Accounting 101 for Photographers

William Iven
If you’re like me, you love being an entrepreneur, except when it comes to the paperwork — getting paid on time, managing receipts, calculating taxes. I get it, I’ve been there. You want to spend as much time as possible focusing on your passion, but instead too often you’re tripped up by the accounting details.

Accounting for photographers doesn’t have to be challenging. It’s actually pretty simple when you have the right tools. Here’s what you need to know about accounting to run your photography business.

Why do photographers need accounting?

Accounting is the process of analyzing and reporting on your company’s financial transactions. Easy peasy, right? Okay, maybe you’re yawning, but accounting is an important function of your business. Here’s why:

• Your records provide an accurate picture of your expenses versus income. Many photographers underestimate how much money realistically is required to run their business. It’s easy to understand your fixed costs — like equipment and lighting — but your variable costs can add up quickly. Financially responsible entrepreneurs’ factor in extra funds to cover unexpected costs and are thorough when budgeting.

• As a professional photographer, a good invoicing tool is your best friend. Losing track of invoices and payments can mean big financial losses for your business, so keep on top of it.

• You can accept credit card payments from clients on the spot. A great invoicing tool (affiliate) should feature a “pay now” button directly on the invoice, making it easier to get paid faster.

• An accounting software provider (affiliate) like FreshBooks can help you pay taxes, loan payments, and expenses on time. This shows financial maturity and responsibility in your business. Creating a financial calendar will remind you of due dates for your bills and payments.

• When you use accounting and bookkeeping software that’s designed for a small business, you will be able to tout your organized and accurate financial records.

Photographer Jackie Laine continues, “What I love about Wave is that it speaks to me with easy-to-understand terms, not accounting lingo. And Wave’s invoice product is free and lets me accept credit cards right on the invoice itself, which is so convenient.”

Novices in the photography industry might be thinking, “Well, that’s all fine and dandy, but how am I supposed to stay on top of all this if I don’t really understand it?” Don’t worry. I’ve got you covered.

Accounting Terms for Photographers

Accounting:

Think of accounting as a sorting tool for your business transactions that makes sense of your financial data. Accounting can be an organizational tool, categorizer extraordinaire, or simply a way of seeing how awesome your business is doing (assets) or how it might need some help (liabilities).

Asset:

What you own. Maybe it’s cash on hand or your Nikon D3100; if you own it, then it’s an asset! Assets are of direct value to your business and are one measurement criterion for how profitable your business is.

Liability:

You don’t want liabilities as a business owner. But every business has them, so we have to deal with them. A brief definition of a liability: owing money to another company, bank or individual.

Income Statement:

The report card for your business. A statement showing the money you receive and the money you spend. Your expenses are subtracted from your income to show how much you have left. You need to make money to spend money and grow your business.

Expense:

Money you payout. You incur expenses when purchasing products or services from another vendor, like buying new camera equipment. The idea is to pay off your expenses (and keep them to a minimum in the first place), so the expenses don’t turn into liabilities.

Debit:

Debits appear on the left side of your general ledger and must always be balanced by credits. Debits are great for increasing your assets and decreasing liabilities, but not so great when they increase your expenses and decrease your income.

Credit:

Credits appear on the right side of your general ledger. Credits are great for increasing income and decreasing expenses, but not so great when they increase liabilities and decrease assets. Like debits, there are pros and cons to credits, depending on where you move your money.

Balance Sheet:

An executive summary of your financial position — all the essentials, none of the boring, extraneous details. What you own and owe, as well as your business’s value, is found here.

Accounting Software Providers

Now you know why you need accounting, how an accounting software provider can paint the picture of your finances, and some of the common terms you’ll come across. You’re ready to roll.

First thing’s first: sign up to a “cloud” provider for your accounting. Cloud software harnesses the computing power of the internet and a private company’s servers to provide superior service. Do your research: not all cloud software is created equal. Make sure it’s simple to use but also robust enough to grow with your business.

You’ll want something that offers double-entry accounting, and, ideally, a full ecosystem of accounting support (versus a cloud provider that only deals with invoicing or payroll, for example). There are some fantastic free providers out there that specialize in software for zero to nine employees, perfect for when you’re just getting started.

Set aside some time each day or week to put down the lens and stay on top of your finances. By doing a bit of maintenance every day or every week, you will know your business more deeply and end-of-the-year tax time will be a breeze.

As you work through your accounting, keep these questions in the back of your mind. It’ll help you see when you’ve achieved a goal and act as a reminder to set new goals.

• What equipment (cameras, lighting, backdrops, etc.) do I need, and how much does it cost?
• What is the timing of my financial needs?
• What is my game plan for unexpected costs?
• What are my short- and long-term financial goals?

Finally, don’t be afraid to call an accountant from time to time. There are many tools available that will help you run the day-to-day financial aspects of your business, but there likely will be times when you should rely on an accountant’s expertise, especially for things like:

• Setting up sales tax: Your accountant can ensure that you are charging and tracking the appropriate taxes on your photography. Some cloud accounting providers also feature a guest collaborator function, so your accountant can easily file the sales tax reports you need for you.
• Checking up on your accounts: As an entrepreneur, you will stumble across challenges in your business every day. Instead of ignoring the issue or panicking, give your accountant a quick call.
• Year-end processes: Regulation related to the depreciation of equipment often changes; your accountant can help you depreciate your cameras, lighting, and equipment to ensure your business is by the book.

Tax time: Your accountant will make sure you are filing accurate documents and claiming all the deductions you are entitled to.

Tax Return Tips from a CPA

I asked our friend Josh Zweig, a certified public accountant with LiveCA, Chartered Accountant, for some tax return tips specific to photographers. These are good whether you’re just starting out or are a seasoned veteran of the paparazzi.

1. Time your equipment purchases

For tax purposes, equipment purchases such as cameras, lenses, lights, etc., are considered fixed assets, which depreciate over time. The rate of depreciation is set by the CRA and IRS. Most photography equipment can be depreciated at a rate of about 20% per year. If you’re making big equipment purchases, squeeze them into the same tax year to take advantage of the full year deduction.

2. Record your travel

If you’re photographing clients all over the city, keep track of every gas, insurance, and maintenance receipt. The CRA and IRS have a standard mileage rate that you can use to calculate your total travel costs. Officially you’re required to keep a logbook of the business mileage you’ve clocked. While few people do that, it’s best to keep a running Excel file with the clients/locations you visited each month. That way you can come up with a reasonable estimate of your business mileage and can prove it- if anyone asks.

3. Track your home expenses

When you’re not behind a camera, chances are you’re in front of a laptop touching up the photos from the shoot. If you work from home, you can deduct a percentage of your home expenses — utilities, Internet, maintenance, property taxes, mortgage interest, rent, etc. Roughly 10% of total home expenses is a reasonable estimate, but it may be larger if you use your home as a studio as well. While you don’t have to go through every bill to get an estimate, it’s a good idea to keep the household expenses organized, in case you need to support your claim.

Accounting made simple

My co-founder, James Lochrie, is deeply familiar with the small business tax space, and as someone who has run startups, I’ve come to intimately understand the pain points small business owners feel when it comes to accounting.

We wanted to make these processes easier for entrepreneurs, so we developed software built specifically for them that speaks their language. Small business owners need to free themselves from all the difficulties of running their business they aren’t prepared for. They go into business because they are really good at being a photographer, designer, consultant or whatever — not because they want to do things like accounting or payroll.

At Wave, we have free invoicing, receipts and accounting, plus payments and payroll, to help business owners stay on top of their finances and give them more time to focus on what they love, like photography. To make it even easier, we’ve come up with 7 days of 7-minute tasks to make accounting easy:

Monday – Cloud Accounting for Small Business

• Sign up with a cloud accounting provider and edit your business profile.
• Next, add your business partners, if applicable, as guest collaborators so they can access your account and help you manage or review your finances.
• Connect your bank account or upload a bank statement and categorize 10 transactions to get familiar with weekly tasks in Wave.
• Sign up for credit card processing so you can easily accept all types of payments.

Tuesday – Customers & Vendors

• Categorize 10 more transactions.
• Now add a customer, enter his or her data and create an invoice you’d send to that customer.
• Check in daily to get a quick snapshot of how your business is doing.

Wednesday – Income

• Categorize 10 more transactions.
• Head to your Business Settings and customize your invoice with your business’s colors and logo.
• Create your first invoice and save it as a draft to get familiar with the invoicing app.

Thursday – Expenses

• Categorize 10 more transactions.
• Add your first expense account and create an expense quick entry.
• Take a look at your dashboard and income statement to see how you’re doing.

Friday – Making Payments

• Categorize 10 more transactions.
• Add a payment to the invoice you created on Tuesday; see how that affects the balances within reports.
• Next, add a payment to the bill you created on Tuesday and see how that affects your accounts and reports.

Saturday – Accounts & Account Balances

• Categorize 10 more transactions.
• View your accounts to get familiar with where you’ve moved transactions over the past five days. Make note of which accounts are filed under income, expense, asset, liability and equity.
• Check your account balances to see if the debits and credits balance.

Sunday – Payables & Receivables

• Categorize 10 more transactions.
• Take a look at your aged-receivables report to see any income you’re waiting on and from which customers.
• Then go to your aged-payables report and look at which vendors you’ve incurred expenses from and when you owe them payments.

Wave Online Applications

With just a couple of minutes a day, you will save time, money, aggravation, and many frantic late nights. For more information or to get started, visit http://www.waveapps.com/photographers-download. No matter what stage you are at, you are taking a big step toward having a financially healthy and responsible business.

Founded in November 2010, Wave provides integrated online applications that help small business owners around the world run their businesses. The company has secured more than $19 million in funding.

With 650,000 users and counting, Wave is signing up tens of thousands of small business customers each month, and currently tracks almost $80 billion in small business income and spending.

Based in Toronto, Canada, Wave has offices in Rochester, New York; Vancouver, British Columbia; and Winnipeg, Manitoba. Connect with us on Twitter, Facebook, and LinkedIn.

Accounting FAQ for Photographers

Why do photographers need accounting?

Accounting is important for every business, and many photographers underestimate how much it is actually going to cost to efficiently run their business. When you keep records of everything, you will be able to track your expenses versus your income, and it will give you a better idea of what you need to do to improve. It also gives you a view of your variable costs and these can definitely begin to add up very quickly.

What can you write off for your photography business?

Some of the more common tax deductions for a photography business include some studio and venue costs, some training, education, and licensing costs, travel expenses, and home office tax deductions. However, photography can also be a hobby in addition to a career, so you will need to prove that you are running a legitimate business in order to deduct any of these business expenses. To do this, register your business with a local licensing agency and make sure to retain all the receipts regarding your photography business.

What are the five principles of accounting?

The five principles of accounting are Revenue Recognition Principle, Historical Cost Principle, Matching Principle, Full Disclosure Principle, and Objectivity Principle. These five principles are considered the foundation of accounting and are used to gain a more accurate representation of the financial position of the business.

What information needs to be on a photography invoice?

When sending out your photography invoices, you want to be sure to include the terms of service and payment which explain how nonpayment, late payments, etc. work. You should also include a due date for the invoice, the type of payment you accept, your company logo, services rendered, and any other project-related costs that may be included. Weddingphotographers, for example, may be able to include any agreed-upon travel expenses in the invoice. Retain all of your receipts proving these expenses in case there is any dispute regarding the invoice as well as for tax purposes.

How can you minimize your audit risk as a professional photographer?

To minimize your risk of an audit, keep your tax returns as simple as possible. You should also try to keep any tax liabilities to a minimum. Accounting software is always helpful in these situations as well as keeping very organized and concise records regarding your photography business and expenses.

Do photographers have to collect sales tax?

When a photographer takes photos, they are offering their clients a service. But when they deliver the photos, it becomes a product. As a photographer, you need to check local laws on each service you provide to see if you should legally be charging and paying sales tax. In many cases, the photography services are also taxable as long as the service resulted in tangible property.

What is the difference between cash basis and accrual basis accounting?

The biggest difference here is in the timing of when the sales and purchases are recorded for your accounts. Cash accounting sees revenue and expenses when money changes hands while accrual accounting only recognizes the revenue when it is earned and when the expenses are billed and not paid.

What kind of accounting software do real estate photographers use?

If you are using a mobile device as a real estate photographer, then FreshBooks may prove to be beneficial. The best free accounting software for a real estate photographer is Wave Accounting. Many also use software that also helps with order processing, invoicing, and client management.

Why do photographers need a chart of accounts?

Keeping a chart of accounts allows the photographer to get a very clear picture of where their money is going and also gives necessary information to help make more informed business decisions down the line. It is a good management tool.

Can you write off software on your taxes?

As long as these services are not personal, you may be able to deduct them. Internet provider fees, accounting software, and other software that your business requires like photo editing softwarestudio management software are common examples of what you can write off as a photographer.

Photo credit: Images courtesy of Wave