Deciding to open a business is a daunting and overwhelming task. ?It sorta works this way?.if it?s not a teensy scared then you?re probably circling the wrong block. ?If you are dedicated and motivated to open up a business even the most solid business person will feel some angst because it is their livelihood and craft being put on the line to the world. ?Knowing the ways to properly get legit (formation and taxes) will reduce the angst and help set you on a path for success. ?
So I want to open my business now what?
Now that you?ve chosen that you WANT to it is time to get all your legal aspects in line. ?Need to examine business structures, taxes and other various licenses. ?When in doubt, call your local small business agency or appropriate governmental agency. You?d be surprised how helpful they can be and the information that is put out for small business owners (i.e. my blog is one!). ?If you get a not-so helpful employee at one of these agencies, hang up and call again later ? pray you get someone else
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What business structures are available to me?
I just choose a new, open a website and I?m good right? Wrong! ?There are a variety of business structures to choose from, including sole proprietor, limited liability company (LLC), and corporation.?? Choosing these depends on type of business, initial investment cost, personal choice of liability, and tax liability.
Sole Proprietor
Sole proprietorships are often the most popular with newest photography small business owners that have minor monetary investment to work with. These are often created through filing a ?doing business as? certificate with the state or county. ??While a sole proprietorship has the easiest and lowest investment cost, the trade of is that sole proprietorships do not offer liability protection.? As the owner of a sole proprietorship personal assets are not shielded and separate from the business assets.? For taxation, a sole proprietor simply files a Schedule ?C? with personal income tax returns.
To set up a sole proprietor: ?Some states require only a DBA (doing business as) and some require nothing! Depends on your locale.
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Limited Liability Company
The second most popular business structure is that of a LLC.? This structure offers liability protection because business and personal assets are deemed separate.?? While LLC?s have a greater initial monetary investment accompanying the filing of the Articles of Organization when forming the company, this structure is most beneficial to photography business owners because of the liability protection and flexibility of tax planning.? All LLC earnings are taxed only once because all income, deductions, losses and credits ?flow through? to the owners of the company.? LLC?s are managed by members and the income, losses, deductions and credits may be divided up through proper documentation.
To set up an LLC: For the most part these are set up by filing the Articles of Organization. The fees of LLC?s range greatly, some with great initial start up costs, others with reoccurring renewal fees.
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Corporations
Corporations round up the most popular business structures for small businesses. ??Corporations, like LLC?s, require a bit more intensive start-up investment and paperwork filing than sole proprietorships but have benefits of their own.? There are two types of corporations; C and S corporations.? While C corporations may be subject to double taxation, they can be avoided if owners working in the business earn a reasonable standard of salary.? Also, if your intention is to be a publicly traded company this is the business structure to select.? The second type is that of an S corporation.? This the more popular business structure choice for photographers, however, unlike with the LLC structure profits cannot be unevenly distributed through agreement and the corporate is subject to state corporate fees.
Laws to form the chosen business structure vary by state but have the same baseline advantages and disadvantages.? Examining long term goals for the business and balancing these goals with present income investment, you can make an educated decision for your business.? The most important thing to note is that business structures may be changed through additional filings and monetary investments to the state of formation.
To set up a corporation will depend upon the type and a few select items.
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How do I know which biz structure I want?
Take a look at the following items to determine which is best for you
- Desired protection of assets
- Monetary investment
- Renewals
- Long term goals
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Do I need a business license?
Unfortunately this is one of those questions that the answer is ?depends on your jurisdiction?. ?If you are going to be working out your home (studio, not just overhead), more than likely you will need a zoning permit or license.
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What do I do about taxes?
First STOP! Any time someone talks about taxes we need to distinguish which type. ?There are three major types of taxes to keep in mind when running a photography business:?(1) Federal Income Tax, (2) State Income Tax, (3), State Sales Tax. ?There are other miscellaneous taxes but those are business formation and jurisdiction specific so lets stick with these as a baseline.
(1) FEDERAL INCOME TAX
Federal income tax is on your INCOME. There is no federal sales tax, that is a state driven thing (see #3 State sales tax). ?This is your responsibility to claim yearly during the dreaded tax time! ?It is suggested that you save a portion of your income throughout the year so that you?re not surprised at tax time when you get a bill from the IRS. ?Why would you get a bill? Think about it ! When you are employed by a ?real employer?, they have you fill out withholdings forms and hold the money FOR you. ?When you run your own business and play accountant, you must do your own withholdings! ?(Always check with the IRS to see your options for paying throughout the year)
(2) STATE INCOME TAX
This is very similar to federal income tax, except it is at the state level!
(3) STATE SALES TAX
If you have a business and are selling products, you are required to collect sales tax for your state. ?Some jurisdictions require that session fees be taxed for sales, others don?t. But either way, you are required by law to charge sales tax on products that you sell. ?Don?t fret, this isn?t coming out of YOUR pocket. It is to be applied on top of your prices to your clients. You?re merely the middle man. ?Sales tax permits are easy to get with states and are often free to obtain. ?Even if you have no clients for a taxable period, you must still file a sales tax return and input ZERO, or you?ll get hit with a late fee!
Local sales and use taxes are collected based first upon the photographer?s place of business. If the?photographer is engaged in business in other local?taxing jurisdictions, then he may be required to?collect local use tax in addition to sales tax.
Sales tax permits are generally free to get from your state ? some states do require you to pay! ?But either way, why not do it? Not to mention, it is the right thing to do!
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What if I sell digital products?
Oh this is a question I receive al ot. ?It depends on the state. I hate giving that answer but it is true. ?Some states qualify digital products as subject to sales tax while others do not.
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What types of legal documents do I need to protect myself?
Check out Business Forms Every Photographer Needs
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What if I?m already a legit business?
It never hurts to run down the checklist above to make sure you have all your legal ducks in a row. Insert into your work routine (and calendar) checking up on new local regulations and renewal dates. ?Examine if there are any formational changes you want to make. ?Some questions to ask yourself include:
- Has my business financial situation changed?
- What is my new 1 year and 5 year goals?
- Have I had any life changes that affect the business?
- Have I (or do I) intend on hiring any employees?
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?After reading all this I?m still not sure I?m ready to charge. How do I know?
This is a question I receive in my inbox on a regular basis. ?My typical response is ?it depends? and I know that doesn?t satisfy the reader who is awaiting a response. ?Here are a few things that I personally believe should be evaluated and achieved prior to entering on the scene as a ?professional?.
Do I still squirm at the thought of calling myself a professional photographer? You betcha! It?s a tricky question to answer but nonetheless here are my thoughts on the subject from someone who entered as a ?professional photog? without any of the following.
There is no set timeline, some achieve these quicker than others. It?s all personal discretion. ?That being said, personal discretion also requires learning from others experiences. ?I have admitted that I was one of those ?open the box and start charging to cover my costs? photogs forever ago. It was WRONG. I cringe now at the thought, even though I can now tell people truthfully ?I?ve been there, I get it.? ?Understand this post is to humbly put myself and my faults before you, to encourage you a path that I found was a proper way to enter the industry. ?Not everyone is going to agree, and that is okay. ?That?s the beauty of running your own business. So without further adieu, , here are a few things that I personally learned!
- Technical Proficiency -?Oh this is such a loaded one. I see forums split on manual vs. stock modes and whether someone amounts to a professional utilizing these. ?I won?t make the blanket statement that you must shoot in manual, some greats dont. However, it is IMPERATIVE that as a professional you have a complete understanding as to the exposure triangle and understand how your equipment works.
- Consistent Product -?Clients typically hire based on work they have seen you produce. ?They will demand reproduction of the same quality. ?For instance, I know the quality that Apple has for its iPad. ?How sorely disappointed would I be and what disservice Apple would have done me if I order an iPad 3 and it?s an old brick similar to the Zach Morris phone from the 90s? ?Producing consistent product meets client expectations. Without clients you have no business.
- Adequate Portfolio -?Oh man this one I did and I see so many do. ?If your portfolio is full of only your own kids, you?re not ready. ?There are SO many people out there willing to let you take their pictures for free. Who doesn?t want free? ?I?ve heard variations on the numbers of pictures you should have in a portfolio. Do I know the right number? No. ?I just believe it should be of adequate size to demonstrate a variation in locations, lighting and technical requirements.
- Understanding the cost of business -?This is such a big one. ? Do you know your true cost of doing business? ?This is more of personal one. If you don?t know, you?re going to undervalue your services and will get burned out. Why would you wanna do that before getting off the ground? ?I have an overview?HERE.
- Proper Business Formation? ? See everything above!!
If you aren?t ready for the business size, you shouldn?t charge. ?I?m often told ? but I can?t afford to shoot for free?. ?In my opinion, you can?t afford NOT to. ?In the state of Texas, specifically, for every day you take any funds and hold yourself out as a business you can be fined $500 PER DAY. ?I know even now I couldn?t afford that, let alone starting out!
Photography, like every other business, requires start up. Requires investment to begin. ?By telling yourself that you are putting the funds back into the business so it?s ?legit? without reporting is still not legit (with exceptions that are beyond the scope of this post). Don?t get caught. Not only do I think it is wrong, but it could potentially destroy your business before it?s really off the ground. ? I want everyone to succeed. I?m not stating that these are the be-all-and-end-all requirements to being a professional photographer ? just a few things that I have learned along the way.
We never stop growing, but having the foundation of the items above is going to set me up for success more than not having them. I want everyone to succeed. Competition facilitates growth. ?Helping each other facilitates a better industry. ?Don?t let obstacles get in your way. Develop a game plan. These are just miniums to starting a biz, take from this and build on it!
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I?m still confused, where can I get help?
Your friendly neighborhood lawyer and business consultant is always here to help! ?I offer individualized research and assistance (non-legal) for setting up your business in the Business Revamp eWorkshop and also a la carte 1:1 coaching sessions.
Rachel Brenke is a photographer, lawyer, business consultant and social media marketing strategist based out of El Paso, Texas. ?She has helped over a thousand photographers start up, market and maintain their businesses through online eWorkshops, 1:1 consulting and the free resources on her blog. ?
She has been nationally published in magazines such as Senior Style Guide, Chic Critique, and Lemonade and Lenses. ?Her blog feature line up includes Bridal Musings, Something Navy Weddings, Style Cusp, Capitol Romance, and a few others! ?In 2013 she will be speaking at the WPPI 2013 Convention on pricing, business and marketing.
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Disclaimer: The information provided in this site is not legal advice, but general information on legal issues commonly encountered. Rachel Brenke Photography, LLC is not a law firm and is not a substitute for an attorney or law firm. Communications between you and Rachel Brenke Photography, LLC are protected by our Privacy Policy, but are not protected by the attorney-client privilege or work product doctrine. Rachel Brenke Photography, LLC cannot provide legal advice and can only provide self-help services at your specific direction; Rachel Brenke Photography, LLC cannot provide any kind of advice, explanation, opinion, or recommendation to a consumer about possible legal rights, remedies, defenses, options, selection of forms or strategies.
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