by guest contributor Shannan Painter of Accounting for Photographers
We all brush our teeth, eat our vegetables and do the dishes. Why? Not necessarily because we enjoy it, but because there would be serious consequences if we neglected our bodies or our houses. Neglecting the accounting and tax portions of your business could also result in serious consequences, and yet I constantly come across people that stick their heads in the sand and wait until the mess is so big, it has to be dealt with. In their defense, many photographers are simply not well-informed when it comes to what the government requires in regards to bookkeeping. Whether that lack of information is due to not having any formal business background or not knowing where to look for it, no excuse will get you off the hook if you ever get audited!
There are a couple very simple steps you can take to ensure that not only are you in compliance with government requirements, but in addition, that you understand your business finances.
Establish a routine
The government requires you to keep a set of books for your business – but the records themselves are not enough proof for deductions. You have to keep receipts, invoices and other documents to support your purchases (always make sure to ask for a receipt). What do you do with these receipts?
- My routine is to keep each receipt in my wallet.
- Once my wallet gets full, I post each transaction to my profit & loss spreadsheet.
- After each transaction is posted, I file the receipts into an accordion file sorted by month. They are readily and easily accessible if I need to go back and find one. More importantly, I have the documentation to support my business deductions. Records must be kept for a minimum of two years.
You don’t need to be a CPA, have an MBA or any letters after your name for that matter, but you do need to understand the basic principles of tax consequences. For example, you need to know that you will likely have to pay self-employment tax, depending upon how your business is organized, on any profits you make. Our Business 101 study-along guide is an excellent resource to gaining a basic understanding of financial organization, business deductions, and tax consequences specifically for photographers.
The next few months are crucial for tax planning! There are just over three months remaining this year in which you are able to make any changes to your 2011 tax liability. At this point in the year, you should have a good idea of how much money you have made, what you have spent on eligible business expenses, and have a little money (or a lot if you had a great year) set aside to pay taxes for your business. If that doesn’t describe you and your business, it’s time to get in gear!
About the Author: I graduated Magna Cum Laude with an Accounting Degree from the University of Montana. Instead of pursuing a career in public accounting and being stuck behind a desk for 70 hours a week, I turned down jobs at big accounting firms to pursue a different love. I chose instead to work from home where I live with my husband, two boys and a puppy named Growler. I live a glamorous, exciting life working from my living room in my pajamas, cleaning crayon off the walls, driving kids to school, playing superheros and taking care of a little dog that likes to refinish furniture with his teeth. I get to work with fun, creative & artistic photographers and help them understand that numbers can be our friends!
This week only, purchase the Business 101: Setting Up Shop Workshop Book and receive Accounting for Photographers Mileage Tracker ($25 Value) as a free BONUS!! Hurry, this offer expires Septmber 25th, at 11:59pm (CST).