Today's post may be the most boring in the history of blog posts, but it's an essential part of what I do. I also decided to SPARE you from sitting through this in the form of a video, so today's Fotog Friday is a text-only post, but that way I can share links and helpful information with you! To add some pops of color (because I can hardly stand to stare at a screen with JUST text) I'm adding some sneaks from my engagement shoot earlier this week with Brooke and Patrick!
This is for anyone who is starting a small business, whether it is photography or something entirely different, the same rules apply. I am by NO means a business expert, I've never taken a business class in my life, but as my brother-in-law would say, I learned this through the "school of hard knocks" - anything I wasn't sure of, I did research and I ASKED for HELP. It is the absolute best thing you can do yourself. Not sure where to start? Ask for help!
When I began to pursue photography as my career 2 1/2 years ago, I had NO IDEA that I would only spend a fraction of my time taking pictures. I'd honestly say it's less than 10% of my time. The majority of my time is spent at home, behind a desk. Sometimes I'm editing, blogging or updating my website or facebook pages. Other times I'm designing albums, or answering client emails. But I also spend a good chunk of my time running a business. Fortunately, I love photography enough to get through it all and was interested in what being a small business owner was all about... otherwise I would've given up two years ago. It's a LOT of HARD WORK. It's a lot of paperwork, a lot of number crunching and a lot of legal stuff.
Here are the 10 steps I took to setting up and running my business. It's semi-in order, some things you need to do before the other (i.e. you need an EIN to obtain a business license), but everyone's process probably looks a little bit different! I'm not even discussing things like contracts, websites, or branding... this is just straight-up legal business talk. Taxes, business entities, and accounting. Here we go!
#1 - Choose what type of business entity you'd like to become, and register it! Rebekah Hoyt Photography is a registered Limited Liability Company, or LLC. I chose this because, just like the name says, my liability is limited. It means that in the event of a legal suit, the only things that can be at risk are the things my business owns. They can't come after my car, my house, or (please, no!) my husband. Business entities are registered through your state. To find out more about business entities, visit the IRS WEBSITE. You can register your business through the State of Virginia HERE!
#2 - Get an EIN. What the heck is an EIN? It's a Tax ID - it's really similar to having a social security number, but instead it's soley for your BUSINESS. This is what you use to pay taxes through your business, and when you open a business bank account. You can register for an EIN HERE!
#3 - Obtain a business license in your county, if required. I live in Fairfax County and therefore I have to have a license to run a business here. It's very inexpensive, but it also means that you are recognized by the county. That means when tax season rolls around, you have the privlidge of paying business property taxes on everything you own (hooray!) - we love taxes... not. For more information about business licenses in Fairfax County, go HERE!
#4 - Open a business bank account. Now, if you are like me and running the business as one person, you don't necessarily need a "business" account. The most important aspect of this is that your business funds aren't co-mingled with your personal funds. In the event of an audit, the government wants to see that you are keeping all of your business transactions SEPARATE from your personal money. This is especially important if, like me, you register your business as an LLC. By doing that, I am telling the government that Rebekah Hoyt is a person, and Rebekah Hoyt Photography, LLC is a separate entity. Therefore, all of the funds need to be separate. My business has its own checking account, savings account, and credit card. I use the savings account as my "tax" account - all of my estimated taxes and sales taxes are held there so I don't accidently spend it! It's set aside the moment it comes in so I have it available to pay when it's due. Most banks have a business account you can get, but I actually ended up doing my separate accounts as personal accounts through USAA - I love them! As long as everything is separated, you're good to go!
#5 - Pay Estimated Quarterly Taxes. My, oh my will this save you a headache down the road! Most people have taxes removed from their paychecks before they receive them. Small business owners don't have that luxury, so I have to account for taxes every time I receive a payment from a client. Estimtated quarterly taxes are a way to split up your tax payments into four payments throughout the course of the year. They land on April 15th, June 15th, September 15th, and January 15th. By paying this way, you are splitting up what you owe so, come tax season, you aren't scrambling to figure out how you are going to come up with a HUGE chunk of money. There are a few ways to approach it - some people set aside a percentage of every check that comes into their account, say 25% or 30%. I actually do it slightly differently - I set it all aside at the beginning of the year so I don't have to worry about taking it out of every paycheck. It may not work for everyone, but it works for me! When I filed my taxes this past year, my accountant told me how much in estimated taxes I would owe based on what I owed LAST YEAR. If you aren't sure how much to pay in estimated taxes, look at how much you paid last year and go from there. He split it up into four equal payments, and I pay both FEDERAL and STATE estimated taxes each quarter. That way, when tax seasons rolls around, I've already paid close to (or over) what I owe, and I'll either owe a small amount more, or I'll get a return! You can find out more information about estimated quarterly taxes HERE!
#6 - Charge and Pay Sales Tax. I absolutely HATE having to charge sales tax, but it's a neccesity. In Virginia, sales tax is 5%, so I charge a 5% sales tax on my wedding packages, portrait sessions, and any albums or products I sell. There is a lot of argument about service and labor, and how most of what we charge is in that category, but the way the laws work right now, we have to charge sales tax if we are giving anything to our clients. I was complaining about it one day and my sister humbly reminded me that the money is never mine to begin with - I'm just a place-holder between my clients and the government. Virginia has a great online resource for all of their tax documentation, including paying sales tax. It's super easy and I pay sales tax monthly online directly on this site!
*To get MORE in depth on taxes, you should read my Fotog Friday all about taxes!! It walks through everything in much more detail!
#7 - Hire a CPA or Accountant. I'm actually in the process of looking for a good CPA (any recommendations?) because up until this point, I've been doing everything on my own, other than filing taxes. I worked with a family friend who is an accountant and he helped me and Matt file this year, as well as setting me up to pay estimated taxes throughout this year. This is important because as you grow as a business, your responsibilities grow, not only to your clients, but to the government as well. It is important that in the event of an audit, you have all of your paperwork aligned and you are following all of the rules. A CPA will help you get on track with all of that! So speaking of which, does anybody have any good recommendations for a CPA in Northern VA?! :)
#8 - Keeping Good Books. I've been taught Quickbooks before, but I am still not really "getting it" so I've found a method that works for me using excel spreadsheets. Here is my process: I have two spreadsheets, one for INCOME and one for EXPENSES. Income tracks the Date/Event/Amount/Tax Amount of every check I receive. This can be anything from a shoot to a payment for an album to selling business equipment. In addition to the total income, I have a separate column for how much of that is sales tax income. That way, every month I know exactly how much I owe in sales tax. This also means that the moment I deposit a check from a client, the amount of that check that is sales tax money goes directly into the savings account I have set up soley for taxes.
My Expenses spreadsheet is really similar - it's broken down into Date/Expense/Category/Amount - I have categories so that whoever is doing my taxes can easily see totals for things like Equipment purchases, office supplies, travel expenses, etc. without having to add it up themselves.
I also have a small spiral notebook in my car at ALL times that tracks my mileage anytime I drive for business. I write the date, where I'm going, and the start and end readings on my odometer. At the end of the year, I add up how many miles I traveled for business and the cost/mile counts as a business expense. Right now I think the going rate is $.50 or $.55/mile.
Keeping track of your business expenses is SO important. It can MAKE or BREAK how much you owe in taxes. Let's say you pull in an income of $50,000 in a year. Of that, $20,000 is business expenses - that means you only owe taxes on the remaining $30,000! Taxes on $30K is going to be a lot less than taxes on $50K. And the best part? Taxes are a business expense, too! Working with a CPA or an accountant will help you find as many tax deductions possible to save you as much money as possible. They're great at that!
#9 - File a 1099-Misc for anyone who you hire for anything! This is another thing I really don't care for, but it's super important. Anyone my business pays more than $600 in a calendar year must file a 1099-Misc form. This basically means they are acknowledging that they are receiving "miscellaneous income" outside of their normal job from your business. This means any second shooters I hire to work under me, if they aren't an employee of mine, but I am hiring them as a contractor, I must issue them a 1099-Misc to file. The reason is because tax needs to be taken out of that income... and I'm not paying that tax, the contractor is responsible for paying it. You can find information about the 1099-Misc HERE. I use a website called File Taxes to create and send the 1099 forms to anyone I hire!
#10 - Get insurance! I recently switched insurance companies to Hill & Usher - they have a special type of insurance specifically for photographers. This is important because I have liability insurance through them, and I also have business property insurance to insure all of my camera and computer equipment. Liabilty insurance is important because it protects you in the event that you or anyone around you gets hurt while you are on the job. Say someone trips over your lightstand and falls and breaks their neck, YOU are protected. It's also important to insure your business property because, well, it's really expensive.
The bottom line is this - if you are going into business for yourself, you need to prepare for all of this. As much as it can stink, it's a complete reality for being a photographer, or any type of small business owner. It's a LOT of work, and I dragged my behind for months and months before I finally got around to doing all of this. It's a PAIN to set up, but once it's done, all you have to do is maintain it! It gets better, and it's worth it. Nothing makes me feel better than knowing I am doing everything legally and correctly in the eyes of the government. I have no interest in finding illegal loopholes because that isn't right. I know that one day I will have to stand before God and give account for any wrong I did, and my goal as a small business owner is to honor Him. In order to obey God, I am also obeying the government. Besides, I have no interest in going to jail any time soon :)
If you have anything to add, leave a comment and help some folks out! I hope you found this helpful. Have a wonderful Friday and a super awesome weekend!
Here are the links again:
USAA - love that bank!
Virginia Department of Taxation Online Resource (and where I pay sales tax!)