Taxes

entropy07 · August 17, 2009

Hi! I saw a tax thread earlier in this forum but I don't think it's exactly what I'm trying to ask.

I'm getting my wedding photography business started and I still want to keep using Smugmug to sell my prints. I'm based in MA and I know I need to charge 6.25% sales tax on anything that I sell. Question is - how do I integrate that into Smugmug pricing? I want a separate line for tax but there's no overall "tax" input that I can put on that.

Or should I not be worried about this at all? I.e. when I report extra income from Smugmug then the tax will be calculated?

Angelo · August 17, 2009

entropy07 wrote:

Hi! I saw a tax thread earlier in this forum but I don't think it's exactly what I'm trying to ask.

I'm getting my wedding photography business started and I still want to keep using Smugmug to sell my prints. I'm based in MA and I know I need to charge 6.25% sales tax on anything that I sell. Question is - how do I integrate that into Smugmug pricing? I want a separate line for tax but there's no overall "tax" input that I can put on that.

Or should I not be worried about this at all? I.e. when I report extra income from Smugmug then the tax will be calculated?

I think you're confusing sales tax with income tax.

Since prints are being sold by SMUGMUG they are responsible for collecting any applicable sales tax, not you.

Any revenue (profit) you receive from SMUGMUG may be taxable as income assuming you have not had sufficient business expenses to offset that income. This requires the advice of a tax professional, which I am not.

CHATKAT may be along shortly to help. She's a pro and a wiz at this stuff and always willing to lend a hand.

bendruckerphoto · August 17, 2009

If you are sent more than $600 for the year in profit checks from SmugMug, SmugMug will file a 1099 and then you need to pay tax on that income.

As far as I know, you don't have to otherwise (if total income from SM is <$600. Anyone feel free to correct me if I'm wrong.

Icebear · August 25, 2009

OK, you're wrong

bendruckerphoto wrote:

If you are sent more than $600 for the year in profit checks from SmugMug, SmugMug will file a 1099 and then you need to pay tax on that income.

As far as I know, you don't have to otherwise (if total income from SM is <$600. Anyone feel free to correct me if I'm wrong.

The $600 figure is only the trigger for a payor to file a 1099. It has absolutely nothing to do with whether or not the amount (whatever it is) is taxible income to you. The 1099 MISC is just the payor's report to the IRS that they paid a recipient a certain amount of money as "non-employee compensation." The confusion in some people's minds arises from the belief that if a 1099 was not filed, the IRS won't know about the money so it doesn't need to be reported. Maybe not the best idea one ever had.:nono

bendruckerphoto · August 25, 2009

Icebear wrote:

The $600 figure is only the trigger for a payor to file a 1099. It has absolutely nothing to do with whether or not the amount (whatever it is) is taxible income to you. The 1099 MISC is just the payor's report to the IRS that they paid a recipient a certain amount of money as "non-employee compensation." The confusion in some people's minds arises from the belief that if a 1099 was not filed, the IRS won't know about the money so it doesn't need to be reported. Maybe not the best idea one ever had.:nono

Thanks for the correction! Never knew that.

sweet caroline · August 26, 2009

Sales tax can be a little complicated. Since smugmug is not located in my state, they are not charging sales tax at all for my clients. My local laws state that I have to charge tax even when my clients order through a website. If I and my client are in the same state, and they are not being charged sales tax by someone else, I am responsible for the sales tax. My state has tried to close up some of those loopholes in the law;) I suppose if I lived in CA, my clients would be paying sales tax on their smugmug purchase, so I wouldn't be responsible. Or if I were using a Texas based print service that charged my clients sales tax.... So, it would be very nice if smugmug had a way to allow pros to have a sales tax line. In the meantime, I consider my web prices to be "sales tax included".

Caroline

run_kmc · August 26, 2009

sweet caroline wrote:

Sales tax can be a little complicated. Since smugmug is not located in my state, they are not charging sales tax at all for my clients. My local laws state that I have to charge tax even when my clients order through a website. If I and my client are in the same state, and they are not being charged sales tax by someone else, I am responsible for the sales tax. My state has tried to close up some of those loopholes in the law;) I suppose if I lived in CA, my clients would be paying sales tax on their smugmug purchase, so I wouldn't be responsible. Or if I were using a Texas based print service that charged my clients sales tax.... So, it would be very nice if smugmug had a way to allow pros to have a sales tax line. In the meantime, I consider my web prices to be "sales tax included".

Caroline

I am anything but an expert on taxes, but I don't see how you are involved with someone's purchase of your photos on Smugmug other than any "commission" you might earn. They are paying Smugmug, not you. I don't know if you have any galleries available for the general public to buy from, but if a completely random person who happened to be from your state purchased one of your prints, I think you'd have a hard time calling them up after the fact saying, "Hi. You don't know me, but I need to collect some sales tax from you."

Angelo · August 27, 2009

run_kmc wrote:

I am anything but an expert on taxes, but I don't see how you are involved with someone's purchase of your photos on Smugmug other than any "commission" you might earn. They are paying Smugmug, not you. I don't know if you have any galleries available for the general public to buy from, but if a completely random person who happened to be from your state purchased one of your prints, I think you'd have a hard time calling them up after the fact saying, "Hi. You don't know me, but I need to collect some sales tax from you."

I think what your state is saying is, if you sell off YOUR website. SM is NOT your website so why would you be responsible?

let's look at this from a different angle - what if you spent your days making lavender scented candles and you sell those candles wholesale to "CANDLES.com" who in turn sells candles to people everywhere and anywhere - are you supposed to collect the sales tax for all Texas purchasers of your candles?

OK, here's a better example - you shoot and print big beautiful images, mount them in frames and have them displayed in a fine art gallery in Houston - gallery holds an open house showing and sells a whole bunch of prints cutting you a check for your fees. who do you think collects sales tax from the gallery clientele on each sale? trust me, it's not you

.

sweet caroline · August 27, 2009

From Texas:

Photographers - Sitting Fees

Sales of photographs are taxable. Photographs can be made from film or from digital or electronic files, and can be sold as prints or on a DVD or CD. Photographs or files delivered digitally, electronically, or by any other medium are taxable.
The entire charge, including sitting fees, is taxable when at least one photograph is sold, even if the buyer is not the person who originally hired the photographer.
Once an agreement is reached to produce and transfer photographs, all expenses, services, and other costs connected with their production must be included with the cost of raw materials to arrive at the sales price. Such expenses include travel, meals, and lodging while shooting on location, costs of acquiring props and models, and "professional services" in shooting the photograph. All of these expenses are directly related to the production and sale of the tangible photograph whether the photographer bills lump sum, at an hourly rate, or by itemizing each and every expense.
When billing a client for sitting fees, a photographer must collect sales tax on the entire amount charged for all services performed at the time the pictures are taken (including the sitting fees).
If the customer does not buy finished photographs when prints are available, the photographer can refund sales tax collected on all charges attributed directly to the sitting fee.
Photographers - Internet Sales

Orders for photographs placed over the Internet are taxable in the same manner as orders received at a physical location. Texas sales and use tax is due on sales made by Internet or catalog order if the seller is engaged in business in Texas as defined in Rule 3.286, and if the prints will be received by a customer in Texas.
Some companies host websites that allow photographers to submit pictures that are posted on the Internet for customer viewing. The website allows customers to order photographs, with payment being sent either to the hosting company or the photographer. In many cases, the company will process the Internet orders and print and ship the photographs directly to the customer.
As payment for its services, the website hosting company may receive a fee from the photographer for each picture ordered or retain a portion of the amount paid by the customers.
In this situation, the photographer, not the hosting company, is responsible for collecting Texas sales tax for photographs sold to Texas residents. Tax is due on the entire charge to a customer in Texas for finished photographs, including any charges for shipping and handling.
A charge by the web hosting company to place, store, and operate a website is subject to Texas sales and use tax as a data processing service. Twenty percent of the charge for data processing services is exempt from Texas tax. See Rule 3.330 for further information regarding data processing services.

sweet caroline · August 27, 2009

So, according to Texas, Smugmug is a hosting site that collects a fee from me, rather than me earning a commission. I don't call up someone after the fact to collect. I consider my online prices to include tax, so out of $100 order, the sale price is actually $92 and some change and the rest is tax (those numbers are approximate, my husband does the real calculations for me).

Caroline

run_kmc · August 27, 2009

Yikes.

That seems a strange way to do it. I believe you that it's accurate, it just strikes me as odd.

I think your situation is in the minority.

ChatKat · August 27, 2009

Sales Tax vs Income Tax
Thank you Angelo for your kind words. Yes, I am a tax professional.

Income Tax: If you earn $400 or more you must file a business return. A 1099 is only a informaitonal statement; If you file your taxes as a Schedule C (Sole Proprietor) you can take a loss and write off your camera and supplies and it would offset other income you had. There are a host of legitimate business expenses, like your phone, computers, software, Smugmug hosting site, office expenses and even auto expenses including insurance. This is VERY BIG and it is definitely worthwhile for you to PAY a local accountant to determine the best way for you to proceed. It will cost you a lot more if you ask all the photographers here for advice. The advice here is not one size fits all and your OWN circumstances are pretty important!

Sales Tax: Smugmug is collecting money for sales of photographs. While the images are yours, they are selling the prints and determining what the sales tax charges should be. You are only uploading photographs for them to sell prints and they pay you a fee (commission).My opinion on this is only based on my knowledge for California, where I am a tax preparer. When I photograph people I collect sales tax for the job on my services. California taxes your clients on photo services when a product will be delivered. So even if I do not deliver something now, but later they want to place a print order I will have to collect it for later. It just keeps it cleaner. If I do a shoot and burn wedding, and I give them any kind of product the whole job is taxable so I do not want to fight it. If you are not in California, then you will need to find out from either your local Dept of Revenue or local accountant.

Angelo · August 27, 2009

run_kmc wrote:

Yikes.

That seems a strange way to do it. I believe you that it's accurate, it just strikes me as odd.

I think your situation is in the minority.

YIKES! I wonder if that law has ever been challenged?

not to venture off the path but how interesting that Texas, the "no big government for us, thank you" state is so tax happy.

sweet caroline · August 27, 2009

Angelo wrote:

YIKES! I wonder if that law has ever been challenged?

not to venture off the path but how interesting that Texas, the "no big government for us, thank you" state is so tax happy.

I don't know if it's been challenged, but I'm trying to abide by it the best I can. My services are taxable, too, if I deliver images in any format. The only case in which I wouldn't have to charge sales tax is if I shoot a session and they hate the photos and never purchase digital files or prints. That hasn't happened yet, so I go ahead and collect sales tax for the sitting fee. I could always refund it if I had to.

I think a big difference here between whether you are earning a commission versus paying a fee is the percentage. With Smugmug, pros pay a 15% fee and keep 85% of profits. Zazzle, for example, pays the artist a 10% or 15% commission on any product sold through their site with your image. I don't know where the law draws the line on that, but that's what I intuitively think. To me, clearly the spirit of the law was aimed at pros who use services like Smugmug.

It's going to vary by state.

Caroline

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