After years of pursuing photography as an avid amateur photographer, I decided to finally take the plunge and become a professional. I already owned all the necessary camera bodies, lenses, flashes and other assorted equipment, and having my own business meant future photography purchases would be tax-deductible. A smart decision, right?
The short answer, for me at least, was "yes." The long answer, however, was, "It depends on how much time you want to spend running around and researching the requirements."
Fortunately for you, I've done it already in North Carolina and am willing to share the results (for this state, at least!).
For the purposes of this article, I'm assuming the following things are true:
1. You will be operating this business in the state of North Carolina.
2. You already have the photography expertise to qualify as a professional photographer (that's another article all by itself).
3. You've done the necessary research to determine whether you have the time, energy, potential customer base, and business plan to ensure your new venture succeeds (again, this topic is another article on its own).
The first step was determining what kind of business entity to be. After doing much research online, I was a bit confused, until a CPA explained it to me: there is a difference between your LEGAL status and your TAX status. She recommended that my photography business be an LLC (limited liability company), but file taxes as a sole proprietor.
As with all the different options, there are positives and negatives to each option. LLC status would protect me from personal liability in the event of a lawsuit, which was important to me. The paperwork is very easy to prepare and submit, which is also good because I wanted to take care of everything myself.
Filing taxes as a sole proprietor would be very simple: just attach a Schedule C to my personal tax return each year. Although this filing status is easy enough, sole proprietors pay a slightly higher tax rate than S-Corporations.
Filing as an S-Corp, however, means more paperwork and filing quarterly taxes instead of a Schedule C with my annual return. I wasn't interested in that much paperwork, so sole proprietor status is fine with me. If and when my business starts making so much money that I'm interested in a lower tax rate, I can always change my status to an S-Corp.
Now that I've determined my legal status and tax status, I had to file for my LLC with the state of North Carolina. This involves sending a check for $125 to the Secretary of State, along with Articles of Organization, which can be downloaded and filled out from their web page.
It takes about 7-10 days for your status to come back confirmed, although if you include a note and your e-mail address, they will e-mail it to you which will save a few days.
The state of North Carolina considers photographers to be one of those lucky professions that require a State Privilege License. This is an annual license granted to the person, not the business, so if you end up working for a different photography business in the future, you don't need to get a second license that year. A privilege license is $200, from the North Carolina Revenue Office. This must be done in person, but the Revenue Department has offices all over the state, so there's probably one in a city near you.
While I was there, I also received a State Tax ID. This is (fortunately) free, and it will come in handy because armed with this important number, I will no longer need to pay sales tax when purchasing items for my business (assuming I'm purchasing from a North Carolina vendor; obviously you don't pay sales tax at all when purchasing from an out-of-state vendor, such as when I buy lenses online).
The friendly and helpful NC revenue employee explained to me that two forms will need to be mailed into the NC Revenue Office each quarter. One is a form explaining what your revenues for the quarter were and how much tax you charged your clients. You will need to include a check for the tax amount. The other form shows what equipment you purchased for your business that quarter and didn't pay tax on. You will need to include a check for 1% of the total (hey, at least it's lower than paying the full retail tax on your purchases). This includes everything from cameras and lenses to printers, computers, paper, ink cartridges, etc.
Charging my clients sales tax is a bit confusing in North Carolina. The law is not clear, and lawsuits that have been argued in state court have conflicting results. It appears that you do not need to charge sales tax on services such as session fees, UNLESS the client ends up purchasing prints from the session. Of course you always hope and assume the client will purchase prints, but you never know for sure. To be safe, you should go ahead and charge them sales tax on the session fees up front, assuming they will buy prints.
You always need to charge sales tax for tangible goods sold. So any prints, albums, or other products that you sell to your clients must always include sales tax.
The tax rate that applies depends on where the client took possession of the goods. If the client lives in Gaston County and asks me to mail her the prints, the Gaston County rate applies. If the bride decides to swing by my house in Charlotte to pick them up personally, the Mecklenburg County rate applies.
Tax was by far the most complicated part of the business-formation process. Fortunately the employees at the NC revenue office were very helpful, and gave me several "cheat sheets," sample forms, and (best of all) their phone numbers for me to call with questions.
If you want your NC State Tax ID to be in your business' name, instead of your own name, you will need a Employer Identification Number from the IRS. I was initially confused by this, because I wasn't planning on employing anyone other than myself, but as it turns out, the Employer Identification Number has nothing to do with employing anyone. Luckily it was free and handled easily over the phone while I waited in the lobby of the state revenue office.
Now there's the matter of where you live. I'm a resident of Charlotte, so I'm in Mecklenburg County. Fortunately, Mecklenburg County recognizes the State Privilege License, so I wasn't required to get an additional County business license.
I was, however, required to get a Customary Home Occupation Permit from the Zoning Office. This is a one-time permit that allows me to work from home. This is a lifetime permit; however, it only applies to this particular address. If I decided to move to a different house in a few years, I will have to get a new permit. It cost $125.
Next, I needed a business checking account. I went straight to Wachovia, since they already handle our personal bank accounts and I wanted everything in one place for convenience. Wachovia needed copies of my privilege license, my EIN, and my state tax ID, as well as the normal documents for a new account like my driver's license. In about a week, I had received my check card and checks for the account. This is highly recommended by the CPA I visited, in order to keep business and personal expenses separate.
The final thing I needed was business insurance. This is recommended in addition to any homeowner or umbrella liability coverage you may already have. It's not too expensive (less than $200 per year) so go ahead and get it. Any insurance agent will be able to go over the options with you. Business insurance will not only cover your equipment in the event any of those expensive lenses or cameras get damaged, but will also help in case a guest trips over one of your lightstands at a wedding, for example.
A few side notes: if your business is an LLC, you are legally required to have the initials "LLC" or the words "Limited Liability Company" in your business name. This makes it clear to all customers and potential customers that you are an LLC. Also, if you do not keep your business and personal expenses separate, you lose the protection of an LLC (meaning your personal assets are vulnerable in the event of a lawsuit). DO NOT RISK THIS -- keep everything well documented and separate!
Best of luck with your new business venture! I recommend visiting the North Carolina State business development website and calling their hotline; they gave me a lot of tips the CPA didn't mention, and it was free to boot! Fortunately there is a lot of support out there for people starting their own businesses. It's free, and these people know what they're talking about -- please take advantage of it!
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