The most dreaded time of the year is fast approaching - tax season. Photographers pay taxes like anybody else, but because of the nature of the job they may have questions that a typical employee doesn’t. What happens if I photographed events in ten different states this year - do I have to pay income tax in all of them? What if I hire a different photographer to cover my event when I’m sick - do I have to withhold taxes for her? Do I have to pay attention to sales tax? And what if my year was terrible and I made almost no money - do I still have to pay taxes at all? Here are a few tips and tricks to help you survive taxation as a freelance photographer.
Let’s handle the first question first - unfortunately, yes, you will likely have to pay income tax in every state in which you earned money. Some states have an earned-dollar threshold that must be met; others have a time threshold. In Massachusetts, for example, non-residents are required to file state taxes if the income they earn in the state exceeds $8,000 or reaches a certain portion of their overall income. It is important to check the Department of Revenue for each state you’ve done work in to see if you meet the requirement for non-residency income.
Now say you live in Tennessee, but a Kentucky resident hires you to take some photos in your own studio at home - the money may be coming from Kentucky, but you didn’t earn it in Kentucky, so you don’t have to pay Kentucky tax.
But before you get too scared, there is some good news: the Supreme Court has ruled that you cannot be double taxed; in other words, if you earn $1000 in Kentucky but live in Tennessee, you can’t be taxed on that grand by both states.
Next, do I have to withhold taxes or fulfill any other tax obligation when I hire an independent contractor? You generally will not have to withhold federal taxes from independent contractors - which is part of their appeal, of course - but there are other obligations you must fulfill. First, whenever you hire an independent contractor you must give them a W-9 form and have them fill it out and return it to you. This form just gives you information about them, including name, company, and taxpayer identification number. Second, at the end of the tax year, and only if you paid the independent contractor more than $600, you have to submit a form 1099-MISC to the IRS stating how much you paid them, as well as give your contractor a copy. The only time you will have to withhold tax from an independent contractor is if they did not give you a taxpayer identification number on their W-9 form, or if the IRS contacted you and informed you that the number was not on file. You will have to withhold 24% of the total payment to the contractor, and pay it to the IRS with a Form 945.
Third, should you have to even think about state sales tax? Maybe: it depends on what exactly you are providing to your customers. If you are providing any sort of “tangible” product with your services - anything from hardcopy prints to USB drives containing digital albums - then yes, you must reserve and pay the state sales tax where that tangible product was sold. But if your products are purely digital - such as creating an online gallery from which clients can download their pictures - then you can sidestep this requirement. Whether or not you can wiggle around this requirement by making your hardcopy albums or USB drives complimentary or free may depend on your state, and you should consult an attorney familiar with your state’s sales tax.
Last, even if you had a terrible, awful, no-good, very bad year and made less than $10,000, do you still have to file a return and pay taxes? Unfortunately, in all likelihood the answer is yes. If you are an employee of a company and make less than ten grand, then you are not required to file a return and in all likelihood your entire income is deductible. But you are not an employee of a company - you’re a freelancer, and you run your own business, and the federal government taxes all self-employment income over $400. Even worse, typically an employee only has half of his FICA (Social Security and Medicare) taxes withheld from his paycheck, with his employer paying the other half on his behalf. But you, because you are self-employed, are considered to be both employer and employee, and thus you have to pay the entire amount for yourself - although you are allowed to deduct the employer-paid portion of the FICA tax from your gross income for the year.
Tax is complex, and you should always speak to a tax attorney or other tax professional when making decisions about how to allocate your income.