Comprehensive Guide to Filing Taxes as a Photographer
Are you a passionate photographer who started earning from an activity that you used to do as a hobby? Your next step is to figure out the tax implications. In this article, you will learn about 9 factors to determine whether photography is your hobby or business, allowable tax deductions, and the relevant forms. You need to know this if you are filing taxes as a photographer.
How to determine whether photography is your hobby or business for tax purposes?
Imagine you love to capture moments and that is what you do in your leisure time. You click pictures and post them on your social media regularly. Your network admires your work. And one day you found a few messages sitting in your inbox. All of them are offering you to do a quick photography project for a price.
Since you already enjoy photography you instantly said yes and made some money. As time goes by, you start getting more projects.
Once you start making money by offering your photography services you should consider it a business for tax purposes. The IRS has provided 9 factors. which you need to consider while determining whether your activities related to photography should be classified as a profit-making business.
- The way you carry your activity.
- Your motive.
- The amount of time and effort you dedicate.
- Whether or not this is your only source of income and you are dependent on it to survive.
- The reason for your losses is normal or beyond your control.
- Technical expertise you and your team have.
- The history of income and losses you had in relation to your activity.
- To what extent your activity has been profitable.
- The expected gain resulted from the appreciation of the value of assets that you use in carrying out your activity.
If you decide to keep it as a hobby you are still required to report your earnings as income on your tax return. This is your income from an activity not engaged in for profit.
Do freelance photographers pay taxes?
Yes, they do. Freelancers are generally considered to be independent contractors.
According to the IRS
“An individual is an independent contractor if the payer has the right to control or direct only the result of the work, not what will be done and how it will be done.”
In recent years, freelancers are working on-site and online. Photographers might get photo-editing work from an online marketplace. This act of providing your services through a digital platform is called "Gig Economy". The IRS defines Gig economy as
"The gig economy—also called sharing economy or access economy—is an activity where people earn income providing on-demand work, services, or goods. Often, it’s through a digital platform like an app or website."
The IRS requires you to report your earnings from the digital platform on your tax return regardless of whether it is a side hustle or you were paid in virtual currency.
Is there a self-employed photographer tax?
Yes, there is. If you are an independent contractor and filing taxes as a photographer you will be liable to pay self-employment taxes. This is a social security and medicare taxes which is a contribution to your social security and medicare tax. For employees, these taxes are withheld from their paycheck.
The total self-employment tax rate is 15%. Out of which 12.4% is related to social security and 2.9% is related to Medicare. An employee pays half of the total self-employment tax i.e. 7.5% and the remaining half is contributed by the employer.
Additionally, you also need to estimate and pay your taxes every quarter.
What are the allowable tax deductions for photographers?
According to the IRS, business expenses that are eligible for deduction should be ordinary (i.e. common and accepted in your trade) and Necessary (i.e.facilitates your trade).
If photography is your side hustle and you do it in your leisure time without intending to make a profit then you may not be allowed to deduct or there will be a limit. if your expenses exceed your income that will be your personal loss and you will not be able to deduct it.
If your activity is considered as a business for tax purposes you are a self-employed photographer. And you can reduce your income by deducting the following allowable expenses that are directly attributable to generating your income.
Home Office Tax Deductions
If you have set up your office in your home you are eligible to deduct the expenses to the extent you have used your home. If John has dedicated a specific room in his home for photo editing and that equals 30% usage for his business purpose then he is allowed to deduct 30% of his expenses. You will be eligible to claim mortgage interest, utilities, rent, etc
You can calculate home office deduction either by the regular method or the simplified option.
Startup Costs
You might have purchased a camera, lighting, lenses, or laptops when you set up your photography business. You can deduct them either as a one-off expense under section 179 deduction or you can spread the cost over its useful life and deduct it on an annual basis.
Studio and Photoshoot location
As a photographer, you have to visit places to capture memorable moments. Any cost associated with this is an allowable deduction. You also perform post-photoshoot edits in a studio. You are allowed to deduct the costs associated with its maintenance such as insurance, utilities, communication, etc.
Travel Expenses
Your work may require you to travel to your photoshoot location. The cost of maintaining a vehicle can easily accumulate but the IRS allows you to claim a deduction for the business travel expenses. These expenses can include repair and maintenance, insurance expenses, etc.
Additionally, if you use your personal car for business purposes you can compute your allowable deduction either by Standard mileage rate, which is prescribed by the IRS or based on your actual expenses. The latter requires you to keep track of all your expenses.
Education, and Licensing Costs
You might want to get enrolled in a course that helps you upgrade your photography skills or keep you up to date with the current trends. You might want to read a book to enhance your knowledge related to your business. The IRS allows the costs associated with these activities deductible.
You can also claim other costs such as a software license, membership of associations that are relevant to your business, as a deduction.
Professional Fees
When your business is growing and revenues are coming in you need to make sure to keep track of every transaction. This will not only facilitate you to make informed decisions but also help you in reporting your taxes and claiming your deductions. For this, you might hire an accountant or tax professional which can take care of this stuff so you can focus on your core expertise which is photography. Whatever fees the professional charges, you are allowed to deduct that.
Interest expense
While setting up your business or scaling up you might need to borrow funds from banks or lenders. The IRS gives you a tax break on this and the amount of interest that you pay to your creditors is an allowable deduction.
Meals
It is very common for every business to meet clients either to pitch their services or discuss an ongoing contract. For e..g If you had met your existing or prospective clients to discuss the details of your photoshoot on lunch then you are allowed to deduct it in full as per guidance issued in Notice 2021-25.
From January 1 2021 to December 21, 2022, You can claim 100% of your food and beverage expenses to eateries provided that you or your employee is present and the expense is not extravagant.
What are the tax forms related to self-employed photographers?
Form 1040
Individual taxpayers use this form 1040 to report their yearly income. You have to fill your earnings from photography along with the deductions and tax credit if any.
There are sections where you have to report your annual taxable income to find out if you owe additional taxes or are eligible to receive a refund. You need to file this form by April 15.
Form 1040-ES
Form 1040-ES is one of the types of Form 1040 which you have to use to determine your estimated quarterly taxes.
You will have to estimate and pay your taxes quarterly if your expected tax liability is $1000 or more after factoring in your deductions. These are due on the 15th of April, June, September, and January.
Schedule C for Photographers
This is the basic form that a photographer who works as an independent contractor will have to complete. You report your profit and loss from your photography business. You will disclose your revenue from photography, and business expenses such as office expenses, professional fees, insurance, advertising, etc that you are eligible to deduct.
Schedule SE
You will use Schedule SE to compute your social security and medicare taxes. Photographers who are employed will have these taxes withheld from their salaries. Generally, taxpayers submit schedule C along with Schedule SE.
Form 8829
Photographers who use a portion of their home as a studio or storage space will need to figure out the portion of business expenses that are eligible for deduction. IRS instructs such taxpayers to use Form 8829 for this purpose.
Form 4562
When you invest your money on any equipment such as a high-end camera, which is necessary for carrying out your photography business, the IRS allows you a tax break by giving you an option to either write it off as a one-off payment under section 179 or deduct the depreciation on a yearly basis. If you decide to deduct it on a yearly basis you have to use Form 4562.
If you have turned your hobby of photography into a source of income, register it as a business for tax purposes.
Most of the time self-employed people use their personal bank account to carry out business transactions. This makes it difficult for them to sort their personal spending from business purchases when the tax season arrives. Although not required, experts recommend having a separate business bank account.
It is also very important to keep track of your expenses and store your receipts so you can claim the deductions you are eligible for and in case of a tax audit you will have all the evidence to show to the tax authority.
You can always consult a tax expert if you are filing taxes as a photographer. They can guide you about the tax implications of your business activities.