Robyn Cohn, a New York-based CPA who has provided bookkeeping and tax services to photographers for more than a decade, offers advice that PDN readers can act on right now to minimize taxes on their 2016 income—and manage their finances better in the future.
PDN: What would you advise photographers to do before the end of the year to minimize the taxes they have to pay on their 2016 income?
Robyn Cohn: The most important thing, in my opinion, is for a photographer to find out where they stand financially. I can’t stress enough that people need to add up their income and expenses to determine their financial position, i.e. Is my income high? Or do I have a loss? Their financial position will be the basis for their 2016 year end planning.
PDN: What can they do with that information that really helps them?
RC: If you have income, you can decide to accelerate expenses. If you have a loss you may want to accelerate income or postpone expenses.
PDN: What do you mean by “accelerate expenses”?
RC: To accelerate expenses means to increase your expenses (spend more money) to create more business deductions. That will lower your taxable income. If after you get your financial info together you find that you have earned much more money than last year and you paid estimated taxes based on your 2015 income, you may want to accelerate some expenses to avoid owing more taxes. Maybe you were planning to buy a computer next year. Buy the computer now! Or you may have no business expenses to accelerate. So you may want to accelerate some personal expenses. You may want to pre-pay some real estate taxes, pay medical bills or dig in your closet for used personal property to donate to charity. Maybe you have some old camera bodies to donate. Or clothes, shoes, or other things lying around the house.
PDN: And all those things you can take deductions on?
RC: Yes, and all your charitable contributions, cash and used personal property, have to be made before year’s end. If you have a big tax liability, and you know it’s coming, you should go through your home with a fine-toothed comb and start giving stuff away as non-cash contributions. Which, by the way, you must get a receipt for in order to claim the deductions. You can contribute used personal property such as used clothing, furniture, electronics, and household items, among others. Scour your home, scour your closets, your garage. There is a treasure trove of unused items that you can turn in to tax savings when donating them to charity. Don’t forget to get a dated receipt for your contributions, and note there are special considerations for contributions in excess of $5,000.
Or, once you know your financial position, you might want to postpone expenses. You don’t know what decisions to make [unless you know your income and expenses for the entire year].
PDN: Why would you want to postpone expenses?
RC: After gathering all the financial data, you may find out that you have a loss, i.e. your expenses exceed your income. Therefore, you may want to hold off on spending any additional money that will not give you a tax benefit in 2016 and wait until 2017. You may want to wait until next year for that car. Finding out your financial position can only benefit you. You can ask yourself, Should I buy a car? Should I buy a computer?
PDN: What are some financial resolutions photographers could make to lower their 2017 tax burden, or put themselves on more solid financial footing going forward?
RC: Resolutions for the New Year are: I’m going to start a filing system, I’m going to start using QuickBooks, I may decide to hire a bookkeeper.
PDN: It sounds like a lot of photographers don’t do basic stuff.
RC: They don’t. There’s a lot of reasons and excuses involved. Some photographers feel they are too busy to deal with their taxes, others feel they don’t make enough money to worry about their taxes, and some others just don’t even want to look at anything that involves numbers and taxes. There’s the psychology of an artist brain that does not mesh with numbers.
PDN: What advice do you have for changing their behavior?
RC: Take tracking of your finances out of your hands. Hire a bookkeeper! The whole issue is: You can get QuickBooks to use on a regular basis and make all the resolutions you want, but that is not happening.
PDN: How much does it cost to hire a bookkeeper?
RC: It depends. It could be $25/hour it could be $45/hour or it could be $75/hour. It depends. How often do you need them? What are they doing for you? Do you make things easy for him or her?
PDN: What can they expect the total for the year to be? $5,000?
RC: No, no. I have clients who come in, give us their bank and credit card statements. We go over the statements with them, and maybe we’ll charge $800 for the whole year for the bookkeeping. But these are not big photographers. Maybe they have $150,000 or $200,000 in income.
PDN: Anything else you would advise photographers to do before the end of the year?
RC: Make sure you have health insurance. You have until January 31 to buy medical insurance under the Affordable Care Act (aka Obamacare). If you do not buy it, the penalty is $695 per person, and $347.50 per child, with a maximum of $2085 per household, or 2.5 percent of adjusted gross income, whichever is higher. If you make a lot of money, [not having health insurance] could be a big problem.
Also, [You should] think about a retirement contribution at this time of year, because a lot of times, photographers find themselves with nothing when they retire. [If you’re an employee] you can maximize your 401k contribution before the end of the year [Note: there’s no tax on 401k contributions, within certain limits]. If you’re freelance, maximize your IRA contribution, of start planning for an IRA or a SEP.
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