Federal Income Tax and the 'Self-Employed' Photographer: Learning About Taxes the Hard Way

(After all, is there an easy way to learn taxes?).

As my photographic business transactions continue to develop, one thought has continually been on my mind: Taxes.

So lets start plainly by discussing what it actually means to pay your taxes…

Tax law itself is codified in the Internal Revenue Code, and it is known as Title 26 in the United States Code. The US Code, as defined by the Government Printing Office, is the codification of general and permanent laws of the United States. It’s divided into fifty “titles” (or volumes) and published by the Office of the Law Revision Counsel of the U.S. House of Representatives every six years. (In layman’s terms, the United States Code is the collection of laws passed by the legislature and signed by the executive – the Code is law.) 

Specifically, Title 26, Section 1 (26 U.S.C. § 1) states:

There is hereby imposed on the taxable income of every individual … who is not a married individual a tax determined in accordance with the following table ….

Further, (26 U.S.C. § 6012(a)) states:

Returns with respect to income taxes shall be made by the following:
(1)(A) Every individual having for the taxable year gross income which equals or exceeds the exemption amount.

Note: The “exemption amount” is defined in 26 U.S.C. § 151(d) as $2000, adjusted for inflation since 1989. So, if you have more income than this amount, section 6012 requires you to file a tax return (except that if you’re married, section 6013 gives you the option of filing a joint return with your spouse).

Even the due date for taxes is explicitly defined in Section 6076, wherein “[R]eturns made on the basis of the calendar year shall be filed on or before the 15th day of April following the close of the calendar year.”

Breaking it down:

Sections 1, 61, and 63 impose the tax,
Section 6012 requires you to file a tax return if you have income of more than the exemption amount, and
Section 6151 requires you to pay the tax at the time and place fixed for the filing of your return.

So, what happens if you’re self-employed and don’t pay your taxes at all? To borrow an answer from Slate.com’s Christopher Beam:

Probably nothing. If you’re self-employed without any major assets or loans, the odds of getting busted are extremely low. In fact, an estimated 7 million Americans fail to file their taxes every year, and in 2008 the IRS examined only 158,000 such cases. That comes out to a roughly 2 percent chance of getting caught. Even if the IRS does audit you, the agency probably won’t press charges. Instead, they’ll just file a tax return for you and charge you a fee for the trouble.

By no means am I suggesting that any self-employed person should stop paying their taxes: they shouldn’t. Keep in mind the statute of limitations for criminal penalties, the IRS’ Ace-card. Basically, the IRS can bust you up to six years after the fact. So if you didn’t file your taxes in 2008, the IRS can still force you to pay civil penalties. What’s more: If audited, you can be convicted of a myriad of crimes, including felony charges, among which include tax evasion and conspiring to defraud the federal government. And where does that land you? Actually, it puts you in place where you really don’t have to pay taxes: Federal prison.

Everything so far has been a broad, general summary that we are all obligated to file our federal income taxes, why we must do so, and what could happen if you don’t. Obviously this is a very extensive (but important) area of law that I think merits understanding, regardless if you’re self-employed. Unfortunately I never learned this extremely useful and undoubtedly vital information in college, so I’m left teaching it to myself through reliable internet sources and through my family’s CPA (Certified Public Account).

Now that we have this out of the way, lets focus on how we – as self-employed photographers – can benefit from these laws. So, lets understand what a tax write-off (also known as a tax deduction) is.

A tax deduction is:

[A] reduction of taxable income as recognition of certain expenses required to produce the income. It is the itemized deduction of an item’s value from one’s taxable income. Thus, if a person in the USA has a taxable income of $50,000 per year, a $100 telephone for business use would lower the taxable income to $49,900.

In this arithmetic, it’s equally important to understand what tax bracket you fit into. Tax brackets are divisions at which tax rates change. Essentially, they serve as cutoff values for taxable income, meaning income past a certain point will be taxed at a higher rate. A tax rate describes the percentage (or burden ratio) at which a business or person is taxed.

Going deeper, there are two common types of tax deduction. The first is a standard deduction and the second is an itemized deduction. The standard deduction increases every year and is defined under United States tax law as a dollar amount that non-itemizers may subtract from their income and is based upon filing status (of which there are 5: single individual, married person filing jointly or surviving spouse, married person filing separately, head of household and a qualifying widow(er) with dependent children). As one may not take both itemized deductions and a standard deduction, taxpayers generally choose the deduction that results in the lesser amount of tax owed.

The applicable basic standard deduction amounts for tax years 2006-2012 are as follows:

Filing status
Year Single Married Filing Jointly Married Filing Separately Head of household Qualifying Surviving Spouse
2012[4] $5,950 $11,900 $5,950 $8,700 $11,900
2011[5] $5,800 $11,600 $5,800 $8,500 $11,600
2010 $5,700 $11,400 $5,700 $8,400 $11,400
2009 $5,700 $11,400 $5,700 $8,350 $11,400
2008[6] $5,450 $10,900 $5,450 $8,000 $10,900
2007[7] $5,350 $10,700 $5,350 $7,850 $10,700
2006 $5,150 $10,300 $5,150 $7,550 $10,300

So how does knowing all of this tax junk help you? Well, if you’re your own boss – and thus responsible for your own money – you should at the very minium know some basic tax law. More directly, you need to understand how it’s possible to benefit from these laws so that you can make the most of what little money you’ll be earning as a photographer.

In my own case, I do A LOT of freelance work. A LOT. And, on average, I spend a fair amount on buying equipment over the span of a year so that I can do my job(s) effectively and continue to get new work. So, just real quickly, let’s go over some of the things a photographer needs to stay in business:

  1. a camera
  2. lenses
  3. lighting equipment
  4. memory cards
  5. card reader
  6. a computer
  7. a charger
  8. hard drives
  9. software
  10. the internet
  11. a website
  12. a printer
  13. a scanner
  14. ink
  15. paper
  16. CD’s/DVD’s
  17. a cell phone
  18. a wireless provider
  19. a car
  20. a toll-tag
  21. gasoline
  22. car insurance

The list goes on.

So my question to you is: As someone who’s presumably self-employed, how many of the items in the above list are tax deductible? Would the answer surprise you if I said all of them? It’s true. BUT, the caveat is that you have to be extremely organized in everything that you do JUST INCASE the IRS does decide to audit you. The best insurance to protect yourself during an audit is to provide records, and in most circumstances, this means receipts (in addition to other paperwork).

Retail receipts are often printed on carbon paper, so I make it a habit of scanning my receipts into my computer and storing them on an external harddrive by Year – Month – Day. I also expense my mileage by keeping accurate logs using a vehicle mileage booklet that I keep in my car. For 2011-2012, the IRS Mileage Rate Tax deduction is 51 cents per mile for business (you can even deduct 19 cents per mile during a move).

I think my point has been made: you should learn about taxes. This blog could continue to go on about the benefits of understanding basic tax law, but if you’ve read this far I can assume that you’re interested in learning more and that you’ll explore the internet and other sources for your answers. In doing your research, be sure to check the date of your articles and sources, making sure that you’re reading information on the most current tax information.

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