#1 ~ Save 30% for taxes each time you get paid.
Being self employed is different that being employed by someone else. You are now responsible for 100% of your social security and medicare tax instead of 50%, 100% of your retirement, 100% of your health insurance, 100% of your vacation days, and most importantly it’s up to you to have the discipline to save the money.
Opening a separate savings account to hold these funds can be helpful in making sure you’re prepared when it comes time to pay your estimated tax deposits. These tax deposits are payments to keep the amount of income tax you owe at the end of the year under $1,000. Who wants to cough up thousands of dollars right after Christmas in the middle of a photographer’s slow season? Not me, and I’m guessing not you either! If you end up saving extra…that’s great!
#2 ~ Don’t fall for the “it’s a tax write off” excuse when making purchase decisions.
Spending money is not a dollar for dollar tax savings. Let’s say you are in a 25% tax bracket for example. If you spend $3,500 on a new camera body, your taxable income will decrease by $3,500 x 25% tax rate = $875 in tax savings. If you have the cash to spare and you could use an $875 tax savings then go for it. But if you’re not financially prepared to make a purchase then wait until you are. Do you know how much money you made this year to estimate what you owe in taxes? That’s an important factor in the decision too. This concept goes for vehicles and other purchases as well.
#3 ~ Submit your sales tax reports on time.
This one may seem like a no brainer, but it’s not! I can’t tell you how many business owners I’ve talked to over the years that are paying late fees for not filing their reports on time. Looking for an easy way to save money? Start here! Once it’s filed it is off your plate and you don’t have to worry about it.
#4 ~ Be disciplined in saving for retirement.
Saving for retirement is important as we all know. It’s an overwhelming topic for some people, but don’t let that stop you. Vanguard is a good online source if you prefer to set it up that way or you can locate a financial advisor in your area to get started. Gather information, set up a plan and go for it. No one wants to rely on the government to care for them in their last years, nor do we want to saddle our kids with that heavy responsibility.
#5 ~ Keep track of your mileage as you go.
Mileage can be calculated a couple different ways when it comes to filing taxes, but I keep track of my mileage. One reason is because I need to know how many total miles are being racked up on my car each year, and what percentage of those miles are business expenses. Vehicle expenses associated with our businesses need to be recorded in order to see the true profitability for the year. It’s so easy to think we’re making money when we’re not. There are apps out there to help you keep track, or of course the good old fashioned notebook method.
#6 ~ Input your financial transactions EVERY month.
It’s no secret that bookkeeping isn’t the most exciting part of your photography business. However, it’s the most important part if your goal is to make a profit. Do you know what your cost of doing business is? How much does it cost you to pick up your camera and go meet a client? This calculation is quite simple when your bookkeeping transactions are recorded monthly. The longer you procrastinate, the bigger the monster becomes. If you need help, get it. My first business was a bookkeeping business from 2005-2015 and I’d be happy to help. Your CPA will thank you and most likely charge you less if your records are organized and easily accessible.
Wishing you a profitable and successful 2017!