After years of dedicating myself to photography as an avid amateur photographer, I finally decided to 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 that future photo purchases would be tax deductible. A smart move, 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 and researching the requirements.”
Fortunately for you, I already did it in North Carolina and am willing to share the results (for this state, at least!).
For the purposes of this article, I assume that the following things are true:
1. You will be operating this business in the state of North Carolina.
2. You already have the photography experience to qualify as a professional photographer (that’s another article in itself).
3. You have done the necessary research to determine if you have the time, energy, lead base, and business plan to ensure your new venture is successful (again, this topic is another article in itself).
The first step was to determine what type of business entity it would be. After doing a lot of 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, each option has positive and negative aspects. 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 fairly easy, sole proprietors pay a slightly higher tax rate than S corporations.
Filing as an S-Corp, however, means more paperwork and quarterly tax filing rather than a Schedule C with my annual return. I wasn’t interested in that much paperwork, so sole proprietorship is fine with me. If my business starts making so much money that I am interested in a lower tax rate, I can always change my status to S-Corp.
Now that I have determined my legal status and tax status, I had to file my LLC in the state of North Carolina. This involves sending a check for $ 125 to the Secretary of State, along with the Articles of Organization, which can be downloaded and completed from their website.
It takes 7-10 days for your status to get confirmed, but if you include a note and your email address, it will be emailed to you, saving you a few days.
Photographers are considered by the state of North Carolina to be one of those fortunate professions that require a state privilege license. This is an annual license granted to the person, not the company, 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 Department of Revenue has offices throughout the state, so there is probably one in a nearby city.
While I was there, I also received a state tax ID. This is (thankfully) free and will come in handy because armed with this important number, I will no longer have to pay sales tax when purchasing items for my business (assuming I am purchasing from a North Carolina vendor – obviously you do not pay tax on sales when buying from an out-of-state supplier, such as when buying glasses online).
The friendly and helpful North Carolina Revenue Clerk explained to me that two forms must be submitted to the NC Revenue Office each quarter. One is a form that explains what your income was for the quarter and how much tax you charged your clients. You will need to include a check for the amount of the tax. The other form shows what equipment you bought for your business that quarter and paid no taxes. You’ll need to include a check for 1% of the total (well, at least that’s lower than paying full retail tax on your purchases). This includes everything from cameras and lenses to printers, computers, paper, ink cartridges, etc.
Collecting sales tax from my clients is a bit confusing in North Carolina. The law is not clear and lawsuits that have been filed in state court have conflicting results. It seems there is no need to charge sales tax in services such as session fees, UNLESS the customer ends up purchasing session impressions. Of course, you always wait and assume that the customer will buy prints, but you never know for sure. To be on the safe side, you should go ahead and charge them sales tax on session fees up front, assuming they will buy prints.
Your forever need to collect sales tax on tangible goods sold. Therefore, any print, album, or other product that you sell to your customers must always include sales tax.
The tax rate that is applied depends on where the customer took possession of the merchandise. If the client lives in Gaston County and asks me to mail the prints to them, the Gaston County rate applies. If the bride decides to stop by my home in Charlotte to pick them up in person, the Mecklenburg County rate applies.
Taxes were by far the most complicated part of the business formation process. Fortunately, the employees at the North Carolina Revenue Office were very helpful and gave me several “reference sheets”, sample forms, and (best of all) their phone numbers to call if I have questions.
If you want your North Carolina state tax identification number to be in your business name, rather than your own name, you will need an IRS employer identification number. At first I was confused by this, because I was not planning to hire anyone but myself, but it turns out that the employer identification number has nothing to do with employing anyone. Fortunately, it was free and easily handled over the phone while you waited in the lobby of the state tax office.
Now there is the question of where you live. I am a Charlotte resident so I am in Mecklenburg County. Fortunately, Mecklenburg County recognizes the state privilege license, so I was not required to obtain an additional business license from the county.
However, I was asked to obtain a Permit for Habitual Occupancy at Home 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 decide to move to a different house in a few years, I will have to obtain a new permit. It costs $ 125.
Next, I needed a business checking account. I went straight to Wachovia as 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 account checks. This is highly recommended by the CPA I visited, to keep business and personal expenses separate.
The last thing he needed was business insurance. This is recommended in addition to any general or owner’s liability coverage you already have. It is 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. Not only will business insurance cover your equipment in the event that any of those expensive lenses or cameras get damaged, but it will also help in the event that a guest trips over one of your light stands at a wedding, for example.
A few side notes: If your business is an LLC, you must legally have the initials “LLC” or the words “Limited Liability Company” in your business name. This makes it clear to all potential customers and clients that you are an LLC. Also, if you don’t keep your business and personal expenses separate, you lose the protection of an LLC (which means your personal assets are vulnerable in the event of a lawsuit). DON’T TAKE A RISK, keep everything well documented and separate.
Good luck with your new company! I recommend visiting the North Carolina state business development website and calling their hotline; They gave me a lot of advice that the CPA didn’t mention, and it was free! Fortunately, there is a lot of support for people starting their own businesses. It’s free, and these folks know what they’re talking about, take advantage of it!