This is the first of two parts covering the nuts and bolts, rules and regs, suggestions and good common sense distilled from my 30 years in the commercial photography business. Part one will deal with the practical: location and types of work, overhead and self-worth, financials, and business practices. The second part will cover marketing and self-promotion, identity and Web sites, copyright and licensing, estimating and invoicing. This series is derived from the Successful Emerging Photographer program that I created, along with Richard Radstone, as a member of Advertising Photographers of America (APA). APA brings this program for free to photography schools nationwide.
Disclaimer: I am not an accountant or a lawyer, so please consult your own professionals before opening any business. The following information is a guideline only.
Wouldn’t it be wonderful to actually make money at photography? It would be joyous to get paid to do what we love. It would also validate and acknowledge our worth as artists and creative craftspeople. Oh, and it would help tremendously to defray the incredible expense of cameras, lenses, software, computers, printers, and paper. We have a stereotypical image that creative types can’t be business-minded—i.e., the starving artist—but it isn’t true. Mostly what happens is that artists get so wrapped up in their work that they don’t take time to learn the business end. It ain’t hard—it’s much harder to learn the skills, both conceptual and practical, you need to be an artist than to understand basic business ideas. What follows is an outline to help you get started.
Location and types of work
For general purposes, there are three areas of photography: commercial, which is working for visual professionals to create images that sell goods and services or provide information; retail, which is working directly for a personal client for portraits and weddings; and art photography, which is selling prints individually or in galleries or books. Each category contains many subcategories and layers of specialties. For example, a commercial photographer can be a specialist in product photography for advertising accounts, or in shooting editorial environmental portraits for magazines.
Your first decision is: where do you want to live and what kind of photographer do you want to be? Advertising photographers must have easy access to ad agencies and design firms (usually, in a city).
It’s possible to be a national advertising photographer if you live in Podunk, but probably only after you have established your reputation. Clients want you to be able to come in to look at layouts, have creative meetings, etc. Retail photographers can live anywhere. In every town in America—the world, for that matter—people get married, have kids, parties, Bar Mitzvah’s, graduations, and they all need good photographs. There are some marketing- savvy retail photographers living in tiny towns who make considerably more than some big-city photographers. Art photographers can also live anywhere, but must travel to the cities to meet with galleries, dealers, and museums. The distinction between the kinds of photography is blurring these days. Art photographers take commercial assignments, commercial photographers shoot weddings, and retail photographers are having gallery shows. You can be as many kinds of photographer as you want, as long as you market each specialty differently.
The other part of this equation is: what kind of lifestyle do you want to live? If you are an outdoors person and like to ski, then being near mountains will be important. If you love access to art, music, theater, and culture, then a big city will be more to your liking. The point here is to understand yourself well enough to find the balance between location and work. If you hate where you live, it’s unlikely that you will be successful.
Overhead, self-worth, and budget
Creative people sometimes have a hard time charging a fair price for what they do because it’s an act of love and passion. The truth is that we are all visual communicators with particular insights and skills that evoke a mood or memory. If any- one could do it, they would. Just because cameras can auto-focus and make perfect exposures doesn’t mean that the operator knows how to effectively compose, use light, have a concept, or capture emotion. All of that is important, in any area of photography. You’ve all heard the stories of families fleeing a burning house and the only items they save are the photos, because what is more important than the memories? Every photographer has money and time invested in learning skills, practicing, and hardware. That’s worth a lot.
Whether you want to be a full-time photographer or just bring in some extra money from print sales or an occasional wedding, you need to know what it costs to be in business. How much is the rent for your studio? How much do you spend on supplies each month? on travel, car expenses, insurance, postage, telephone? Add up all of these items and figure out your monthly overhead. Camera equipment, lights, printers, and computers should be prorated. For example, if you buy a new computer every three years, divide that amount by 36 to get the monthly figure. Remember, these are just photography costs. Then figure your personal costs: rent or mortgage, food, health insurance, clothes, and utilities. Factor in your lifestyle needs, too. If you are a homebody, your overhead won’t be as high as someone who likes to travel and go out to dinner. This is a scary process, but if you don’t know what the bottom line is, you won’t know how much you need to make. You can also bring the figure down to a weekly or even daily number. You then can use this guideline to understand how many jobs or prints sales you need in order to make your overhead, and then profit.
Some of the above figures depend on how you set yourself up. There are two valuable adages to take into account: “You have to spend money in order to make money,” and “Don’t spend money until you have money.” My advice is to keep your overhead as low as possible until you really need to spend more to meet your clients’ needs. According to the Small Business Administration, most businesses fail because (1) they are undercapitalized and (2) they overspend. Do you need a separate office space or can you work from home? Do you really need a studio? If so, can you rent it by the day and pass some or all of the expense on to your client? Can you share a studio? Many photographers I know start out shooting in their living rooms and wait for years to graduate to a full-time studio. Even though all photographers need to have a basic camera package, they don’t need every cool lens that’s out there. I rarely shoot with long telephoto lenses because most of my work doesn’t require it. But if I need a 300mm ƒ/2.8 lens, I can rent it for $50 a day instead of buy- ing it for $4,500. The general rule is if you rent it enough times per year to buy it in three, you should probably buy it. Otherwise, save the bucks. Don’t fall for that old thinking, “If I only had a Hasselblad, then I could be a really great photographer!” Baloney! There are award-winning photographers shooting with toy cameras. It’s the vision that’s important, not the equipment. (I can hear the equipment junkies yelling at me already!)
Setting up the business
This is the nuts-and-bolts part of the article. (Hey, I didn’t say it wouldn’t be boring, but this is all important stuff.) There are three levels to this area: local, state, and federal. Each one has separate requirements and they are not inter- connected. For example, the IRS doesn’t care if you have a business license, and you don’t need a state sales-tax license to fill out a Schedule C (Profit or Loss from a Business or Profession) form. A lot of this information is about paper- work to meet legal requirements set up by various government agencies. In other words, you get to fill out lots of forms, which nobody pays you to do, so that you have the honor of paying these agencies some of your hard-earned money. But if you are operating a business and not comply- ing with these rules, there can be penalties.
Business entity and DBA
Step one is: determine what kind of business entity you want to be: sole proprietor (working as an individual), LLC (lim- ited liability corporation with or without partners; protects personal assets), or a full corporation. Please consult a CPA for the correct advice for your circumstances. If you are working alone, it’s probably best that you start as a sole pro- prietor, which has some advantages as well as some disad- vantages. The next step is deciding your business name and getting a DBA (doing business as) or Fictitious Name State- ment. This is done at the city you live in, although most towns now have online access to this information. You can buy a package from the city or town that includes: a search for your chosen name to make sure it isn’t already in use, filing fee, and publishing it in a local newspaper for four weeks. This is for public record to insure that you are not a criminal trying to hide under a fake name. A DBA is necessary if you are operating under a different name than your own. For example, I operate my business as Bobbi Lane, so I do not have a DBA. I am not Creative Photographic Imagery, which would require the DBA: Bobbi Lane doing business as Creative Photographic Imagery.
The IRS frowns upon commingling funds, so it’s a good idea to have a separate bank account for your business. All money you earn is deposited in it, and all expenses are paid out of it. You can pay yourself from this account into your personal account, and transfer personal money to the business if you need to. But don’t use your business account to buy groceries and don’t use the personal account to pay for anything that is a deductible photographic expense.
A bank won’t open an account for you unless you have a DBA. However, some banks will open an account if you are just using your name and operating as sole proprietor with only one signatory. Have a separate charge card and savings account (for holding sales taxes, etc.) for the business, too. It makes the bookkeeping much easier. And (in the likely event that you get audited some day) if the IRS thinks you are hid- ing funds because you are using only one account, they will pursue you more seriously.
Nobody likes to do bookkeeping, but when you are just starting out, save the fees and do it yourself. QuickBooks, among others, is an excellent program that remembers your accounts, puts numbers in the right categories for deductions on Schedule C, and creates profit and loss reports. It’s so easy to set up and learn that it shouldn’t take you more than a few hours every month to keep on top of your numbers.
Set up a system for filing your receipts, checks, and invoices. Any office-supply store has file folders, accordion files, and various items to help you get organized. You need to keep all receipts of what you spend. I use monthly folders; others prefer folders for each account, such as car expense, supplies, and utilities. Keep your cash receipts, too; if you didn’t get one, you are allowed to make your own for small purchases. The more organized you are, the easier and less time-consuming this chore is. (And the IRS doesn’t look kindly on someone bringing in a paper bag stuffed with receipts.) Normally, the IRS asks for you to keep your records for three years and states for five; so keep it all for five years before shredding it.
The single best piece of advice I can give you is find a rep- utable CPA that specializes in small businesses. I’ve been with my accountants for more than 20 years, and they’ve saved me thousands of dollars. They’ll show you what deductions to take, warn you about what the IRS flags, and keep on top of tax-code changes. They also play an integral part in help- ing you set up your business, organization, and goals, as well in following budgets and planning for the future. Listen to them and do what they say.
A business license is a certificate from your city or town that allows you to operate a business in their jurisdiction. If you live in an unincorporated area, you may not need one. Nor- mally there is a small fee for getting the license, and then you pay tax yearly on your gross, not net, income. The tax rate is usually small, something like $30 for every $100,000 in sales, but each town is different. You may need to have a business license in order to get a permit to shoot on city streets (again, this varies from town to town). You can go to city hall to get the license. Many communities also offer help setting up your business through the local chamber of commerce.
Business property tax
Don’t be fooled by the name of this tax, because it’s not just about owning a building or land for your business. This is a tax on the physical property that you use in your business: photographic equipment, computers, chairs, tables, lamps, bookcases, supplies, and so on. To me, this is a paperwork nightmare. The forms are complicated and you have to list everything, including the year you bought it, and how much you paid for it. And it goes back for years, so even if you opened your business this year, but you are using a chair you bought three years ago, you need to list the price from then. If you don’t know, the taxing authority advises you to make your best guess. They then use a complicated formula to
prorate it all and come up with the property tax you owe yearly. You get to do this again annually, so keep the forms from the previous year and copy them, adding whatever new items you bought in the current year. The amount of the tax is fairly small, but the paperwork is intense. This tax is administered by either the town or the county, depending upon where you live.
State sales tax
Are we having fun yet? You need to go to your state governing board to get a Sales and Use Tax permit, sometimes called a resale certificate. State sales tax is a complicated territory and can either be a breeze or a quagmire. State and local sales tax (in some states it’s also “use” tax) is charged when there is a physical property transfer. If you sell a print, you pay sales tax.
Pay attention to the following: Photography services fall under a different set of guidelines than other businesses. Most businesses separate labor and materials; there is no sales tax on labor, but there is on materials. A mechanic that puts new brakes on a car charges tax on the brake materials, but not on the hourly labor. Because photographers take materials, such as film, and their work transforms the raw film into something different (a finished print or slide or digital image), the tax is charged on the entire amount that went into producing the final product. The reasoning behind this is that once the film is exposed, it can never go back to being raw film again.
For example: A commercial photographer hires assistants, pays a location fee, feeds the crew, buys supplies (film or CDs), rents extra equipment, and charges a creative and licensing fee. Add it all up and the tax is charged on the bottom line. Please check with your state if you don’t believe me. I have friends who are wedding photographers who charged sales tax only on the film, processing, and prints. Now they are being audited and will have to pay the back taxes, penal- ties, and interest.
I lived in California for 25 years, where the State Board of Equalization had a convoluted and thorny mass of conditions that were difficult for the smartest of people to understand. However, in the past few years, they have recognized that commercial photographers don’t sell their work outright, they license the use of the images, so there is not a tangible property transfer; therefore, the work is nontaxable. However, in order to comply, the photographer must deliver the digital files to the client via a CD, or jump drive, load the images on the client’s computer, and then take back the CD or jump drive so there is no tangible property transfer. This is just the start of it in California. Because it’s also a use tax, which means that if you buy a computer online and it comes from another state so you don’t pay sales tax, but you use it in California, then you need to file that with the State Board of Equalization and pay the tax. Now I’m based in Connecticut, and it’s wonderful and simple. If a client hires me to shoot an assignment, I charge 6% on the total for production expenses and fee. If it’s a stock usage license, there is no tax.
Most states have an exemption for out-of-state sales (though each state makes its own laws, so check in your home state for the exact requirements for exemptions). Let’s say that a photographer is hired by a design firm located in the next state over, but they need him to shoot something in his home town. As long as he delivers the photos to an out-of- state location, there is no tax. You’ll need a receipt, such as a FedEx or U.S. Postal return receipt, to prove that something actually was delivered to the out-of state-address.
Another important aspect to sales tax: it should only be charged once to the final user. For example: a photographer is hired to shoot a brochure by a design firm. The photographer buys film, shoots the job, processes the film, makes prints or digital images on a CD or slides, and gives it to the design firm, which takes the photos, creates a brochure, and sells the final product to their client. Ideally, the only tax to be charged and collected would be to the final client. That means the photographer is exempt from paying tax when she buys the slide film (but she would on negative film, because the negatives don’t go to the client, only prints), and the photographer doesn’t charge tax to the design firm because they are not the final client. That’s why the Sales Tax certificate is sometimes called a “resellers certificate.”
In this case, the photographer would have to provide his reseller’s license to the lab, while the design firm must supply their reseller’s license to the photographer in order for it to be legal to not charge tax. In many instances it’s just easier to pay the tax as you go, and charge your client tax until they provide you with their reseller’s license. The bottom line? If there is a physical transfer of property, you must charge tax. On everything. And check with your accountant in your state.
Hey, the IRS is easy after all this.
One more thing about state sales tax: you must charge and collect the tax, and then pay the state when they tell you. In some cases you pay yearly, in others you pay quarterly. I strongly suggest that you set up a savings account to hold the tax money. When you get paid, take the tax money and put it in the savings. It’s not your money! When you are starting your business, every penny is important and it’s tempting to take that tax money and use it to buy supplies. But if you don’t have it when it’s time to pay, you will face not only penalties, but interest—which is charged daily.
Last but not least is the federal government. The IRS is not the big bad wolf that it used to be, and I find that it’s not that hard to get information from its Web site or by calling. But trust your accountants to provide you with accurate information.
The IRS requires self-employed people to fill out a Schedule C, Profit or Loss from a Business or Profession form. It’s not necessary to be a full-time business. If there is income from a part-time business and expenses to deduct, then this is an addition to the 1040 form. On this, list all gross income (including production costs) and deduct all expenses. The Schedule C form has a standard itemized deduction list that includes advertising, rent, car and truck expenses, equipment, supplies, insurance, etc. Every business has unique deductions, and these are added to the Schedule C form. After the deductions are subtracted, if there is anything left (let’s hope so!), then there is a profit. If not, it’s a loss, which can be carried forward or back. Again, talk to your accountants. If
you have a profit, then that number is put onto Schedule SE Self-Employment Tax, and multiplied by 92.35%. If the number is less than $400, there is no self-employment tax. If it’s more than $400, then multiply the number by 15.3%. That’s your Self-Employment or Social Security Tax. (Here’s where self-employed people get hurt—they pay all of their own tax. If they were employed, an employer would pay part of it and subtract the rest from the employee’s paycheck.) Then that number is divided in half and put on the 1040. From there, it’s added to the Wages, Tips, and Salary form to arrive at the adjusted gross income. Yep—you know what I’m going to say—talk to your accountants. What’s important here is that you must pay the SE or Social Security tax even if you don’t owe any income tax from the 1040.
The IRS expects self-employed people to pay their taxes quarterly—er, sort of. The taxes are due on April 15, June 15, September 15, and January 15. Never did hear an explanation of why it’s not every three months. By Jan. 15, 90% of the taxes owed are due, with the balance due on April 15. It’s legal to file an extension to submit your tax return, extended until Oct. 15, but you still must pay what tax you owe by April 15 or face penalties and interest. How do you figure out what your profit is going to be so that you can pay quarterly? There are several methods: you can adjust as you go, or base it on the previous year, or project by looking in your crystal ball.
The general rule is that the IRS expects you to make a profit at least once every five years; otherwise they consider your business a hobby and disallow all your deductions. The truth is that if you can show that you have conducted your business in a professional manner, have advertised, and made an effort to get work, have income from the business, and can show that you have other income to live on, you don’t actually ever have to have a profit. This is tricky, but I’ve seen a company that has several branches, all of which produce income, but it invests and upgrades enough in one branch for it to not make a profit. This won’t happen to most of us, but it’s good to know the facts.
Okay—the really boring but necessary part is done. The second part of this article will contain information on business plans, marketing and self-promotion, copyright, and licensing. I’ll also talk about creativity, staying involved and active in the community, and helping your passion bring in some bucks.