Accounting for Photographers
Craig heideman is a creative, a professional wedding photographer and commercial photographer high and his work is beautiful. We have some images up here but also these beautiful albums, but again, he is also a business expert, so please craig, welcome craig back, come on up here, all right? And like I said, like I said, everybody just a little side note is that this man is also an eagles scout, everybody, if there's anybody that can make accounting fun, it is crying. All right, we'll get started to do our best. Thank you. All right, well, let me introduce myself to those of you that don't know me. You know, my name's craig heideman I'm a professional photographer. I've been in business for going on thirty years. I paid my way through college and law school is a shooter. So I come to you today not not just as, ah lawyer and a business owner, but also as a photographer. I should about twenty weddings a year. I do mostly weddings, some seniors as well. But I have the privilege of going a...
round the country and participating in educational programs like this, not necessarily because my work is ah, world class, although I'm very proud of it, but because organizations realize that the information that I have to party all is just isn't important as information on how to pose or how to see the light because my goal is to make sure that u s photographers are going to be in business for the long haul, the failure rate for new startups is astounding. We're going to talk about that in a minute s o my goal is to give you the skills and equip you with what you need to know to be around and be competitive for for the long haul again, we're gonna have some fun today I've got for those of you that are watching live there's, my twitter id and let's get twitter rolling and I'll have some prizes for some folks afterwards. Uh uh, who can tweet up some fabulous quotes from this tax and accounting presentation? So if you hear something that you think is going to stick with you, throw it out on the twitter, feed a dapple studios and throw in the creative live tag so let's get started. Um for those of you that have survived your first five years in a photography business, you realize this truth and if you're just starting out, you need to realize that the fact is is that ninety percent of what it takes to be successful has to do with running your business in about ten percent of it has to do with photography now the photography is very important it's very important but it's important to realize that all of the pressures of running your business from the requirements that we have to meet and trying t get paid for our passion that's the hard part the photography is what comes easy for us so we have to remember we've got the right brain uh, creativity we've got the left brain logic did I say that? Right right left yeah so we've got to connect these two somewhere in the middle and that's why where that's one of the qualities that we see in successful photographers is they've connected those two sides of their brain so we just realize that that's an issue and we dive in now way think that that um if it's on the internet it must be true right? Getting ready for the program I was looking to see what what was out there for photographers to learn about what what resource is were there how we might learn about accounting? What should we do? Well, they're these blog's people write blobs and everybody that rights of bloggers and expert right you're all nodding with me everyone that has a blogger is an expert and and ah a recognized photographer said look let's talk about accounting for photographers what we need to do is we need to watch a twitter video on how to set up our accounting software next step to accounting have a schedule next step make sure you pay your taxes well, these are all important things but I don't think that we as photographers need to be looking to youtube to try and figure out how to do our accounting correctly so hopefully today we're going to touch on some things that are going to make us better equipped for the future to get it right the first time and if we realize that the warrior world of online advice is scary and incomplete and often wrong I think that we can make some better decisions about where we get our information that we digest so let's see what the odds are we've started our new photography business and we're in our first year and we're so excited where we're living our passion we're living our dream and we're facing a seventy five percent chance of failure that's not unique tio service based businesses like photography that's for all start ups so if we're starting our new business we've got a seventy five percent chance of failing in your one now the odds get a little bit better in year two down to sixty four percent and again if you could make it to your three thirty six year four forty six and so forth and so on if you make it two year five you're not quite home free but you're almost there so I think if if we make our business plan five years in length right if we have five years that we're planning on how we're going to run our business that's what we need to have in order to increase our chances for success well let's ask ourselves the question why why is it that businesses fail and let's be honest with ourselves? We've got a couple of reasons number one we've got lack of experience if you don't have any experience running your own business maybe you work for a wage up to the point when you've decided to make a break with working for the man being a slave to you know, the corporate machine and you're going to do what you love we don't have any experience perhaps running our business if we recognize that and go out and try and equip ourselves with the knowledge that we need to run our own business we're going to be have a chat and of being successful listen, I confess lack of organization is one of my weak points I don't have the organization that I always need lack of organization can be a killer not paying your sales tax on time results in penalties somebody in the room may have not made their sales tax payment on time twice in the last two quarters I'm not sure who that would be um but it happens if you don't know what the deadlines are and you don't meet them so I'm going to tell you today meet the deadlines and it's coming from personal experience that I have to give away two hundred dollars every time I don't make my tax payment on time they don't put you in jail for it but they penalize you for it lack of cash flow planning let's let's all say together to ourselves photography is a seasonal business if you're doing weddings and portrait ce we don't stay steadily busy all year long yet we have bills that are going to remain steady all year long and if we don't plan for when we need cash we are going to fail well how do we know I don't know when I'll need cash? Well guess what your accountant would know or your accounting software would know and they could tell you when you're going to need cash and so we're going to talk about that today failure to predict actual costs it's also a reason for the failure of start of business businesses and that means we just don't know how much we're going to have to spend for things we dive in we're passionate but we haven't thought what is my budget what's it going to take to get me to the end of a twelve month period? Insufficient capital is always a challenge when we start up with our inspiration and good looks that might not be enough to go acquire all that we need to put her hands on to do the job again photographers air very guilty of this one over investment in fixed assets. I mean, the great folks at cannon and the great folks at nikon, they produce these products for me to buy, and I want them all. I need them all. I cannot be successful unless I have everything that is in bambi cantrell's gear bag, right? So I've made that my goal that if I just have all of her equipment, I will shoot just like her, right and that's, not the right mindset to be in. I mean, obviously we don't want to have subpar non professional equipment, but we don't necessarily want to dive in and by all of the l series glass the cannon makes in our first year, we don't want to over invest in fixed assets, and we want to be careful how we use debt to finance our operation. The other thing is personal use of business funds. I mean, look, we have personal expenses, but you're going to hear me say we're going to keep our personal assets personal in our business assets in our business account and not not pay our personal expenses out of our business account big no, no. The other thing is look unexpected growth you'll hear lots of stories from photographers there speaking this week it creative live that has said you know what? I have achieved success beyond my wildest expectations and that's presented challenges for me I wasn't capable of handling all of the work that I was getting so you need to also plan for wild unexpected success competition and low sales are also things that we can I have trouble with and cause us problems I don't have any magical formulas in dealing with your competition obviously if you're participating and photo week you could improve your sales, your print sales and your margins by listening to some of the courses during photo week but if we recognize this is the chip these air the challenges that will face that might cause us to fail we're going to be more apt to overcome them right? All right I see lots of heads nodding so everybody's with me and we're on to the next slide which is setting up your business right legally all right everything that I have to say about tax and accounting presumes that we've set up our business correctly if we haven't set up our business correctly very little of the information that follows is going to apply to you we have to do it right now what's it mean first thing we're going to do is we're going to write a business plan what's a busy ousland, that's where way set forth who we are, what we do, how we're going to do it, how we're going to accomplish it, we're going toe say out loud with the challenges we face are we're going to look at our competition, we're going to write a business plan, so if you haven't done that, even if you're in your first year, writing a business plan will help you be successful. You're going to choose your business location. Where do you want to be? Do you want to be out in the country where I am? Do you want to be in the city? Do you want to be in a suburb? Where do you want to locate yourself? Because that's going to go a long way towards predicting how expensive it's going to be tow, operate where you need to operate? What zoning thing, zoning requirements you're going to need to meet these these expenses that we're going to talk about in our first year going to be determined in large part by your location, it will obviously be more expensive for me to locate in downtown san francisco. Then it will be to locate in springfield, missouri, where I'm located, we're going to need to figure out how we're going to finance our business, where's, the money going to come from my going borrow it if I saved it up, am I gonna I'm going to try and finance current operations out of current revenue, meaning I'm going to start with what I've got and hope I can make enough money to pay my bills a little scary. So we have to figure out how we're going to finance our business, and then we need to determine the legal structure of our business where they're going to be a corporation or an l l c everybody nodding with me l l c sole proprietor doing business in our own name with our social security number. Shake my head faster to emphasize the point. Um, and so we need to determine the legal structure of our business and set it up. We need to register our name. If if you do choose to do business in your own name, you need to go to your secretary of state or corporations division in your state and register your name, get a tax identification number. Regardless, you have to file an s s for you can go to the irs website, put in ss for to get your tax I d number, and then you'll be doing business under that text, I d number, open a bank account and credit cards in your business name. Very important please do not use your personal account for your business expenses it's a recordkeeping nightmare it's a co mingling problem the irs hates it I hate it. You hate it, don't you? You do, you hated already? Don't do it if you do set up your business, one of the first things you get in the first few months after you register your business with your corporations division or secretary of state is credit card applications, so take advantage of that I like the chase business card capital one has a great business card as well registered to pay your state and local taxes and get all of the necessary business licenses and permits. Now look, we've spent some money to get through all of these nine steps, right? But guess what? They're all tax deductible, so to the extent that we're doing the start up costs could be deducted in your one, so take advantage of that and it will offset your income to decrease your tax liability. So just a quick note on goal setting if we're going to be successful and we do have a plan, we have to set some benchmark goals. I'm talking about financial goals because we're talking about accounting and tax, so you need to know from your business plan in order to make more than the greeter at walmart, I've got to do x dollars based on my budget, that's, your first goal, how much money am I going to make this year? And I submit that there's some folks watching today that have been in business for a number of years, and I've never said that goal for themselves, they take what they can get, and they don't throw a fit. Um, and they just how much they spend based upon how much they make, rather than adjusting how much they make, and we can control that to a large extent, you might consider getting a business coach if you're not good at it. I mean, recognizing what we're not good at is one of the steps to being successful, and my friends, jerry, in sandra, it buzzworthy success, buzzworthy success, dot com, we'll help you with that, and I'll meet with you on a regular basis and help you with some of these decision making things. I'll help you with print sales that help you with your pricing on their very reasonable and that's an invest been in your business, so setting goals is super important, so here we are, what is accounting, and why do I care? I mean, really ask yourself that question, what is accounting, and why do I care for many of you that if are in college or graduated from college? Perhaps she took an entry level accounting class and all of this is known to you but for many of us this this concept of accounting is new and so we're going to talk about that why do we care about it? Why is it important? Well, accounting is the language of business it's the language that businesses used t keep score to measure success is to identify failures to predict challenges it's what we used to classify and summarize transactions in terms of money of a financial character and it facilitates informed business decisions I mean, we don't want to make decisions on a gut feeling we want to make decisions that are grounded in in fact as far as what's going on in our business now this is a big distinction and it's hard for folks to make this mental leap, but accounting is not just for your tax return, okay? I understand what I mean accounting is what we do to keep track of our to keep score taxes or what we pay at the end of the year and yes, we need to know some things in order to file our tax return, but but accounting and keeping track of where we are and where we're going is different than what we need to know at the end of the year there are there's there's ah your accountant can perhaps explain for your particular business where the differences lie, but our tax numbers aren't necessarily are accounting numbers to determine our successes and failures so your accountant is a person that can help you with setting up your books kallen during your deadlines, having a relationship with an accountant is super important accounting and an accountant can help you price your prints and packages accurately. Well, really what would my I don't know about photography? Well, your accountant knows about costs you're counting those about depreciation your accountant knows about cash flow your accountant knows about predicting sales volumes based on past sales experiences and your accountant can help you generate the reports to tell you what you've done in the past to help you predict what you're going to do in the future. Now you could do a little bit of this on your own through accounting software like quickbooks peach tree but if you're not good at that, you need to enlist the services of an accountant to take advantage of it. You could know instantly if you're making are losing money instantly so I ask you today, are you in the black or the red? You're seeing yourself black, red what's that mean always get them confused mind the blacks that good is red? Yeah well black is good red is bad in the black means is that you're making a profit all right, I'm making a profit, ok, well, how much have you paid yourself? I don't pay myself anything. I just wait until the end of the year and see what's left in the bank account if there's anything left that's what I keep I just paid all my personal expenses out of my bank account along the way and you know if that's you I'm not judging you, okay? I'm not we're not here to judge we're here to set some goals and figure out how to do it right? But your accountant can tell you if you're making or losing money for a particular point in time, maybe we look at things in terms of quarters. We don't really care on a procedure particular day if we've made her lost money, but we look at trends hay in the first three months of the year, I made a lot of money because it was wedding season I was doing I didn't make a lot of money because you know, it was the winner, nobody was getting married and then in the spring I was making more money and then then the summer I was making more money and in the fall it started to go down and I really wasn't doing much business over christmas, so we have to know what each quarter means and so generally in accounting are reporting will look a quarters we could know what our cash flow is in the long and the short term if we know that we have for instance I just got all my insurance bills this month so I have to pay a thousand dollars for this insurance and a a thousand dollars for that insurance and my insurance agent doesn't care if I didn't do any weddings this month he wants paid right? So we have to predict that cash flow and knowing when your cash needs you're going to arise will help you save money ah for expenses during the year in addition, accounting can help you calculate your payroll taxes do and your sales taxes that air do because if you don't know how much you paid your employees ease and if you don't know what your taxable sales were in your state, how the heck are we going to remit our sales tax payments sales tax you say what's that we'll talk about that um but it helps us also tracked the cash investment in our business that skin in the game now what's that mean we have to understand of course that accounting and tax is not the same thing uh we've got the yin and the yang they go together, they're different but there's this concept of double entry bookkeeping now we're going to go we're going to slow down for those that don't understand accounting at all and we're gonna cover one basic concept and it goes like this there's this thing called a balance sheet right balance sheet and we've got one right here let's make this our balance sheet and there's a basic formula in accounting and it goes like this assets whatever you whatever your business is worth it's going to equal the businesses liabilities plus your investment now the investment is called owners equity or retained earnings but it's your skin in the game your investment so he's saying things have to balance the assets go on the left side liabilities and the investment in your business go on the right side so this is this is the concept of double entry bookkeeping so let me erase this and we're going to do an entry now if you think this is elementary and you're counting for your own you're you're using quickbooks or your peach tree many of you don't understand what your software is doing for you when you put your checks in or when you pay bills you don't understand what the software is doing, but if you're doing it yourself it's critical that you understand that if we invest one hundred dollars we're gonna have some class participation here are you ready? Let's? How much do we want to invest in a photography business? How much five thousand she we by ten let's make it ten we gotta buy a camera we've got to get some insurance let's say that we're going to our start up is going to be ten if we if we have assets over here right we've got liabilities over here and we've got our investment or owners equity down here and we know that both sides of this happy equal out where do we put our ten thousand dollars would be an asset right let's say that we're just going to start with cash so we go to our personal account and we put ten thousand dollars into our business bank account where do you think the ten thousand goes on the balance sheet? Is that a liability or is it our investment all right so we got ten thousand what do we want to buy first what brand? Whatever you're comfortable with I am not here to judge I'm not here to judge you okay uh I sat next to rob the the pro rep from nikon yesterday during the panel discussion and we got along just fine. Okay, so once we take let's say we're going by five thousand dollars on equipment do we now have five thousand dollars in our cash account? We'll have five thousand in cash but what have we gotten ourselves a five thousand dollars in equipment so then we'll take five thousand and we'll put it in our equipment account right see that that's good so now we got five cash we know we got five and equipped but guess what? There's this magical thing called appreciation or deducting our expenses so when we can eliminate income by increasing expenses that's good, because it takes your taxable income down. So what do we want to dio here's this camera? Right? We're going to talk about this later, so freak out that you don't know what I'm saying. But this is called a section one seventy nine deduction it's a magical irs deduction to expense equipment like computers and cameras. And it allows us to take remember, expenses are good, right? So we've got this concept of accumulated depreciation or section one seventy nine expense. We can remove this five thousand dollars from an at an asset and weaken expense. It we put it over here. Five thousand dollars in accumulated depreciation. Right. See that now? Are we in balance? We got five over here and accumulated appreciation as an expense. Over here this is called a contra account. It doesn't actually show up on the balance sheet. We use this for tax purposes. Ok, so we it has the effect of reducing our investment in the business. Because that it's gone it's like spending the money, we no longer have it, so it kind of has the effect of reducing our investment in the business. So that's the concept of devil entry boot bookkeeping every time we enter something on one side we've got to make a corresponding entry on the other side and so as we go through the curriculum today it will help you understand kind of how your software is working on your behalf to do good and not evil all right? So assets equals liabilities plus owners equity retain earnings that's your takeaway everybody's got to know that in order for this to make sense we've got different ways of accounting for things now as photographers cash cash basis accounting is kind of the way to go it means we get to deduct things when we write the check we get to record income when it shows up in a cruel accounting which many corporations do and you want to talk to your bookkeeper about this let's say that you sign a contract with a client for five thousand dollars wedding today to be performed in six months you might record the income today and have to pay tax on it today even though you don't have the cash from it for six months that's a cruel based accounting as a cash basis taxpayer you don't have to record it in your books as income until the actual money comes in all right, so that's super important to understand because if you're using your accounting software and you're doing reports it's going to make you say whether or not you want that report to generate as a cash basis report oren accrual basis report and if you picked the wrong ones the numbers air wonky they won't make any sense they won't be accurate it all so you have to decide when you start your business in my cash basis taxpayer or in a cruel basis taxpayer and then when you do all your reports you have to choose that what's best for you ask your accountant I'm a cash basis taxpayer that works for me there are some benefits and drawbacks to a cruel based accounting, but unless you have a conversation with your bookkeeper about it, you won't know a lot of folks say, well, I bought the quick books and I walk through the set up and I watched a youtube video which is obviously the way to figure out how to set up your bookkeeping uh and it's it's correct for me let's put the brakes on backup talked to our accountant about it and see if we're on the right track okay? So cash basis in accrual basis or the two methods of accounting that there were concerned with and we're going to assume for purposes of today's discussion that we're cash basis taxpayer that we don't have to make contingent entries over on the liability side all right? So what resource is do we have? What are our tools as photographers this sounds all confusing to me. What can I do? What can help me? All right, well you're here watching this so that's the first thing that you you've done right today to help get you on the right track or to make sure that you're all right track you can buy some software and do it yourself that's one way to do it how many of you guys do it yourself? One, two, three, four so your accounting experts great. All right and then we've got one two three that are not doing it themselves use using a professional who he's everybody's a little professional help. Okay, so we've got a combination going on that's fantastic. We can use cloud based services. There are cloud cloud based services where we can make all the recounting entries and they go up to the cloud wherever that is it's up there and then our accountants khun see it and they can help us generate reports and send it back to us where we're making the entries of expenses that we're paying checks that were riding income that's coming in and they can handle the accounting backside work of it we can actually hire a local bookkeeper now bookkeeper in a counter different in the morning to talk about that in a little bit more detail but we can hire a local bookkeeper that might come in to help us with our our entries they're actually going to make the entries. Maybe they're going to generate some reports, et cetera we might hire is I do a local accountant where we're going to take our information to a local accountant. Who's going to make all of the entries. Now an accountant is a little bit more advanced than a bookkeeper. Right on account. Is this a step above right below a c p a you might also want to use the c p a there a little bit more expensive, but they can give you special kinds of advice. That's almost like legal advice. She is a lawyer. I can give you legal advice, right? Because I'm licensed as a lawyer. A c p a can give you legal advice in the area of accounting, and they can write opinion letters and they can make sure that you're headed in the right direction in the heavy malpractice insurance. So if they make a mistake and tell you to do the wrong thing, you can call me and we can have a conversation with your cps about the advice that they gave you. So having a c p a is the highest level of protection let's say that you we want to look in a little bit more detail of what resources we have quickbooks is obviously very popular it stand alone software, your account it has the ability to remote into the new quickbooks version and help help you with reports and help you make entries. Peach tree is another stand alone one there's some cloud based ones ninety nine beans, eyes specifically targeted to photographers, and they'll actually generate reports for you and there's different levels of service that you can contract for that's one of the ones that's cloud based you might want to check out wave aps dot com I mean, I'm not pitching any one of them. I'm just saying these air resource is and there's probably many others for you to look at, but there are vehicles and aps out there that are specifically targeted to photographers to help get you moving on this issue of accounting, the other thing is shoot q shu que has some reporting and invoicing and recordkeeping ability as well. It's not quite a sophisticated his quick books or peach tree, but it's better than nothing. So if you're using shoot, you make sure that you're taking advantage of that. Um so let's talk about setting up your accounting software. So we bought quickbooks let's. Just pretend we bought quickbooks. Who uses quickbooks? Nobody. Well, I saw him almost a hand go up there, you know, you put it back down, scared, we're scared all right, so you plug in the software what's it ask you to do it's going to say all right, what do you do a woman business I'm a photographer great. What what kind of account sir we're going to need when we set up our software right? So we've got assets remember our big we got assets up there what are what's our assets? We got to set up a bank account right? Because we're gonna put cash in the bank account all right, what we're going to buy maybe we've got some assets that we need to track long term assets that we might appreciate who needs a computer on a monitor who needs a backup drive who needs camera equipment? Who needs lenses who needs lighting? Um that these air all assets let's talk about a vehicle do you walk to your weddings? No one's walking to their weddings who takes the bus? Maybe some people take the bus and don't need ah vehicle but most of us cars trucks so we're going to maybe book in an asset to help get us to our weddings. We might invest in equipment ah, desk um what else chairs uh art work things like that? These air all assets we're going to take cat our investment in our business and we're going to spread it out all over on the asset side of our balance sheet into what we're buying now in addition we're going to have some expenses we have to set up our expense items what are our recurring expenses? We got fixed expenses and we've got unfixed expenses things that just come up occasionally what are our fixed expenses? Well, we've got maybe our professional dues were setting this up at the beginning we haven't even put any money into an actual bank account yet we're just setting up the software we've got our professional dues we've got um well maybe we're going to do some travel we're going to have some lab expenses for prints were going to get some graphic albums from graphic studio we're going to have maybe some album expenses we're gonna have internet what else we're gonna have gas insurance play along it's a it's a it's a participation sport education you know, maybe we'll invest in a creative life photo week seminar what else come on travel food, food and entertainment what else? Where we live rant we're not picking up the microphone ok? So for that we talked about travel we talked about rant we talked about insurance what else? Anything else you might think of anything else printing your portfolio your portfolio right? So some pro most maybe once a sample album academic marketing materials so all of these air you can set up a cz many accounts in the software is you can think of and the better we track our expenses the better we see where our money is going how many of you headed home? No one will judge. You get to the end of the year and you don't know where your money went. I had some money. I made some money. I worked my fanny off. I was working sixty hours a week. I don't know what I spent it all on. Well, your accounting software can tell you in a moment what you spend your money on, it'll make you charts. You could be really creative. You could make a pie chart. You can make the big square great. You could make it blue. So there's room for creativity in your pie charts. All right, you can export your pie charges a pdf then put him in photo shop and enhance them to put little animated faces. Enough go crazy that's! What idea? I chase little rabbits when I have to go do my work that I don't like to do like the accounting I start to find ways to be creative, you know, tio distract myself one way or another got to stay focused when we're working with the accounting software focus. Great focus. All right, so we've got a recurring items, and then we've got our our expense items that don't happen all the time, so we've we've set up our accounting software and we've got this concept of fixed assets and depreciation now I loved appreciation depreciation recognizes the fact that when you buy a computer it's not worth as much overtime now that makes sense to us conceptually doesn't it but depreciation allows us to in a very predictable way record that expense so we might use what's called double declining balanced appreciation so let's say that we bought one hundred dollars computer a computer could be depreciated over five years it's got five year life under the accounting principles. So if we used straight line depreciation what's one hundred divided by five twenty so we can expense twenty dollars a year every year double declining balance as well let's give you the ability to front load it and we do two hundred percent in the first year so your first year instead of being twenty would be forty, right? So then we take one hundred and we got our depreciation account we subtract forty that takes us down to sixty and then we tickets sixty and divided by the remaining four years and we get to double each year until it's down zero so we get to expense it now why do we care? Remember we talked about accounting versus tax let's say I go out to make one hundred dollars this year but I bought one hundred dollars camera and I can expense that camera in your one one hundred percent how much money to have to pay tax on zero the top marginal tax rate for taxpayers this year is thirty nine ish percent that's federal if you're in missouri, the state's going to tack on another six percent state tax right head that up for me folks thirty nine plus six forty five now the federal government of course wants their self employment text, which is on ly fifteen point three percent on your first hundred thirteen thousand seven hundred dollars so let's add another fifteen point three percent onto your forty so do that for me give me clothes sixty point three so every dollar that you make folks you have the potential if your wildly successful or giving sixty percent of that to the government makes you wonder whether or not you're pricing your work correctly, doesn't it now I assume for that example that you were in the top marginal tax bracket of thirty nine percent you know chances are you're going to be down in the seventeen twenties ish, but if you've got a day job, you have to add up all of your income to figure out what tax bracket you're going to be in if you're a full time photographer, you might be a little bit lower in your first years, but we have to think about this and depreciation is one of these things where we can take our taxable income and we can reduce it by buying fixed assets now in order to take the depreciation have to have enough money to buy the asset right so I don't ever encourage people to go out buy things they don't need just to depreciate I might rather have the money in my pocket and pay tax on it did you have a question so how would that work if you let's say brought a personal laptop or or a camera to a job you already own a camera decided to come a professional photographer now your camera that you was your personal camera now you see professionally that is a great question appreciate it let's let's do some accounting who wants to do some accounting come on round of applause yeah all right so when we started up our business right let's say that I am in a navid hobbyist and I'm ready to go pro I already have a bag of gear sitting over here in my tam rack bag rolling bay yeah and I've got all the l siri's glass in there it's sexy it makes me feel good yeah all right. So listen if I've got that on man be if you're watching I've got the l one thirty five l two point oh yeah you know you love it so we can invest in our business not only with cash but with equipment so remember that owners investment entry I put ten thousand dollars worth of gear in there and over on the asset side I don't need to run the money through a bank account I go straight into the equipment account I get ten thousand dollars in gear on the left side I've started my business that's all I've got to start out with so I've taken my personal gear and I've given it to the business so craig no longer owns it apple studios owns it right? I might do a bill of sale to the business saying craig no longer owns that you own it it get gets booked innit it's cash value what's good but would you value it at its current value or depreciated it goes and its current value even if it's five years old you know what it's worth something and you're five you don't put it in its original value and put it in the value the date of the transition all right now you get to buy it if your business writes a check for it your business wants to pay thirty thousand dollars for five thousand dollars worth of gear that's your business but you generally if we're just funding it with equipment it goes in and its current value okay and then can you write that for your personal yes you can't well now we're going to get there we can write it off on the business ten this is a day job it's it's going to be a little bit dies here all right, there's this concept of inventory, we're not going to talk about it a lot because we as photographers, unless you're selling clothing or some kind of product other than what you're making, we don't really stock a lot of inventory. I don't stock ink for cannon printers that I sell the other photographers or clients, but if you have inventory, you have to deal with setting up an inventory account and we move money from cash to the inventory. The inventory is an asset, so if you are going to have inventory, you need to talk to your accountant about it now let's say that we borrow money if we're going to run a business, chances are we're going to need to borrow money. So how do we account for that? Well, when you borrow money, quick books will take you through a little in interview to help you set up some loan accounts, but if we owe money to someone else and we get cash who owns the money? Does it? Does it go down into the owner's investment account? Do I own that money or really does the bank of the money? The bank owns the money, so instead of putting the instead of putting the if we got five thousand dollars loan from the bank instead of putting it five thousand dollars down here in our investment, we would have an account that would be created up here which would be loans payable. We have a five thousand dollars loan payable. We have five thousand dollars in the bank. It all balances out. So we have to account for the money that we borrow. The lone obligation is not our money. It's the bank's money. So the liability section really keeps track of who owns the obligation, right? So that's, what happens if we borrow money? It all balances see the balance, the ying and the yang it's. All good. Here we go, the general ledger, all of our accounting comes together and what's called the general ledger, and we can manipulate the accounts via the general ledger and a very powerful, and you can screw it up that way. If you don't understand what a general ledger is, never touch it on your software because you can do very bad things. Um, if you don't understand it, do it yourself. Bookkeeping may not be for you, and quickbooks allows us in the company to have to go into the general ledger and make entries in balance. But you have to know which side the debit goes on, which side the credit goes on, and if you don't understand that, stay away from it because you khun destroy your books by making the wrong entry, and then your account will have to fix it and you'll charge of thousands of dollars. I've never done that yet, but I'm just warning you that if you don't understand what the general ledger is, stay away from it, all right? So we're going to work with our software, so now we've set up our software. What do we do next? We're out shoot, see how much time this takes ninety percent running your business, ten percent photographer, you're like, how am I gonna have time to go out and shoot? Make money? If I'm doing all of this, it gets simpler. We're front loading the work, so we have to do in voicing what's an invoice. Well, somebody books me for a wedding, I'm going to send him an invoice, it's going to show how much they owe when they pay me, I'm going to mark the invoice paid, and then the money is going to go into my cash account from which I can pay my salary. I'm going to send out monthly statements, maybe I've got clients that owe me money, and they haven't paid me, I'm going to send out monthly statements, I'm going to pay my bills, I'm gonna pay my bills regularly, I'm going to pay my bills before they become do uh, and by setting up a schedule of bill pain, I'll know that they're going to get done. I've got to make deposits, I've got to manage my payroll, I've got to remit my sales tax and I've got to run some periodic reports to see if I'm making money to see where my money is going. If I set up a budget to see if I've exceeded my budget in in starbucks, you know, maybe I want to have a coffee budget and I keep track of my coffee expense, but way weaken run periodic reports to gauge our success, but this is how we work with our software, those air the basic functions of what we're going to do on a weekly basis with their accounting software, and we're going to do it all the time every time doing it right in order tio make it work, and if you're using a cloud based service, you're still going to have to make these entries so that your accountant can know what your expenses are. Alright, accounting reports are going to help predict problems and identify success. Remember our balance sheet that's a snapshot of your business? We can see what our assets are we can see what our liabilities are we can see how much money of our initial investment we've got left the profit and loss statement is very useful attacks time it's going to say look, I brought in this much money I spent this amount of money it's got the depreciation included this is how much I have to pay tax on the income statement will show how much income you made in a month that's where we've really gauge the success of our business if all of a sudden over two or three months sales are going down on the income statement when we really had spent thirty thousand dollars in marketing in the two months before that which direction would we want to see that income going upright so if we know we've invested in marketing but sales are going down we probably done something wrong right? And we need to go see sarah petty yes all right so um accounts receivable that's who owes us money that tells us who the deadbeats are right and it tells us how old their debt iss if they always over thirty days are over sixty days or ninety days I don't like those ninety day debtors whoever shows up on that ninety day report you got to start putting the screws to him to get your money coming in because the longer you're dead ages the less likely you are to get paid on it. So this is where accounting is working for us. The numbers are now talking to us by aging, our accounts receivable, the cost of goods sold. If I'm safe, I've sold thirty thousand dollars worth of prince, but my software tells me it cost me forty thousand dollars to produce them what's that tell me about my pricing what's it tell me if my software is telling me I've sold thirty thousand dollars worth of prince, but it cost me forty grand to make him if I made any money selling those prints. So what do I need to do to my price? Right? So if you're having a hard time deciding where's my pricing, I just don't know if my client will pay it. It doesn't matter whether your clients will pay it if you're not making money selling it. Looking at the cost of goods sold number you need to look for another line of work or you need to do something very different. So that's that's what the cost of goods sold number could tell you. And then again, the statement of cash flows will tell you when you need money. If the statement of cash flow says hey in december, that's on all my insurance comes due and I need ten thousand dollars. You better make sure that you get ten thousand dollars in the bank account going into the month of december or you're going to be very sad at christmas time, right? And then you'll get angry letters from the government in january so the bookkeeper versus the accountant let's think about her second shooters how many of you guys have, like gotten a second shooter off of craigslist? I need a second shooter from wetting my clients paid me three thousand dollars and I just need some help and occupy you one hundred dollars if you come help me well the same example holds true pain our cry later I've hit some different experiences getting second shooters off of the internet and I don't do it that way anymore I've worked with a couple of people because they're professional they're qualified and we work well together the same thing's true bookkeeper version versus an accountant get somebody with an accounting degree if you can afford it ah bookkeeper is better than nothing but I recommend an accountant or sepia now what we're gonna do, we're gonna come up with a workflow now I'm going to talk about my work flow and tell you my my wife hates it I've got a new one um uh I'm a big fan of sam's and they have this great cart it's got all these color drawers in it my wife calls it the rainbow bright cart and she keeps making me put it in the closet but each drawer has a different a bit of paperwork in it that I address on a different day so the top drawer is bills to pay the second drawer down is, um deposits to make and it's got my chequebook senate the third drawer down is in voices that have been paid that I need to intern into the accounting system the next one down is bills invoices that have come in that I have paid to be entered into the accounting system and so forth and so on so I've got this color coded obnoxious drawers in the office and home that I used to kind of keep track of what I need to do and when I need to do it and if you have weekly progress where you know in monday's I'm going to pay all the bills maybe only after you every two weeks I'm going to pay the bills every two weeks and I know I'm going to do that on monday cause I'm not really busy you'll make sure that all your bills get paid on time you're going to make deposits usually weekly so that you can have money tio spend and you have to send out your invoices if you're not telling your clients what they owe you, you can't be upset that they're not paying you so you have to send out statements and you know, nothing's worse than, and I've done this, I'm guilty of it all crap. So and so from two thousand twelve never paid me the thousand dollars that she owed me for the upgraded metal cover on the graphic album in the ten extra pages on the spread, you think they're going to be excited about going back and paying that two years later? No way so you have to have a workflow and you got to manage it. We've got to stay organized and keep our receipts now what's that mean we have to keep our receipts for three years? The irs can audit you back three years, five years for fraud and here's their opinion of why receipts are important. If you don't have a receipt, you don't get to deduct it. So if you go to the gas station and you say I'm buying gas, I don't need a receipt that's fine if you deduct it and get audited, your auditor will disallow that deduction and you'll have to pay tax up to sixty percent potentially on your gas purchase. So if you filled your tank up with seventy dollars, where the gas, um, you know, forty two dollars in tax on that because you chose the no receipt option that's scary to anybody, get a receipt book, put it in your car you have to keep track of your mileage in your car we're gonna talk about car mileage later but you have to have a system and you have to follow it and if you don't track every mile on your car you don't get to deduct those miles you have to show the mileage that that started the mileage of the ends you need a mileage book in your car that your receipt for your miles driven they're very cheap in getting it staples or office depot mileage book that's part of your system and then I need this from you guys can you all just tell me not to progress tonight please don't procrastinate the audience says that is one of my weak spots I am a procrastinator a rabbit chasing procrastinator I will run off and do anything else other than what needs to be done right then and there and I tend to do things at the last minute that's a weakness and if we recognize our weaknesses we can help prevent our failure that flows from those weaknesses so don't procrastinate all right so it's tax time what kinds of taxes do we as photographers have to pay let's start with sales tax the sales tax is a tax in your state in a very in a rate that depends on where your business is located they vary it's not uniform that we pay on all of our sales of goods what we collected our clients pay the sales tax now I'm just going to say this once, trust me on it. I've never had a client tell me that they didn't want to hire me because I told them that they would be charged sales tax on the entire amount of their purchase, including their album, shooting, the wedding everything, so if they spend five thousand dollars, they're going to spend, they're going to pay sales tax on five thousand dollars I don't try and divide it up of, oh, but I was really just at the wedding for so many hours, and then the album is this component of the overall package, et cetera, your state's don't like that they want you to charge sales tax on everything generally now talk to your account about that everything varies from state to state, but that is the general rule that we're going to start from the use taxes like a sales tax. So if our friends at adirama that are sponsoring photo week, they would love to sell you all the new camera, and if you spend three thousand dollars on camera, chances are your state has a use tax even though they won't collect new york state sales tax for your purchase, you're probably going to owe tax in your state, and you're gonna have to file a use tax return that text is a deductible expense, but if you don't pay the use tax, you're gonna be in trouble. In two thousand nine, in florida, they sent out a letter just two photographers, and they said, hey it, tell me your name, marisa, we understand you're a photographer, and chances are you had some out of state purchases, maybe some cameras and some equipment you need to file this return within thirty days and tell us about all your out of state purchases in sent us a check for this percentage on all of those purchases, and if we don't receive this sworn statement from humorous of the photographer within sixty days, we're going, come on at you that's a true story for photographers in florida and that's scary, and I can't predict whether or not it'll happen again in the future, but these in these tough economic times the taxing authorities, they're going after the low hanging fruit, apparently that's us photographers we have withholding tax if we have employees, we might have to pay that monthly or quarterly or weekly, depending on how big we are the self employment tax, the income tax, personal property tax in most states, really property tax out of other states um, and then we have to report all of those those taxes by the deadlines, what are they? Well, here's some of the tax return return deadlines that you need to know when my income tax return dio wins myself employment installment to about federal withholding when away send up my w two school about my tibia threes are dyson ten ninety nines that I have to file all my gosh, what about it to ninety six? I don't know in order to ninety six years, but that guy in creative life said it had to file a ten, ninety six I'm not sure what that is and then I've got federal unemployment and state unemployment I don't know it all and I lions and tigers and bears oh my I don't worry you don't have to know all these deadlines, you just have to know that they exist and then we go get a little professional help, right? We go to our accountant and we say, look, I don't know all these deadlines are and I'm happy to write the check sex and I'm happy to go work make the money to pay all of these things, but you got to make sure that they get paid on time cause I'm not good at that I'm all over here in this brain and you need to be in that brain and that's going to bring them together ok, yeah, I'm with you sit with the use tax how does that work for you? Online purchases overseas that seems like it could potentially get kind of murky. Oh, it's not marquis. If yes, the states if you go buy something somewhere else and you bring it back into their state the moment that it crosses the border did you like that? I might do it again crosses the border the moment it crosses the border back into your state. You also used texas that only if you go out there. What if you buy it online? That's that's what I'm talking about once once amazon dot com once that ups truck puts it on your front doorstep, you owe the tax on it. Even overseas purchases, they don't care where you come from out tour space, you could get a you know, by a meteor from the zebra lan galaxy and once it shows up in our you know you owe on it. I mean, it's, it's tough and a lot of folks have a hard time getting their head around that because they've never heard that before, but for instance, my home county were there in acting. We didn't used to have a county use text. We've always had a state used tax, our county's going, you know what a lot of people buy stuff online and a lot of people are honest and they're filing their used tax returns we're going to go grab our little county share of its now they're going to put in another percent or so it my county level on my out of state purchases and you know you've got to ask the question, what use text do I owe in my state? So write that down on a post it note next to your computer if you're watching at home, check on use text, do I owe it? How much do I owe and that's just to clarify that's only for stuff that you're using specifically for your business, right? Yes, if you if I decide that I want that onion chopper thing, you know, you have seen the slap number slap chop. I want one of those my wife won't let me have it if I want to buy the slap topper to go with my rainbow bright, you know thing over here so I could stop some onions, you know is personal, you have one, okay, wait. So anyway, my personal purchases that would the use tax would apply to my personal purchases as well? I can't deduct those is a business expense, but that's they're going after everything aa lot of folks in missouri would go buy their cars in arkansas or, um um, uh oklahoma or kansas or other neighboring states because they could avoid paying that county portion of the ustad the sales tax we just pay a use tax on it so you could save thousands of dollars by going by in a car out of state because our sales tax didn't apply to it they're trying to correct that now everybody wants more money but anyway we got all these deadlines we've got to meet them, we're going to go higher are professional and then we're going to avoid the seven common tax mistakes. Yes, ok, one last question. All right, so what about if you are like buying something off craigslist? How honest are you pretty honest if you buy something there, there are exemptions in many states for small personal purchases between consumers, okay, that aren't between merchants and many states have laws that exempt small purchases where we don't have to pay sales tax on them and I would encourage you to talk with your local account about that, but chances are for small personal purchases your state would have a law, they would say that you don't owe tax on that makes sense. Now I will just very, very quickly let's talk about sales tax let's say that I'm going to sell my client ah graph e book very large beautiful graphic book with a nice uh uh cover they're going to get the free uh, minion books that come with them I am not going to pay graphic studio sales tax on that it's exempt because I'm purchasing it for use in my business because I'm going to ultimately collect sales tax from who my client, so I don't have to pay sales tax on this because I'm using it in my biz this in addition, in my state, if I invest in my business by buying a machine like a camera, I could claim an exemption from the sales tax or the use text because I'm capitalizing my business with equipment and that equipment is going to turn out pictures, and when it turns out those pictures, I'm going to collect sales tax on what the pictures so I don't have to pay sales tax on the camera. I don't have to pay used tax on the camera because it's being used to manufacturer a product, so there is a manufacturing exemption for big ticket items. They're used to make what we generate as photographers, be aware of that, talk to your account about it, and that will help. I mean, some folks on probably, you know, having a fit or a convulsive seizure at home, thinking about all of the sales tax that they haven't paid, there are exceptions talk to your account about if you bought us a camera that and paid sales tax automatically, because you're buying online, then can you take that off protection you deduct everything I mean if you've paid sales tax on it you deduct the tax also I mean that's the cost that it cost your business to acquire it so we've got some common sales text or some common tax mistakes what did I say is the number one mistake that's going to cause the government to you two show up on the government's radar not paying your sales tax. Okay, the second one is not saving your receipts do you get to deduct it if you don't have a receipt no see, I've got some some converts uh deducting the full cost of your meals when you have a business meal I had one last night here in town was delicious. I get to deduct fifty percent of that not the whole cost the government done let me spend as much money on meals as they used to not paying my self employment tax. What is the self employment tax that's the employer and the employers employees share of medicaid and social security fifteen point three ish percent but on lee on the first one hundred thirteen thousand seven hundred dollars that you make so there's a silver lining the last thing is the botched home office deduction for those of you that have studios at home like I do, my house has x square feet I know how many square feet my studio um exists in and I get to deduct ah square footage deduction based on how much of my home I used for my business, I can't deduct the whole house lots of people do and this is the easiest way to pop up on the government's radar is to botch your home office deduction, so make sure that you understand it if you don't your accountant does, he can help you and you will be safe so basic deductions we're gonna go ah dive into this slide full screen so that we can walk through it very quickly get about a half hour left and we are at about the halfway point we're going to pick up a little bit of speed we've got our lab charges and we're on the screen full full screen we've got our travel new equipment are officer phone our rent, our software website, promotional items, books, magazines, business license fees, et cetera, cab subways and buses, equipment, film developing remember film um internet, legal and professional fees and memberships and your mail and postage if you're if you're paying mortgage interest or taxes, office supplies, promotion props, seminar software staff he's rent studio supply stylists and makeup tax prep in telephone this is not an exhaustive list by any means, but it gets you thinking about all of this money that you're spending is offsetting your income so we're not paying tax on the amount of money that we make his photographers to the extent that we're sending that money back out to be in business our goal and hit one of my colleagues in springfield very successful businesswoman said we're talking about taxes, she said, you know, I don't ever worry about taxes because every year I break even she's very pleased with it at the end of every year, she neither made money nor lost money don't put that in your business plan. Our goal in our business plan is to make a lot of money now everybody needs to know this number. I want you to figure out in your community what the entry level wages at wal mart now it varies from the east coast to the west coast, but you must know this. How much would I make if they got the most basic job at walmart? How much would I make in a given year and numbers about seventeen thousand five hundred dollars? If you can let you work about thirty nine hours a week and they pay about eight twenty five dollars a twenty five an hour right, your goal should be at the end of the day to haven't leased at the end of the year is enough money in your bank account to equal what you would have made being an entry level employee at wal mart do you agree with that? I mean it's ridiculous because none of us want to do that. We want to be more successful than that, but we have to set some goals and we have system floors to know that we're failing if we're not there so we have to know what that number is. We've got some deductions, they're going to help maximize our income. Uh don't forget your internet hosting website design fees these little fees that creep up on us that we forget about our insurance and vehicle expense and we're gonna we're gonna love on section one seventy nine a little bit the home office deduction is great don't fear it take it but understand it and do it correctly we're going to make sure that we write off our utilities in our house as well. Um, and again our credit card processing charges that's often overlooked by folks if you do ah decent number of sales by credit card, you will pay a wild amount of the fees to the credit card bandits you know they're processing fees. Interchange fees is about three percent plus anywhere from ten to twenty dollars a month don't forget to deduct those the government wants you to deduct them now let's talk about deducting our expenses we had a question earlier about whether or not we could deduct our personal expense our business losses against our other wage income how many of you all have day jobs day jobs, got a day job or two aa lot of photography? Was there working professionally have wage income that they used to support their photography habit? Now, sadly, though, used the money from the day job to to finance their photography activities, not realizing that in fact, there losing money, doing their photography work and whether we're doing photography full time or just a zahabi I submit that you need to clear is enough money at the end of the day per hour for however many hours she choose to devote to your business as you would if you were working an entry level position of wal mart. Ok, because that's, we know that that's a base level it's reasonable that an achievable so in order to offset our wage low income from our day job with our photography losses and chances are in your first year it's not unusual to have a loss on the irs, doesn't care if you have a loss, you can't be a hobby, you got to be a business and there's this concept that we're gonna have to get our arms around the hobby loss rules, we're going to go through it very quickly, but go to the irs website irs doug put in hobby loss rules, spend some time with that. That's another take away if you don't understand that your account is not going to help you be able to help you take your photography losses and deduct those against wage income, we've got a question from the internet. Well, craig it's, just a common I want people to definitely pay attention to this because I was actually audited by the irs and survived. I survived, but the main thing was over the the hobby of loss. So this is important stuff is very important, it's not just some lawyer guy up here saying it, this really could happen to you. It happened to me, and I do have to say I came out ahead, but this is what they were questioning me on, and actually the irs code me three thousand dollars at the end of the day. That's fantastic, because you missed some deductions, I did, and they help you find him. Hey, it is not our goal. So let the our irs help us find our deductions. We want to find them ourselves, okay? We don't want to go through what she had to go through, but make sure that you understand whether you're a hobby or business. Generally, the irs presumes that you are a business if you've made a profit in the last three out of the five years, but look that's a tough test to me because we've got a seventy five percent chance of tanking in year one so we can go back to some of the finer points of the test but you have to actively participate the active participation rule generally says this is not legal advice by any means, but you gotta work at least five hundred hours a year in your business that's about a quarter of a whole work here in your photography business so you have to be working a lot. All right, we're going to give away very quickly. One hundred fifty dollars, in vivid metal wall art to the winner of this question. You ready? Class who were the two co founders of creative life who were the two co founders of creative life? You got us, craig swenson. Yes, and chase? Ask the audience. Jarvis, he says and he's a winner one hundred fifty dollars, in fantastic metal wall art for miller's appreciate their their sponsorship. All right, who wants a hummer? Let's talk about our vehicles. Okay, now, listen, I'm in washington state right now, everybody apparently drives a prius or the honda version thereof. I apologize in advance of this offends anyone but the I r s is encouraging this. The congress is encouraging this, not me into section one seventy nine is the ability to take all of our expense and make it go away in your one and not wait five years to depreciate our camera or our computer or our car and we all need a car in our business if you live outside of the metropolitan area with great public transportation in two thousand thirteen we can deduct five hundred grand and expenses in year one that's a lot more than most photographers will expand we can purchase two million and stuff and we get bonus depreciation and it allows us if we buy a vehicle that has a gross vehicle weight rating that's gv w greater than six thousand pounds we can write off in year one twenty five grand of that purchase now this is a big deal you can look this up online there's lots of good information on it accurate information because it's widely talked about but we can deduct twenty five grand now the problem with buying anything less than six six thousand pounds is the irs calls it a luxury vehicle I kid you not if you buy a ford taurus with no air conditioning it is a luxury vehicle that's what they call it it doesn't really mean anything it's kind of a term of art attack it's a luxury vehicle limitation but if you go by a pickup truck a quarter you know court half ton or three quarter ton pickup truck or ah honda pilot there's a list of them that's that's somehow a commercial vehicle and we were not subject to the luxury vehicle limitations and we can deduct it all in the first year let's, look at this uh in a section want nights one seventy nine example let's go ahead and go full screen on this if we buy six hundred fifty thousand and equipment that's a crazy number but I just want you to see the tax savings that first year we can write off five hundred grand. In addition, we get seventy five grand bonus depreciation we get to add back in our normal first year depreciation so our total first year deduction is almost six hundred thousand and in a forty two percent tax rate we get to shield two hundred forty seven thousand eight hundred dollars from actual tax that we would pay that's a quarter of a million dollars that we would have paid in taxes had we not taken these deductions. So you see how this is a big deal. Now this is on a large scale but weaken boil this down to a photographer by in a car let's say that we bought a standard suv like a trail blazer or ah my cr v a honda cr v right that sounds reasonable we could get all our gear in there and into a gig let's say we spent thirty five thousand on it we get to ride off eleven we get to take our first year depreciation. Our first year deduction is twenty grand, so our tax savings that forty two percent is about eight thousand dollars and that makes the equivalent cost of our car twenty six thousand so we just got a thirty five thousand dollars car for twenty six thousand makes you want to run out and get one, doesn't it? But wait there's more slap chopper fans what else could I what else could I buy that might save me more money, huh? Let's buy a gas guzzling truck because the government encourages me based on our tax policy to buy something that is wasteful all those super cool no, I admit I do drive a two thousand thirteen three quarter ton dodge ram with a fantastic cummings turbo diesel all right, I make no apologies for that because if you buy a thirty five thousand dollars truck this is the same price. But now all we have is the sticker on the door that says that the vehicle weight rating is six thousand one pounds look at my tax savings thirteen thousand dollars so the equivalent cost of that car and you're one is twenty one thousand five hundred and sixty dollars now I've just saved five thousand dollars by buying something that uses a bit more gas what choice would you make? No think about it but that's the cost after tax savings here's a list of qualifying new vehicles that you might be able to consider to take advantage of the one, seventy nine deduction all of these vehicles have to my understanding vehicle way ratings of six thousand one pounds or more mercedes benz g l class too nice suv you could be driving one today the government will pay five got the government will pay uh thirteen thousand dollars of your new vehicle purchase makes you want one doesn't all right um you know we've talked about maximizing our deductions very quickly in the bonus material for those that purchased the course I dive into a little bit mohr the different retirement plans that we as photographers can take advantage of but every year by tax time I get to elect to contribute up to twenty five percent of my income after deductions into my sep retirement plan and that is super cool because that takes that amount and shields it from federal and state taxes so in the bonus material will talk about the ira the sad and simple plans which are great for us a small business owners ah the set plan if you do choose to use that you have to offer the same benefits your employees but if you have no employees you're only making the retirement contribution for yourself and being able to take twenty five percent of your your net income and sock that away and not pay tax on it that is huge just like buying the car you're not paying tax on that amount of money, right? But we need to maximize the section one seventy nine deduction the home office deduction even charitable deductions if because there's a if you form an llc, you're still reporting your income on a ten forty schedule c so if you make charitable deductions to your business where your business doesn't get to deduct it it's all on your tax form so you still get to maximize the tax savings of that of course vehicle mileage talk with your accountant on the best way to keep track of that whether it's actual cost me in gas and insurance and maintenance or just a per mile deduction many times the per mile deduction is the way to go. So look, we talked earlier about sales tax and I just want you to understand that we've got to collect sales tax basically on everything all right? I'm not going to go back and go through that again because we dove into it a little bit earlier but there are some crazy sales tax locations now for those of you joining me from california, I do not understand california sales. Yes, I tried at one time to prepare myself to talk about sales tax in california, but the document online that they used to explain sales tax to photographers in california is fifty one pages long and it is actually possible in california to to have to pay tax on up to two hundred percent of the combined cost of your materials and labor for a gig, which means let's say, I'm doing a fantastic photo shoot, and I bring in lighting guys, and I bring in makeup artists, and I bring in, um, all of these thieves, thieves, different vendors to help me with my shoot, they will make me pay sales tax on up to two hundred percent of what I paid to produce the shoot, even if I was only getting paid my day rate of fifteen hundred dollars, they charge you on what you spent to make it, not just on what you made off of it. Now I don't like I said, I don't I don't purport to know everything about california sales tax, but if you want to read the fifty one page publication to tell you how to do it there, it isthe good luck so there's some crazy sales tax locations in it, it benefits us those photographers to know what the rules are and follow him again. In two thousand nine, we talked about florida, and it reminded me they went back three years to look at what you bought out of state for three years. And it wasn't just that you were paying that use tax on what you bought out of state that year they were asking you to fess up to what you purchased over the last three years and I ask you, I ask you what what would you do if you got one? I mean, it puts you in a tough spot. You're gonna have to swear under oath when you sign one of these letters whether you bought it or not. And you know, before you were you might have been in trouble for not paying your tax, but now if you lie on the form you're guilty of perjury and that's not a spot I want any of us to be in so again get legal stay there. Um, we do get to avoid paying sales tax for anything that we put into our finished product. So whether it's great wall art miller's or the graphic albums or small books, we also can avoid sales tax on what are our other consumables that we need to make our products? Our cameras are cf cards are film our scanners that we use exclusively to to do our business work um, any kind of lights that we buy, but look here's the deal and this is our other takeaways is our fourth take away. Anything that we deduct, we have to use it fifty percent orm or in business and you only get to deduct that proportion that you use in the business. So keep your business assets business, your personal assets personal. I have a personal computer and they business computer. Why? Because when you get audited, they're going to say, did you ever use your business computer for personal reasons? Well, I only have one computer. Well, what personal portion did you two docked over the last three years? Why deducted it all expensive year one just like that heideman fella told me to do. All right, well, that's fine. We still have this fifty percent business used test and if any year you buy an asset that doesn't meet that test, you have to go back and pay tax on it. Okay, so when we talk about sales tax and deductions, we have to make sure that if you put those items to a divergent use or to a personal use, your going to need to talk to your account about it, they're special forms that you have to fill out, declare that it's no longer a business asset makes sense. I mean, generally the government doesn't want you to deduct your personal expenses, so keep your business assets business, your personal answer. It's personal, the ten, ninety nine what is that who uses the second shooter? We use second shooters, and if they're true independent contractors and we're going to zip through whether they are are you have to send him a ten, ninety nine if you pay the more than six hundred dollars in any given year and that's, what tells the government how much that independent contractor those tax on? So if you're working as an independent contractor and you get that ten, ninety nine uo the tax on all of that money, um, accounting software like quickbooks will automatically generate ten, ninety nine for everybody that I put. I wrote a check. You know, if I put I wrote colton a check for one thousand bucks, it will automatically generate the ten, ninety nine if I wanted to, but you have to calendar the deadlines and meet them. The ten, ninety six is, of course, a form that we send in to transmit that to ninety nine to the government. Um, we talked about earlier the self employment tax, but and again, it's fifteen point three percent that doesn't apply to our employees. Now, if we have employees and that's somebody that you have the right to control, um, the irs has a twenty factor test on whether somebody's an employee or versus an independent contractor, and it comes down to your right to control them you get to tell him what to do, where to be and how to do it, and you give them the equipment there, an employee we owe tax on that if, however they can substitute and send somebody else to do the work you hired them to do, they used their own equipment that compete against you. They worked for other folks. They're an independent contractor, and you don't have to withhold tax on them. S o knowing whether or not they're an employee versus an independent contractors important, you might have to pay work comp on those that's a deductible expense. You need to know whether or not you all were calm. You might have to pay the minimum wage, keep track of their hours, but employees, they're generally worth it. I mean, they help us get our work done, uh, and they are loyal to us independent contractors. You know, the big thing that I'll just mention is a bonus takeaway. You may love independent contractors because you don't have the headache of paying tax on them and accounting for it, but your insurance probably doesn't cover them. In the event they hurt somebody. Or drop the soft box and studio light onto the darling little baby laying in the beanbag, you know, an injured them. Your insurance may not cover it, and you may have a real problem there if you're classifying them as an independent contractor there's also some risks of misclassification. If you do miss, classify them, you can, they can audit you and go back and make you pay all of those taxes three years back or however many years back, and that can put you in a bad ah bad spot. So you really need to evaluate the pros and the cons of having an employee versus an independent contractor. There are costs and benefits both of course, withholding the taxes of recordkeeping thing, but look, you've just figured out this whole accounting thing, there's nothing to it, I'm going to hire an accountant, I'm going to learn how to set up my software. I'm going to track the expenses and life's gonna be good employees were generally worth it. Of course, the independent contractors get to compete against you, don't they look competitive there on the screen? They are competitive, and if you are worried about training up your, you're independent contractors to take your skills that you're giving them and they're going to set up shop next door to you and take your business away, you might consider making one employee using an employment agreement, theism business forms that I put together for employees and independent contractors and there's other wedding contracts and things like that on it but having an independent contractor agreement is critical to the relationship if you do get audited and you have this kind of a form where you've set out each job you're not going to get hit with the taxes on it likewise if you're worried about them competing against you you can use one of my employment agreements uh that also contains a confidentiality agreement and ah noncompetition clause where we can control how much competition the folks who were expensing uh can compete against us and so we put together a non compete agreement again I'm going through this kind of fast just so you understand the issues and you could make a decision on how best for your business to deal with it um but if you're interested in it you go to craig heideman dot com I've got a creative live special for eighty nine dollars you get over twenty five legal forms including the wedding contract all of the employment agreements model releases etcetera on dh there's a list of all of the forms if you want to see them in more detail it craig height of men with two ends dot com eighty nine dollars get one of those shipped out to you a question about your forms are they editable? They are they're all microsoft word documents on def you've got an apple you get the office plug in and edit him on on your mac but yeah, they're all editable they're not in pdf format you can make them your own and I put in yellow everything that you can change like if you go back tio one of the forms everything that's in yellow you need toe take a look at I'd think about changing and making it right for you just makes everything go so much faster and I haven't everyone of my second shooter signs one of those for every gig, so if the government comes knocking I'm ready for him if you're audited, stay calm, don't freak out, find your receipts and call your c p a don't go to the audit meeting alone, right? So they're going to want to come meet with you and they're going to see your shoe box of receipts and you know you start put print out reports and things like that it's going to go much smoother, you can justify your deductions don't freak out um home stretch folks this is scary stuff you're ready, we have to account for his employees and employers are responsibilities under the affordable care act that was passed by congress in two thousand ten this is commonly known as what obama care, they all said in unison without their microphones but with such such volume and passion that we could all feel it all throughout the internet, what does it mean it means that businesses that have the equivalent of fifty or more employees have to purchase health insurance for their employees or allow them buy insurance through equivalent exchanges will look forty six percent of the entire working population in the united states give or take is fifty or more employees everybody else is under that that's probably most of the folks that are watching this today work for an employer that has less than fifty employees. So what does that mean? Well, as a business owner is a photographer, smaller employees have certain disclosure rick cool requirements now this is a tax law obama care is implemented by the I r s so that's why this is important in tax and accounting for photographers because these air I r s rules we have to tell our employees look here's what the law is here's what you've got to d'oh it requires us to tell employees about health insurance exchanges and the implications for participating and not participating in it means you've got to go out and buy your own health insurance, right? Yeah what's your name? Do you have health insurance? Ok, you've got health insurance but let's say that somebody here doesn't have health insurance. This new law means that you have to go out to your state health insurance exchange or some other provider and by minimum health insurance at your own expense at your own expense at your own expense? Yes, it's deductible in our accounting software and yes, it offsets are taxable income, but if you don't have five thousand dollars a year going by the insurance, is that a problem? Many people aren't able to do it, but under the affordable care act we have to do it. So we also have to tell her employees about it there's this individual mandate that's part of the law and the individual mandate says that we have to, um, share the responsibility for health care in the united states by going out and buying on our own. All right, and these exchanges were supposed to make it cheap and affordable for us, but here's, the reality of it missouri state that I'm in, we've decided we do not like obamacare in our legislature has actually passed laws making it difficult too create these health insurance exchanges in our state, and our state has an elected not to create one. So if I as an employee, a sole proprietor who has to go out and buy the health insurance, who can't afford to go out and buy it on the whole open market because perhaps a pre existing condition and I'm looking to my state's health insurance exchange to give me affordable care there's none there, so what's that mean for me, but wait there's more um does it get worse? Yes, if you work for an employer with less than twenty five employees, you have to get your own health insurance, and your children are subject to this penalty. Now what that means is if I can't prove by january first, two thousand fourteen, that I've got health insurance, my maximum penalty that the irs khun subject me to, which means this is a bill five grand for an individual or up to twelve thousand five hundred dollars for a family now that's scary stuff. So you've got to be planning ahead because the date for that is coming soon january first, two thousand fourteen the actual numbers are a little bit lower. I mean, the starting penalty for an individual might only be ninety five dollars, but it's upto one percent of your family income, so if you have a day job, right, and you have your photographer job, they're going to look at the combination of your photographer income in your day job income to figure out what that one percent isthe. So this is super scary stuff. There are some exceptions. For instance, if you're a member of an indian tribe, if you're on medicaid, if you don't have a filing requirement, there's certain filing thresholds for individuals there's a hardship exception. If there's no affordable coverage options in your state, you can also claim another exemption. The rules for these things are not finalized yet, so you're gonna have to talk with your accountant about it. I can't tell you what all the rules are, because they haven't even finalized them yet, but you may have an exception that applies to you, it's going to be super important that you know what that is? Well, it's going to apply to your business? Yes, you got to pay the I r s so if you can't afford to pay the five thousand dollars tax penalty to the irs, you better be talking to your accountant about it. Now, the penalty might not be quite that much for you, but you've got to know what it is. In order to make an informed decision about it. You've got to make some thoughts, some parting thoughts. If you don't have the ability to meet all of these names, military expenses, what changes do you need to make today? What did we learn today about our pricing? What we learned today about the cost of operating as a photographer even is a small, professional studio. How much work do we have to do? I did some calculations, and if your your accounting software might show you that if you wanted to make that same amount of money that you need to make it wal mart and shoot thirty weddings a year. Your break even point for a package might be two thousand five hundred sixteen dollars. If you were greedy and you wanted to make forty thousand dollars a year, and he had some very basic, modest expenses, you might need to be charging three thousand three hundred seventy one dollars for your packages in order to make forty grand a year of the end of the year after taxes. So keep that in mind. It is kind of scary. But if you understand accounting and you understand how it applies to you and you can speak the language of accounting, you're on the, you're on the road to success. So thank you for having me. I hope everybody had a fantastic time today and took away a few things. Thank you so much.