Chapter 4: Protecting Your Photography / Videography Business
Part 2: Keeping Insurance Rates Low: Risk Management for Freelance Photographers and Videographers
How Freelancers Can Save Money on Their Quarterly Tax Returns
Unlike employees, freelancers are responsible for keeping track of their taxes throughout the year. Employees get their estimated taxes taken out of their income before their checks are dispersed. Since freelancers can't do that, they are required to file quarterly estimated tax returns.
To learn more about your estimated taxes, read the Estimated Taxes page of the IRS website . In the meantime, we'll give you the gist:
- The IRS likes it best if you file four equal returns each year.
- You need to report at least 90 percent of your total income by the end of the year, or you may be subject to a penalty.
Depending on the business structure you choose to operate under, you may need to use different tax forms. You can learn more about these forms by reading the Sole Proprietor page of the IRS website.
If you run your business on the side and are an employee elsewhere, you may be able to skip quarterly taxes by asking your employer to withhold more taxes from your checks. Just make sure to take enough taxes out to cover your whole obligation. A tax professional can help you with this.
You may have already noticed that your estimated tax percentage seems to be higher than it would be if you were someone's employee. That's because it is. Freelancers are required to pay a self-employment tax that covers…
- Social Security tax obligations.
- Medicare tax obligations.
Typically, an employer would pay half of their employee's Social Security and Medicare tax obligations. But since you are your own boss, you are required to pay the entire thing yourself. To learn more, read the Self-Employment Tax page on the IRS website.
Since you pay this extra tax, it's even more important for you to keep track of your business deductions. Business deductions reduce your taxable income, so you don't end up paying more in taxes than you should. Tracking all these expenses and deducting them properly can be complicated and time-consuming, so hiring a tax professional might end up saving you money in the long run.
Before your first meeting with your tax preparer, though, be sure to take care of a few things:
- Keep detailed (and organized!) records. You should get in the habit of keeping receipts from every single business transaction. It's best if you record these receipts in a computer document as soon as you get back to your office. Business expenses can include anything that helps you run your business, whether it's purchasing a new piece of equipment or meeting a client for lunch. Don't forget that mileage and travel expenses can also be counted as business transactions. With sites like GoogleMaps , it's easier than ever to map your route and figure out your mileage. When you report the number to your tax professional, they will be able to translate it into a dollar deduction. The more organized you are when you visit with the tax professional, the less they'll charge for their services. Bring a printed copy of your document instead of a shoebox of unorganized receipts.
- Don't throw away your receipts. Even though you have everything documented in your computer files, don't throw away your paper receipts. If you are audited, you may be required to produce originals. Depending on the type of records you keep, the IRS recommends holding onto paperwork for between three and seven years. To learn more, visit the IRS's "How Long Should I Keep Records ?" page.
- Err on the side of caution. If you aren't sure whether an expense will count toward a business deduction, record those purchases in a separate document — but don't disregard them. Your tax professional will know right away whether purchases can be counted as a deduction or not. It's better to be safe than sorry.
- Save for retirement. Sometimes freelancers are eligible to receive a Savers Credit when they contribute to their retirement fund. Not all retirement funds qualify you for the credit, so make sure you read the IRS's Get Credit for Your Retirement Savings Contributions page for more information.
Visit the IRS's Self-Employed Individuals Tax Center website to learn even more about your tax obligations as a freelancer.
Next: Photographers and Videographers: When Should You Update Your Business Insurance Policies?