More specific starting business questions

divamum · December 17, 2009

I've been trawling through the archive here and reading all the other online "photography business" info I can find and will be ordering the Harrington book recommended, but in the meantime am starting to wrap my head around all of this - well, a little bit, at least. Which, of course, leads me to some specific questions! Thanks in advance for any further places to research/read, as well as any specific answers.

Background: I seem to be reaching a point where I ought to formalize my photography activities so I don't fall foul of the IRS (sales tax is required in my state) and want to make sure that I have any other necessary business elements in place. I do NOT have plans to make this a full-time endeavour, but headshot/portrait sessions can easily run concurrent with my freelance singing career and I plan to take advantage of my involvement within the performing arts community to target a niche market that is under-represented in my area, and which also happens to be what I love to shoot the most. I am also now being regularly approached by friends/family for portraits, and have additionally picked up a semi-regular performance-shoot gig for modest pay.

So, my questions:

- at what point does one need to consider incorporation/LLC rather than "sole proprieter"?

- my name is already used for my singing/musical career. Presumably this means I will need a different DBA name for photographic work (this has advantages beyond tax stuff as well - I'd like to keep my singing and photography "brand" at least somewhat separated, even though I will be capitalizing on one to "sell" the other)

- what type of insurance is necessary if one has the occasional shoot at home, and where does one go about purchasing this? Presumably it's liability coverage that is important?

- when does it become "business" rather than "hobby income". I know all about the 3-year loss/break even "hobby income" rule (it applies to singers as well, and friends who were still training and thus claiming expenses even though they weren't getting work have been slammed by it) and that income over $600 comes through on a 1099 etc etc I'm more interested in things like insurance, I guess: for a small-income activity such as this is likely to be, when does the status change for the purpose of things like gear insurance etc etc? Is any income from shooting the trigger, or is there a set $ amount below which is still "personal"?

- if you are shooting at home, how much "business" can you run at home before it becomes a problem and deemed "too commercial" (I realise this may vary according to local regulations, but some generalities would be helpful in letting me research my own township etc)

- I gather one has to file sales tax reports regardless of income generated in any quarter. Anything I need to know about that before the fact? I am NOT the world's greatest accountant (understatement of the year :rofl) so I need to wrap my head around this BEFORE I start doing it. I have a personal accountant who will of course be available to me for specific questions but, again, generalities from those out there doing it would be helpful.

All information welcomed! Thanks in advance :lust

Sam · December 17, 2009

What state are you in? This will help get some answers from people in your state who know your laws.

As for insurance call Hill & Usher.

If your in AZ I can give you a name of a great tax guy.

I would recommend you find a CPA or other professional who knows the tax laws, is familiar with small businesses and can get you going down the right path.

Sam

divamum · December 17, 2009

Thanks Sam. I'm in MD.

As I said, I have an accountant - he specializes in performing artists and other self-employed artistic types, so I have no doubt he'll be able to handle things for me, but I also like to do my own research, especially hearing from people already "in the biz". I figure I can't be too informed

Sam · December 17, 2009

divamum wrote:

Thanks Sam. I'm in MD.

As I said, I have an accountant - he specializes in performing artists and other self-employed artistic types, so I have no doubt he'll be able to handle things for me, but I also like to do my own research, especially hearing from people already "in the biz". I figure I can't be too informed

Spoken like a true scorpio.............................You should post a sound file of your singing talents. Or send me one...............

Sam

Cygnus Studios · December 17, 2009

I personally like the overkill mentality. I know that it doesn't work for everyone, but....

Your accountant is best to determine what form of company you should create. Whether it is full time or part time or occasional time, a business entity can often provide you with benefits that outweigh the initial costs of forming such an entity. It can also provide some protection. Your accountant will also be able to set up accounting software like quickbooks or whatever to help you keep track of your business.

You should also meet with an attorney. One that understands contracts and copyrights. Have them draw up your contracts and liability waivers. Yes, there are plenty of generic forms available on the internet, but keep in mind that it will be an attorney representing you in any lawsuit, not some website. If they write it, they are better able to defend it.

Even if you never expand your photography into the "Pro" label, you are acting as a professional in that you are earning money. Whether you earn a dollar or a million dollars doesn't matter. As a professional business, you are open to certain rules and regulations. Seek the advice of those who specialize in those fields to better protect yourself.

There are several good insurance companies who work with photographers. Axis Pro is a good one, Hill & Usher, Rand insurance, Hays and others. Be sure to get at least 1 million in liability insurance. It really isn't that expensive.

BradfordBenn · December 17, 2009

Not an expert in this, but when I set up my stuff many years ago (as previously mentioned different skills), one of the things that was very helpful was to have a meeting with the accountant and lawyer at same time. It helped to make sure there were no translation errors or assumptions made by each of the professions. Also by having you (as the client) present at the meeting it helps to assuage their fears that they are violating confidences. Of course with modern technology this can all be done via phone, web conf... etc. The key is to be able to have real time communication

divamum · December 19, 2009

Thanks guys. Anybody else? Some further specifics would be great if anybody from roun' these here parts can chime in....

sweet caroline · December 19, 2009

I was able to apply for a sales tax permit online, and I can file online quarterly. As for running the business from your home, my city states that I can have a certain number of extra vehicles on site, up to 1 non related employee, etc. without a special license. I never shoot at home, so I don't remember the exact limitations off the top of my head, but this would vary by local area anyway.

Caroline

divamum · December 20, 2009

Thanks Caroline!

Do you remember where you found the information regarding businesses at home, ie what local government department, or search string you used to find it online? I can't seem to find the right way of asking the question to locate the info... Is it zoning, or labor regulations or...?

(THIS is the part I find hard about this - just getting the information so I can figure out how to comply and/or take appropriate action to comply!)

takeflightphoto · December 20, 2009

divamum wrote:

Thanks Caroline! <img src="https://us.v-cdn.net/6029383/emoji/thumb.gif" border="0" alt="" >

Do you remember where you found the information regarding businesses at home, ie what local government department, or search string you used to find it online? I can't seem to find the right way of asking the question to locate the info... Is it zoning, or labor regulations or...? <img src="https://us.v-cdn.net/6029383/emoji/ne_nau.gif" border="0" alt="" > (THIS is the part I find hard about this - just getting the information so I can figure out how to comply and/or take appropriate action to comply!)

Typically, your state sales tax is handled by the State Tax Commission. Search on "Sales and Use Tax <state name> permits".

Business licenses are usually locally issued. I'd just call your city hall and ask. There is usually a department or individual that can answer questions like "Do I need a business license to be a freelance (on location) photographer?" or "Can I convert a room in my home to a studio and if so what restrictions as to parking, etc.?" You'll know better what questions you need to ask, depending on the type of photography you are doing.

Check with your homeowner's or auto insurance company about business insurance. You'll need a policy that will cover the replacement cost of your equipment and at least $1 million in liability, just in case. Some of the photography associations offer this, but that means paying membership dues, etc. Most insurance companies give discounts if you are already a policyholder.

If you are doing a lot of business, and have a lot of equipment, you might want to consider an LLC, but that is a question best answered by your attorney and accountant, in tandem, as there are legal and financial benefits and drawbacks.

Best of luck!

jon

Mox · December 20, 2009

divamum wrote:

Thanks Caroline!

Do you remember where you found the information regarding businesses at home, ie what local government department, or search string you used to find it online? I can't seem to find the right way of asking the question to locate the info... Is it zoning, or labor regulations or...? (THIS is the part I find hard about this - just getting the information so I can figure out how to comply and/or take appropriate action to comply!)

I got my home business license through my town's zoning office.

Consider joining your local Chamber of Commerce - ours offers tons of resources and meetings for small business owners and start-ups.

TheBrokenMarine · December 23, 2009

I was advised to form an LLC. A single member LLC can be formed which i was told that separates your personal assets from business assets. If there's ever some type of litigation, you can't be pursued personally unlike a sole proprietorship. Also, check out the Professional Photographers Association. I joined last year and it's been a wealth of information for me regarding starting up and strategies for starting up. I'm not very clear on sales tax at this point though. I, too, am in the great state of Maryland and am still in my first year so haven't thoroughly researched the sales tax part yet.

Scott_Quier · December 23, 2009

Before I begin, please understand I am neither a lawyer nor an accountant

See my answers embedded below:

divamum wrote:

I've been trawling through the archive here and reading all the other online "photography business" info I can find and will be ordering the Harrington book recommended, but in the meantime am starting to wrap my head around all of this - well, a little bit, at least. Which, of course, leads me to some specific questions! Thanks in advance for any further places to research/read, as well as any specific answers.

Background: I seem to be reaching a point where I ought to formalize my photography activities so I don't fall foul of the IRS (sales tax is required in my state) and want to make sure that I have any other necessary business elements in place. I do NOT have plans to make this a full-time endeavour, but headshot/portrait sessions can easily run concurrent with my freelance singing career and I plan to take advantage of my involvement within the performing arts community to target a niche market that is under-represented in my area, and which also happens to be what I love to shoot the most. I am also now being regularly approached by friends/family for portraits, and have additionally picked up a semi-regular performance-shoot gig for modest pay.

So, my questions:

- at what point does one need to consider incorporation/LLC rather than "sole proprieter"?

The common wisdom used to be that one would want to incorporate (full or LLC) when there was a risk that the business owner might be sued. The incorporation was used to seperate the assets of the business from the personal assets and thus protect the personal assets from any legal judgemnt. The measure of protection so offered is now much less than it used to be. However, any little bit will help. According to my accountant, the move to incorporate/LLC is driven by income .... the more income you have the more advantageous it is to go the LLC or S-Corp route. It can end up saving you money (taxes) at the expense of a little more paperwork and more expensive tax returns but still a net savings of sole proprieter.

- my name is already used for my singing/musical career. Presumably this means I will need a different DBA name for photographic work (this has advantages beyond tax stuff as well - I'd like to keep my singing and photography "brand" at least somewhat separated, even though I will be capitalizing on one to "sell" the other)

I don't think you need a different name unless or you are going to incorporate. It's when you file your application with your state corproation commission that the name becomes significant. I don't think there can be two corporate entities with the same name - that's the take away I got from the reading I did when I went the LLC route.

- what type of insurance is necessary if one has the occasional shoot at home, and where does one go about purchasing this? Presumably it's liability coverage that is important?

Hill & Usher - visit their web site (linkie). They are aces. I got replacement coverage for $25K worth of equipment for something like $650/yr. Also included is $1M liability coverage and a similar amount of coverage for errors & omissions (important when shooting once-in-a-lifetime events like weddings )

- when does it become "business" rather than "hobby income". I know all about the 3-year loss/break even "hobby income" rule (it applies to singers as well, and friends who were still training and thus claiming expenses even though they weren't getting work have been slammed by it) and that income over $600 comes through on a 1099 etc etc I'm more interested in things like insurance, I guess: for a small-income activity such as this is likely to be, when does the status change for the purpose of things like gear insurance etc etc? Is any income from shooting the trigger, or is there a set $ amount below which is still "personal"?

Gear (and liability) insurance is needed when you can't afford to self-insure. For me, that was when I started. You will not believe how comforting it is to have replacement (regarless of cause of loss) insurance.

- if you are shooting at home, how much "business" can you run at home before it becomes a problem and deemed "too commercial" (I realise this may vary according to local regulations, but some generalities would be helpful in letting me research my own township etc)

How much business - that's a local issue. It's my understanding that it's the incorporated city that makes that decision for you when you file for a business license. When I filed for a business license, the city came out and inspected (storage of inventory is an issue around here) to make sure that I wasn't breaking any ordinances. It was then that I was also informed about the number of non-family cars allowed on the property or in the street and the amount of advertising I could do (none in the yard, limited on my POVs). Check with your city - Codes & Compliances is where I had to start.

- I gather one has to file sales tax reports regardless of income generated in any quarter. Anything I need to know about that before the fact? I am NOT the world's greatest accountant (understatement of the year ) so I need to wrap my head around this BEFORE I start doing it. I have a personal accountant who will of course be available to me for specific questions but, again, generalities from those out there doing it would be helpful.

Can't help you much with this. My wife has to file not only a quarterly report, but also has to remit quarterly estimated taxes. Me, neither the state nor Uncle has come to me for such .... but then again, the DW makes a lot more $$$$ with her business than I do.

All information welcomed! Thanks in advance

I hope all that helped a bit.

divamum · December 23, 2009

Thanks Scott - that's very helpful detail!

TBM, thanks for the comments - if you find out any more, by all means post back (or feel free to PM me). Tx!

BradfordBenn · December 25, 2009

Another thing to consider is contacting the US Small Business Authority they have lots of free programs and planning tools to help with this stuff. A few friends of mine have used their services successfully.

marikris · December 26, 2009

Hi, Diva! I'm so glad you asked these questions since I'm wondering myself. I have one more question to ask you guys also: how much are these things going to cost roughly? I feel like that's a stupid question heh but another tog here in TX said that the attorney was charging her $1k to get her LLC set up. And I'm hesitant to contact a lawyer or an accountant because I don't know if they'll charge me just for the info -_-

divamum · January 6, 2010

Just a quick follow up in case anybody who had similar questions was following - have spoken to my accountant who advised (in MY circumstances, for MY needs - iow, ymmv):

- no I don't need a DBA, I can just file a separate Schedule C under my name as necessary
- Yes, I should register for sales tax and follow submission rules to the letter (varies from state to state; some are fairly relaxed about it, some are not, and it's better to err on the side of caution in case one's state is one of the picky ones)
- no, incorporation would not be worth the cost and effort at this point (ie for the kind of fairly minimal anticipated income). There might come a time when it would be appropriate but the benefits need to be greater than the hassle, and we're not there yet.

Thanks for all the input, folks!

sweet caroline · January 7, 2010

marikris wrote:

Hi, Diva! I'm so glad you asked these questions since I'm wondering myself. I have one more question to ask you guys also: how much are these things going to cost roughly? I feel like that's a stupid question heh but another tog here in TX said that the attorney was charging her $1k to get her LLC set up. And I'm hesitant to contact a lawyer or an accountant because I don't know if they'll charge me just for the info -_-

Diva- it looks like you found answers:)

Kris,
Don't know if this helps answer your questions... I'm a sole proprietor, and plan to keep it that way for now. I applied for sales tax permit online and file online quarterly. Very easy. My city doesn't require me to have a business license, assuming I don't have too many clients coming and going from my home (which I never do), and I have no more than one non-related employee on site at any given time (I wish I had some help). I keep my receipts and records of payments, and my husband handles the income taxes.

Keep in mind that I'm only part time, so my needs may be different than yours.

Caroline

marikris · January 7, 2010

Do you have your orders fulfilled through smugmug, Caroline, and do you pay sales tax if you do?

Scott_Quier · January 8, 2010

marikris wrote:

Do you have your orders fulfilled through smugmug, Caroline, and do you pay sales tax if you do?

I have my orders fulfilled through Smuggy and No, I don't pay sales tax. The sales are actually made in CA not in (in my case) VA so the sales aren't subject to VA sales tax ... at least not yet.

marikris · January 8, 2010

Scott_Quier wrote:

I have my orders fulfilled through Smuggy and No, I don't pay sales tax. The sales are actually made in CA not in (in my case) VA so the sales aren't subject to VA sales tax ... at least not yet.

Awesome. That makes things a lot easier.

Scott_Quier · January 8, 2010

marikris wrote:

Awesome. That makes things a lot easier.

But, just remember, INAL and INAA (accountant) - so, consult your tax professional before you make any lasting decisions.

Mox · January 8, 2010

marikris wrote:

Awesome. That makes things a lot easier.

There's a thread in the smugmug pro sales help section that discusses TX law being different, as usual. According to that thread, they insist on having their money, anyway, so I would speak to a tax accountant in TX.

Found it... http://www.dgrin.com/showthread.php?t=67225&highlight=texas

There are a couple of other shorter threads, too if you search that subforum for "texas tax/" Makes me glad I moved!

sweet caroline · January 8, 2010

marikris wrote:

Do you have your orders fulfilled through smugmug, Caroline, and do you pay sales tax if you do?

I have some orders fulfilled through Smugmug, and I pay sales tax on everything. The way the law is written in Texas, they have attempted to cover a Smugmug type scenario.

Here's a link for Texas Window on State Government: http://www.window.state.tx.us/taxinfo/sales/index.html

Specific to photographers: http://www.window.state.tx.us/taxinfo/taxpubs/tx94_176.pdf

Caroline

divamum · January 8, 2010

sweet caroline wrote:

Diva- it looks like you found answers:)

Only because everybody here educated me enough that I knew what questions to ask! (Often the hardest thing to discover, in my experience).

There are still a few lingering questions regarding law for business licences in my state - I don't need one, but there are apparently "advantages" to registering (which isn't the same as having a licence). I have some more phone calls to make next week, it seems.....

ChatKat · January 8, 2010

Direct to your customer or through you
If you are using the new coupons, collecting any money and then Smugmug is filling your orders but shipping to your client, you will want to check with your accountant about your own local sales tax situations.

If you pay for merchandise and collect the money for the sale, then pay smug with your money - you are probably responsible for the sales tax on the price paid to you by your client. In many states the labor for photography requires sales tax.

More specific starting business questions

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