’s its salvage value. To calculate its depreciation, subtract $1000 from $3500 and divide the amount by 5. You get $500 meaning you can write off $500 per year for five years for the camera.
Double declining balance depreciation
This method of depreciation is most suited for properties that have a higher rate of depreciation in their earlier years than later years. It allows you to claim a larger deduction at the beginning and smaller deductions over time.
However, the total depreciation cost that is tax-deductible does not change. Using the above example, the total amount to be deducted will still be $2500.
The only difference is that instead of writing off $500 for 5 years, you can write off $1000 in the first year and then spread the remaining $1500 across the remaining 4 years.
Sum-of-the-Years' Digits Depreciation
This last method involves more calculations but if you feel that it suits you better than the other two then go for it. There is no easy way to explain it so I’ll just use an example.
The first step is to create fractions based on how much useful life your equipment has remaining. Using our camera example, in the first year, you have five years of life remaining, in the second year, you have 4 years of life remaining. Year 3 has three years of life remaining and the process continues until you have no life remaining.
Add up all these years. 5+4+3+2+1 = 15. The fraction for year 1 will be 5/15 and year 2 will be 4/15. The last year will be 1/15. You get the drift, yes? To get how much you can write off for each year, multiply the year’s fraction with the product's salvage value.
Alternatively, you can deduct the whole depreciation cost of your equipment at once to get a huge tax break in the first year but small tax breaks in the next years.
Every piece of equipment that you bought to facilitate your photography business can be written off. This includes cameras, tripods, lenses, lights, computers, and even props.
Studio and storage space
How much do you pay for your studio? This amount can be tax-deductible too. The same is true for any payments you may make to cater to the storage of your photography equipment.
If you have to travel for a photography gig, then that is considered business travel and you can deduct every expense you incur in the process. This includes air tickets, meals, accommodation, car rentals, and car insurance. In 2021, the IRS also accepts deductions of about 56 cents for every business mile you travel using your car.
To grow as a photographer, you may have to take a few classes. Every cost you incur to gain new knowledge about your business is tax-deductible. Training expenses also include magazines and books that you buy to learn about photography.
Now, the truth is we can’t exhaust all the expenses that are tax-deductible when filing freelance photography taxes. There are a lot more like business meals, telephone, insurance costs, legal expenses, and marketing expenses that we are yet to cover. Other expenses will be unique to your business.
The important thing to know is that the IRS recognizes deductible expenses as any expense that you incur and is necessary to run your business.
Note, the IRS requires that you attach receipts for taxes as evidence that your write-offs were legitimate business expenses. The receipts also need to be categorized to determine what type of expense it was. This means you need to have a very accurate tracking system to account for all the expenses.
This brings us to the final part of this post.
How we can help
Every tax expert will tell you that practicing good bookkeeping is the best thing you can do to prepare yourself for tax time. You need to record every financial transaction that involves your business.
Admittedly, it’s not an easy task. The good news is that you no longer have to do it manually. There are multiple solutions you can use to track your business income and expenses and Bonsai Tax is one of them.
Our software integrates with your bank account and credit card and will automatically import your freelance income, expenses, then proceed to classify them for you.
Then to facilitate efficient tracking of cash transactions, the software comes with a receipt scanner. The scanner is equipped with optical character recognition technology that reads the content on the scanned receipt and inputs the data on your expense report.
But, here is the best part. The tool identifies expenses that are tax-deductible and automatically write them off. It will then use all the information provided to estimate your quarterly taxes so that you never get caught unprepared.