This week’s Tuesday Photography Tip & Trick is something we all often may ignore – MONEY! Yes, we receive it and we love that part, but what we do with it can either really hurt us or help us. So, today, we are going to talk about that dirty old word we all hate, TAXES!
**Disclaimer: This is simply Zach & Jody advice that is not a source to quote if you’re ever taken to court. Make sure you refer to your local state and county guidelines for taxes and other laws **
The biggest hassle at the end of the year for your business can be paying taxes!! How much do you owe and where the money is coming from can be the biggest STRESSERS! There are quite a few ways (and some more elaborate than others) to help relieve the craziness taxes, but we’re going to keep it simple, for those who like simplicity
When you have money coming in from your photography business, and maybe money coming in from a day job as well, it can get confusing what money you owe taxes on, ESPECIALLY when the money is combined in the same banking account. And then what about paying yourself? What about business expenses, quarterly payments, what to write off and what to not? There is a lot to think about, so here a few simple tips to help keep your money organized, especially as you’re starting your business and don’t have your $$ in any fancy business management software
1. In addition to your personal checking account (we’ll call that account CheckingP. “P” for personal), open a separate checking account to be designated solely for your business (or just open a business account with your bank to make it even more official). We shall call this account CheckingB (“B” for business). All money that comes in from your photography business goes into this “CheckingB” account, all expenses for your business go out of this account which make them easy to track. (Expenses can be things like gear, office supplies and the like, client gifts, etc.).
2. Open an additional checking account (we shall call this CheckingT… “T” for taxes. This does not have to be an official “business” account by the bank’s standards. Just a regular ‘ol checking account will do). We’ll come back to this account later
3. Whether you like to do things all fancy in some sort of money management software (eg. Quickbooks) or you’re a lover of Excel, make sure you’re keeping track of your upcoming expenses. For example, say a client books you and they order a canvas and pay you $500 (this is totally hypothetical :). Say your cost to order and ship this canvas is $250. Make sure to keep track somewhere that you have to pay out $250, so that money is accounted for and you don’t spend it. Then, when it is actually time to order the canvas you have the money to do so! You don’t want to get hit with that extra expense and not have the money because you spent it on a new lens.
4. At the end of the month when it’s time to take some money home and officially pay yourself, here is how we do that:
. >> Step 1// Take a look a our business account and look at all the outgoing money we need to pay for upcoming albums, canvas orders, etc.
>> Step 2// Next, we transfer the all extra money (minus any amount that we need to pay for upcoming albums or canvas orders, etc.) from our business account (CheckingB) to our personal checking account (CheckingP). For the sake of this blog post, let’s pretend that amount is an even $4,000 so we have an easy number to work with.
. >> Step 3// We tithe 10% off what we make every month and give it to our local church, so we take 10% out and pay it to our church ($400 in this example), and we also transfer 25% ($1,000 in this example) to our CheckingT for taxes. (Until you start making more than a$69,000 a year married filling jointly, you won’t need to set aside any more than 25%). Hmmm, seems like they really want to to tax the daylights out of us small businesses, does it not?
(Side Note: We also like to keep a cushion of money in our business account (accountB) in case of any unexpected business expenses that may come up, or if we are saving up for a new piece of gear, or just to have it to make us feel. This can be whatever amount that you want it to be – from a few hundred to maybe a few thousand… whatever makes you feel good :).
What’s great about putting your tax money fully out of your CheckingB, is the tax money is in a total separate account. You’re not seeing it in your business account so you can’t spend it! The beauty of this as well, is when it comes time to pay your quarterly estimated taxes, all we need to do is go to our taxes account (CheckingT) and send a check to the IRS for the amount that is in there we are done! Come the end of the year when it’s time to file before that dreaded April deadline, we head off to our fab tax people – Tax Alternatives here in Brentwood, TN and then they do the serious number crunching for us. Every year we have done this and it’s always been pretty stinkin’ close! Also, we would rather break even, or have to pay at the end of the year than to have the government owe us money back in a tax refund. Wait a second, did we just say we would rather pay a little bit than have the government owe us money? Yup, we sure did!
“Why,” you may ask?
Glad you asked!
If the government owes you a chunk of money, it’s not a good thing and here is why. The government took your money and invested it somewhere (or blew it all on a new Caddy like they tend to do and YOU did not take that money and invest it yourself, so they got the return on it and you did not. You could have taken that money throughout the year and invested it in retirement, paid off debt or bought a new peace of gear you needed. It is always a bad thing to get a tax refund!
. >> Step 4// Whatever you now have left (In our example, $2,600) is free to save/spend/give/do whatever you want with it! Your taxes have been paid so you at least won’t have the IRS hounding you. The last person you ever want to owe is the government, because they can take your house or garnish your wages. No one else can do that but them and you want to keep them far, far away!
Hope that helps! Starting a business can most definitely be overwhelming and the last thing you want to be neglecting is the government and taxes! Let us know if you have any questions and keep on shooting!!