Figuring Photographer Business Taxes

Figuring small business/self-employed taxes
Copyright © 2008 kozumel

As a self-employed artist, or photographer, you have to pay an ordinary income tax as everybody else does and additional “self-employment” tax which does not exist for people living on a wage.

Self-employment tax

Self-employment tax is social security contributions for a photographer/artist. Normally, when you are employed by someone else, the employer is responsible for these payments. However, when you are a freelancer, you must pay the full amount yourself.

You should deduct all your expenses from your gross income before calculating your social contributions because the self-employment tax is paid on net income only. The SE tax rate on net earnings in 2011 is 13.3% (10.4% social security tax plus 2.9% Medicare tax). Only the first $106,800 of your earnings in 2011 is subject to the 10.4% social security part of the tax. In other words, your social security tax contributions will not exceed $13,243.20; it doesn’t matter how much you earn.

You can deduct half of your self-employment tax in figuring your adjusted gross income. This deduction only affects your income tax. It does not affect either your net earnings from self-employment or your self-employment tax. Under Section 2042 of the Small Business Jobs Act, a deduction, for income tax purposes, self-employed artists are allowed to deduct the cost of health insurance. This is significant tax cut since these days health insurance for a freelance photographer costs an arm and a leg.

Income tax

Although it seems like we already cut a pretty fair portion of income, you pay to satisfy federal income tax demands, most of us had better braced ourselves for a increase in our 2011 federal tax returns as the deficit is comingon track to hit new highs.

Many tax cuts enacted by President Bush in 2001 and 2003 are set to expire in 2010. Older government designed the cuts to support all income levels: America’s low-, middle-, and higher-income workers. Hopefully, President Obama and Congress have approved a two-year extension to all the Bush-era tax cuts. This means that the 2011 federal IRS tax rates will be the same as 2010 rates, shown in the table below. However, tax bracket ranges and standard deduction levels have increased slightly due to low inflation. A rise in tax rates would have cut the after-tax pay by $3,000 for the average tax payer, so the tax rates extension is worth a lot given current economic conditions. However, the extension is only for 2 years, and unless the economy actually tanks, you shouldn’t look for these to be extended again in 2013.

Married Individuals Filing Joint Returns and Surviving Spouses

If Taxable Income Is: The Tax Is:
Not over $17,000 10% of the taxable income
Over $17,000 but not over $69,000 $1,700 plus 15% of the excess over $17,000
Over $69,000 but not over $139,350 $9,500 plus 25% of the excess over $69,000
Over $139,350 but not over $212,300 $27,087.50 plus 28% of the excess over $139,350
Over $212,300 but not over $379,150 $47,513.50 plus 33% of the excess over $212,300
Over $379,150 $102,574 plus 35% of the excess over $379,150

Heads of Households

If Taxable Income Is: The Tax Is:
Not over $12,150 10% of the taxable income
Over $12,150 but not over $46,250 $1,215 plus 15% of the excess over $12,150
Over $46,250 but not over $119,400 $6,330 plus 25% of the excess over $46,250
Over $119,400 but not over $193,350 $24,617.50 plus 28% of the excess over $119,400
Over $193,350 but not over $379,150 $45,323.50 plus 33% of the excess over $193,350
Over $379,150 $106,637.50 plus 35% of the excess over $379,150

Unmarried Individuals (other than Surviving Spouses and Heads of Households)

If Taxable Income Is: The Tax Is:
Not over $8,500 10% of the taxable income
Over $8,500 but not over $34,500 $850 plus 15% of the excess over $8,500
Over $34,500 but not over $83,600 $4,750 plus 25% of the excess over $34,500
Over $83,600 but not over $174,400 $17,025 plus 28% of the excess over $83,600
Over $174,400 but not over $379,150 $42,449 plus 33% of the excess over $174,400
Over $379,150 $110,016.50 plus 35% of the excess over $379,150

Source: www.irs.gov

In addition to federal taxes, some states apply local taxes.

You have to estimate your next quarter earnings and pay income tax in advance. If you pay too much, you can return this money by filling an annual return before April 15 of the next year (Form 1040 + Schedule C). However, returning overpaid is usually a extremely long process so make sure not to overpay too much.

Deductions

Many deductions can be claimed by self-employed persons like photographers. It is in your best interest to be aware of them. For example, 100-percent deductibles include production costs, business cards and brochures, membership dues and training costs. Under Section 2042 of the Small Business Jobs Act, self-employed photographers and artists are allowed to deduct the cost of health insurance. You should always include it in your annual tax return since it will save a considerable amount of money.

Inconsistent bookkeeping may result in penalties from IRS. Keep yourself out of trouble with the IRS by learning a set of ’3 Bs’ — bookkeeping, bookkeeping and (you guessed it) bookkeeping. IRS studies show that poor records, not dishonesty, cause most small-business owners to lose at audits or fail to comply with their tax reporting obligations, with resulting penalties. Even if you hire someone to keep your records, you need to know how to supervise her – because if she fails, you are the one held responsible.

  • Consider using a computer to keep your records if you aren’t already in the electronic age.
  • Keep all receipts and canceled checks for business expenses, and keep them organized and in a safe place.
  • Separate the documents by category, such as auto expenses, rent, utilities, etc. Put your documents into separate folders or envelopes.

If you are ever audited, the IRS is most likely to zero in on business deductions for travel and recreation and car expenses. Furthermore, the burden will be on you – not the IRS – to substantiate your deductions. If you’re unsure how to get started or what documents you need to keep, consult a tax professional familiar with small business bookkeeping.

Sales Tax

Sales taxes are complex and require significant attention. For instance, if you work in more than one state, use models or work with reps in one or more states, you may be required to pay sales tax in each if the states that apply. In particular, if you work with an out-of-state stock photo agency that has clients over a large geographic area, you should review you tax liability with a tax professional. As with all taxes, you must report and pay them on a timely basis to avoid audits and penalties. In regard to sales taxes, you should:

  • Always register your company at the tax offices with jurisdiction in your city and state;
  • Always charge and collect sales tax on the full amount of the invoice, unless an exemption applies;
  • If an exemption applies because of resale, you must provide a copy of thebuyer’s resale certificate.
  • If an exemption applies because of other conditions, such as selling one-time reproduction rights or working for a tax-exempt, nonprofit organization, you must also provide documentation.

In total, the taxes above will result in about 28% if you live in Miami or 36% if you live in San Francisco. Share your tips to make them lower.