ADVANCED ACCOUNTING TIPS for Photographers
In part two, I asked Karen Schultz from CKS Accounting Services all the burning accounting questions related to photography that you all were curious about. Wonder no more, my friends!
You can read the first part of this interview with me about hiring an accountant here .
1. Should I pay my taxes annually or quarterly?
IRS states that if you do not pay 100% of the taxes from your previous year during this year, you’ll be penalized. If your 2018 tax bill was $1,000, then you must pay $1,000 by the end 2019 or else you will be penalized.
If you are expecting to make a profit and you think your income will be significantly higher this year than last year, you should start making quarterly estimated payments. These estimated payments must be made by April 15, June 15, Sept 15, and January 15 State taxes are also subject to the same deadlines.
The more you earn, the more important it becomes to pay quarterly estimated tax payments.
In general, it’s a good idea for you to sit down with your accountant in the second quarter of the calendar year and tell them “Here is what I expect my income to look like this year.” Do I need to make an estimated payment? How much should I pay in estimated payments?
2. Do I need to log my mileage using the readings from an ODOMETER?
You should keep a log of your mileage if you plan to deduct it.
The log should include the odometer reading at the beginning and the end of your trip, as well as the date, location, and purpose. The IRS may ask for this information if you ever have to undergo an audit.
If you are audited by the IRS and cannot prove your travels and their reasons, the IRS can discredit a lot of the information you have recorded.
3. Can I pay business expenses from a personal account?
You can pay business expenses on your personal account, even though it’s always easier to pay “business expenses” through a “business-related account”.
You can pay yourself from your business. You would reimburse yourself by the business and then enter that expense in the business.
Tell your bookkeeper or accountant if you do not want to or cannot afford to pay for it. The accountant will record the expense in the business section and list it as “owed to” you or “due owner”. If you have a business that is incorporated, it will be credited to the shareholder.
4. What if my client pays me in cash?
IRS taxes ALL INCOME, including cash.
This income must be reported by the person that hired you on a form 1099. This form must be sent out no later than January of the next year. The income must be included on your tax returns. If the total income for the year exceeds $600, then you are likely to receive a Form 1099.
5. Can I write off a home office or a home studio?
Many people deduct what they call “home offices”. You can certainly do that. However, you must be able prove to the IRS your office is used ONLY for business.
Calculate your deduction by dividing the square footage in your studio or office space by the total area of your house. Then, use this percentage to deduct a portion of the costs of utilities, insurance, phone service, real estate taxes and so on.
When the IRS audits, they are very focused on a “home-office” write-off. The IRS wants to ensure that you are using the correct percentages. An accountant or tax preparer is invaluable because they know what you are allowed to deduct and can double-check your math.
Depreciation is also a business expense for some people. When you sell your home, you’ll have to include ALL of the depreciation in your gain.
Don’t forget about the Pretty Lightroom presets or pretty Photoshop actions that you bought during the year.