Protecting Personal Assets
The other thing that I think we need to talk about in the survival guide is this concept of health insurance particularly. Now you've heard me Makesem offhand remarks about healthcare dot gov. We're gonna talk about that in a minute, but we need to think about getting some health insurance, because if we flip this back over and I haven't erased this for a reason, we've got medical on here, right? Medical or health care insurance. Remember that if we go into business, is a photographer and were not prepared to deal with our health needs, Obviously we can't continue to work, and that's a big component of it. Businesses that have 50 or more full time employees, which doesn't include most creatives we're now gonna have finds if we don't provide full time health insurance that meets certain federal standards to our employees. Smaller companies, which would include most creative companies. We don't have to do that. We have. There are some notice requirements Now, ladies and gentlemen, if you...
're employing employees as a creative business, you need to be familiar with the notice requirements. I think the notice deadline has passed for the affordable care notice to go out. But if you haven't sent that out, you might speak with your accountant or CPA or attorney about that. And there still might be time to get that out. Um, the law requires large and small companies to inform their employers employees in riding of their rights under the Affordable CARE Act. So, uh, it's part of this concept of the shared responsibility provision on this is what it means. If you don't have insurance by January 31st or obtain an exemption, you're gonna get charged a fee for every month. You don't have insurance on your year in taxable income. So for those tuned into creativelive, if you've heard this chitter chitter chatter about Obama care and who's for it, who's against it on? And you don't know what it means for you, you need to do some research on it right now because it's gonna affect everybody. Um, for more info, go to I R s dot gov and search shared responsibility provisions, and that will help you learn more about how this Obama care Affordable care act is gonna affect you because it's it's gonna cost you money. If you don't comply again, go to irs dot gov and search shared responsibility provisions. There are some exceptions to this individual mandate that you have this equivalent insurance coverage. If you have insurance through an employer already, you don't have to do anything different if that employer plan meets the federal guidelines and there's some hardship provisions, etcetera. If you're covered by Medicare and Medicaid, you don't have to go out and get new insurance. Now remember, if you work with an employer, if you work for an employer with less than 25 employees, you have to get this insurance or pay the penalty and your kids are subject to the penalty, too. So if you have Children and you don't have insurance, um, you're gonna find that you're gonna have to pay this penalty. Who do you pay it, too? The I. R s. It's a tax penalty. That's the way they designed it. So if you don't have this coverage, you pay it. Teoh, uh, the I R s. At the end of the year, the maximum amount is it's difficult to figure out. Some say it's small. Some say it's large. What we know is what the cap is. The cap is, according to the Congressional Budget Office, it's gonna be the penalty is what's gonna be to 5000 for individuals and 12 to 25 for families, and then it's a percentage backed off of that. So it can be kind of kind of scary If you treat yourself as an employee, you get credits if you go out and buy it. So businesses with fewer than 25 employees with average annual annual wages of less than 50 are eligible for temporary tax credits, and the credits increase going forward. So if you treat yourself as an employee, you can deduct the cost of your insurance, plus get a 50% tax credit. Thinking Ning Ning Ning Ning Ning Text credit is where you owe taxes and they give you a credit towards those taxes. It's better than a deduction. It's like a deduction on super steroids. It's where you owe $100 in taxes and they give you $100 text credit and it cancels it out So there can be some advantages to small employers that actually go out and buy the coverage, so you might want to check that out if you think that this will, this is going to apply to your photography business. So, you know, you probably want to buy some health insurance If you don't have it or you're gonna potentially pay up to a $5000 tax penalty to the I. R. S. It's not guaranteed to be 5000. It depends on your individual income levels, etcetera. But if you've got to make another five grand every year for health insurance premiums, do you think you can afford to pay all of your costs of your business? If I said we're gonna increase your bottom line expenses by a 55 grand next year, I mean, we got to start planning for that. This needs to be factored into our business plans that we talked about at the beginning of the course. We have to start thinking about this affordable care act. Does it make sense to give away your photographs for basically free? If if you're gonna have to pay another up to five grand for health insurance, I mean, think about that. How much more important is it to know your true hourly cost to cover your bottom line? I mean this just gets us thinking about this serious decisions that we're making getting into, um, getting into this. Let's talk about the auto deduction cause everybody needs to drive. Right. I'm gonna tell you how to do that, right. We're gonna We're gonna finish strong. There we go. Keep one more forward. Forward, forward, Forward, Forward. I think you're going to want to go the other way. It's coming. So we've got business use of auto. What's that mean? We're gonna deduct some things. Keep going right there. I love it. Um, we've got the ability to write off certain equipment under section 1 79 of the tax code in year one. That means we don't have to depreciate these assets out over three years or five years, which normally a computer's a three year asset. I think maybe a five, but it allows us to write that off against our income in your one, and we use section 1 79 of the tax code to do it now the Section 1 79 limit for all business property in 2013 as half a mil. Your purchase limit is two mil. But you get this bonus depreciation depreciations The concept of we take the value of an asset we see. Look, this thing's gonna wear out over time. So what do we do? We let you expense this asset that you bought in these various tax years. So double declining balance depreciation is one way to do it where you take it and you, you divide it across the number of years, three years or five years and you get to take twice as much in your one and then twice as much is whatever's left over in year two and so forth. But here, if we go out and we buy a car, let's make it not a big car. Let's say we just go by. Ah, Ford Taurus. We're not going to get to deduct hardly anything on that Taurus. We might get to deduct the standard mileage rate, but we're not going to get any kind of a true deduction against our actual income if we buy a little car. So what we can dio is in this tax year if we go by a big fat homer Humvee, uh, pick up truck large vehicle that has a combined vehicle weight rating of £6000 or more. The government will let me take a $25,000 section 1 79 deduction in this tax year. That means if I had 25,000 and photo income and I get that full $25,000 deduction, I've had to buy a Hummer to make that happen. I don't know any taxes. This is your government. Folks are government. I didn't pick the law. This is just what it iss. So in addition, if it costs more than 25 grand, you still get to take the bonus depreciation. Plus, you get to take your standard depreciation. So that's fantastic. Let's look at how it looks. Let's say that in this year I bought 650 grand worth of stuff. I could write off 500 grand of it. You get this 50% bonus first year depreciation of 75 plus my normal first year. My tax savings on spin and 6 saved me almost 1/4 of a $1,000,000 under the Section 1 79 deduction scheme, and at a 42% corporate tax rate that be over almost 600,000 bucks, Um here's an example of by and, uh I mean, this is kind of a nice uh Let's say it was my I used my diesel pickup truck about a Dodge Ram diesel, which is more than £6000. I was able to let's say it was 35 grand the first year, right off his 11 plus. You get your normal first year depreciation at the double declining balance, plus your first year deduction to get a tax savings of $8667. Which means that truck, after taxes on Lee, cost me $26,000. That means the government paid the difference between 35 26. That's insane. I love it. So let's buy us a gas guzzling truck and show you how it works. I get the big oil here. Sorry for all you Seattle folks. My buddy, uh, Jeff Jeff Fong. He lives out here, and he took me for my first Seattle tour in his Prius. That was my first time in a Prius, But let's buy a big gas guzzling truck. Here we go. Um, I guess we just did that. We bought the truck, didn't we look what we saved. Let's by 35 away. That was for my I'm sorry. I've lied to you. This slide was for a standard car that doesn't get the, uh, the 1 79 deduction. Look what your tax savings is. See that? Now, let's by the truck. Same amount of money. It's 13. So how much more did we get here is a standard car. That's your Prius. You get an $8000 to preach 1 79 deduction depreciation deduction. You buy the gas guzzler, you get another what, 5000 bucks? So that's your costs. After tax savings, here's what your passenger car would cost you. That's what your £6000 car would cost you because you don't get that 1 79 deduction. You're just left with the, uh you're just left on the car with your first year right off. Um, plus your normal years depreciation, so your account can help you with that. Don't get too lost in all of that, but here's some qualifying new vehicles. You could get a Tahoe, an Escalade, a suburban. An expedition in the bonus material includes a complete wish list of all of your £6000 greater cars that you can tell your accountant you're gonna go by so that you can get the best tax savings possible. Um, makes sense. Yeah. Do you have to buy that vehicle outright cash or can be financed? Now you can finance. Yeah, you can definitely find Answer. Yeah, Bob, if you already personally own one of these gusts guzzling things can you sell it to your company? Yes, but yet money has to actually change hands. So you can't deduct what you haven't paid for you to actually have to pay your come your company, you have to pay for it, which would be okay, but they need to have income coming back into you that you'd have to report because you've sold the truck. You know what I mean? Because you've got income coming into you personally. See, they have personal income tax liability, cause you just sold a truck and got money. So it be better to go get a new one? Yeah. So we is the first year of business technically started The day that you register your business starts the day that you first intended to make money and they can come find that out about your life. No. You know what that day is? You remember it. Don't you? Remember when you said to yourself I'm gonna gonna start this business? And if you don't, it's the day you registered, right? So, e I mean, there's no magical day. I mean, I form the company when I first started to do business as the company, if your company blue steel photography didn't exist until yesterday. Right? So I can't say that my business started before yesterday because it's a separate entity, right? Separate entity, the home office deduction. We've talked about that. The vehicle deduction. Putting your sign on your personal car doesn't make it deductible. I see all these photographers driving around with, you know, Sally Lee Photography L L C. Come see me. I'm Sally Lee. That doesn't mean that your car is deductible. There's a couple IRS publications. I direct your attention to 9 17 for business use of your car and auto expense deductions. Pub for 63. Here's the key. If you don't use your car 51% of Maurin business. None of these deduction rules. We're gonna help you. You can't take your personal car and just deduct it. Because you have a photography business, that car has to be used 51% arm or in business. And if not, it's not deductible, and you actually have to recapture what you've deducted in prior years. So you need to keep a mileage log, and you need to log every single business and personal mile in the car. You can get a Business mile mileage log it staples or at Office, Depot or online, but you have to track that mileage. And if you don't, don't deduct it. Yeah, being in business or having your own business and also going to school to help set business. Is that combined? Like I'm, I'm in school for photography. So right. But it also would coincide with my business or educational purposes fries when I so it would that also be considered 51% included. A warning Can't right off you go into school. No going to school getting an education to be a photographer. You can't write off that mileage, but if you're doing pro work while you're going to school, you can write off that mileage. Okay, so while you're in school. You're kind of in a difficult spot. Let's finish with the last item that we're going to talk about for the bonus materials, which is let's retire. And who was it online that told us We've gotta have? We've gotta have a plan for some retirement, Right? There are different ways that we a small business owners can take advantage of federal law to get to set up a great retirement plan. I like to use what's called the set, which is, Ah, small employers pension. And that allows me at the end of the year. And I don't even have to make this payment for last year until after I think it's a month after. No, it's due April 15th. So I have like January, February, March 3.5 months to figure out how much money to put into it. But you can put if you set up a set up to 25% of your taxable income that you make on any given year into a set. Now you have to match that for other employees if you have employees, but I don't have any employees, so that allows me for whatever I make in my photography business in a given year to take that money imploded into a small employers pension, and it sits in my Scott trade account. It continues to grow and make money, and I didn't pay any taxes on it, and I got a deduction for taking that money out of my account. So I didn't have to pay taxes on 25,000 bucks in that tax year. If that's how much I put in and then it grows tax free and then I pay tax on it when I take it out. The bonus materials include a summary of all of the retirement plans that are available to creative professionals, and it's fairly detailed retirement savings or super duper important, because if if you don't have a retirement plan, you're going to retire. Broker never retire. Half Ah, uh, of the retirement savings that we're putting towards retirement is half of what it was 50 years ago, and data from the National Institute on Retirement Security shows that the average working age household on Lee has three grand in retirement account assets, and the typical person that's near retirement only has 12. Well, 12 and go get you too far. And if you're living in San Fran, where you're paying three grand a month for a small apartment with a great view, you're not even gonna make it till the end of the year before you're out on the street. So these were some really things that we need to think about when it comes to retirement savings. We as a nation are baroque. We really are, and it's just kind of where we're at. So we need to as photographers as we're planning and having a plan, even if it's bad. Plan is better than no plan if we have a plan to set aside as much as we can for retirement savings and make it a priority over Starbucks. Sorry, Starbucks. I am in Seattle. I should have picked a different coffee. Um, if we make it a priority over Starbucks, we have a chance. Give yourself a chance, drink McDonald's coffee and retire sooner. Seriously, Disability insurance is another one that you might want to think about. What's that mean? If you fall down the steps of the wedding and break your leg? Uh, and you can't afford to make all of your equipment payments and your mortgage payments. What you gonna do if you don't have that emergency $5000 in the bank that is recommended, Everybody have. You better have some disability insurance. It's gonna kick in and pay your salary while you're getting healthy. Um, and likewise, your page. If you're living paycheck to paycheck, it done work if you're not breathing, and what that means is life insurance for your family is something you also ought to think about for a young creative with a family life insurance will never be cheaper. I mean, for 56789 $10,010 a month, $20 a month. You can get a modest amount of life insurance that would pay a year or two of your wages to your spouse in the event that something on unforced scene happened to you. So as we move towards wrapping up, I'd like you to consider the true cost of your passion if we think of some studio space and utilities and cellphone etcetera and so forth in advertising your total expenses for a modest photography business, assuming that you wanted to, it might be about $56,000 a year. How much would you have to do to make to actually make to break even to working at Wal Mart? We would have to charge a minimum package charge of $2516 shoot 30 weddings a year if you're a wedding photographer. So you gotta hustle Teoh, even equal what it would take to work at Walmart. What if you wanted to make the equivalent of $40,000 a year or $20 an hour? You'd have to earn $101,000 a year and to have a minimum package charge of 3400 bucks and shoot 30 weddings a year. Now, you all can do this calculation on your own, put together a business budget and answer that question. The very important question that I I we started with right here. Don't bring it back around. What do you need? This number we came up with with 75,000. So if we want to earn 40,000 year, this is what we have to dio. If you wanted to earn 80,000 year, you'd have to either shoot 60 weddings a year or you'd have to average almost $7000 per package on 30 weddings. Now those numbers vary in markets, but I just encourage everybody to do that math on your own and make sure that you're setting the right goals for yourself. So here's what we've covered. We've learned that we need a business plan, and we've learned the resource is to go out and find one. We've learned how to do a trademark search. Get a domain name. We formed a new LoC. We've come up with a system to deal with our employees and contractors. We now know what an accounting system consists off. We've got some accounting basics and had a QuickBooks intro. We've talked about the tax considerations and deadlines to running our business. We had a real demonstration of copyright registration. You now know all of the basics of a contract that you need to protect you and how to shield your personal assets. And I think we've covered a lot more than that. And if you haven't gotten a chance to hop online and pick up one of the business and legal forms CDs, go to Craig Heidemann with two ends dot com, the creative live special prices on Lee. $89 and I'll get one of those shipped out to you right away. So if you have any questions after getting that form, it's got my contact information in it. When the CD comes, feel free to email me and I'll do my best to help you with it so big, thanks to creative life. That's my contact information. If anybody wants to get in touch with me offline, and I really appreciate the opportunity to be here over the last two days, it's been absolutely fantastic. Craig, thank you. And you know, I often ask an instructor at this moment any final thoughts, just a final thought you'd like to give us for today. Hope is not a strategy way. We've gotta have a plan, and I think in the educational the photographic educational marketplace these days there is a great place for inspiration, and there's a great place for technical training. But unfortunately, people neglect getting a little bit of business training, and and I think that helps us that helps keep us from achieving our potential. So, recognizing that this this business aspect of our passion is Justus important is our creative aspect of our passion, I think goes a long way towards making sure that our businesses will be around for longer than a year.