How Do US Real Estate Photographers Reduce the Amount of Taxes They Owe?

March 11th, 2018

Ray in North Carolina says:

Just met with my tax accountant and received the shocking news I owe way more in taxes than I expected. Now a big part of that is my business is growing and I’m making more. Going forward, I want to be sure I am managing my business to be as tax efficient as possible. Has there ever been a discussion on PFRE, or is there a recognized guru who consults about tax deductible expenses for real estate photographers?

We’ve actually never had a discussion explicitly about minimizing your US taxes. And this is in many ways a discussion about general small business taxes. Here are some resources that may be of help:

What other US tax tips and tricks does anyone have to offer?

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10 Responses to “How Do US Real Estate Photographers Reduce the Amount of Taxes They Owe?”

  • Deductions are only going to get you so far. The real tax savings come with organizing as an S-Corp.

  • What’s with anonymous posts? Thought that was against the rules?

    Anyway, the only advice you should consider is from a good certified accountant. Not some shutter pusher….

  • Disclaimer: I have a CPA do all of this, and my explanation is based on what I understand from him. I’m no expert.

    I formed an LLC and file as an S-corp. Normally, a self-employed person would pay double taxes (both the employers half and the employees half). I did this for a few years when my income didn’t warrant the S-corp filing.

    By filing as an S-corp, the corporation now hires me as an employee, at a salary. Now only the salaried portion is double taxed. The rest is given by the company to me as a distribution, and not taxed on both sides.

    There is work involved. First, the salary has to be in line with what a “normal” employee in this kind of work would make. Next, you have to actually set up payroll for the employee, paying payroll taxes each month, creating a pay stub, and filing the payroll with the IRS. Second, the business has to be completely separate from the employee. I have a business credit card, in the name of the corporation, that buys all equipment, pays all dues, etc. There is absolutely no intermingling of funds. If I get paid, it goes into the business. The business either gives me a paycheck, or a distribution at regular intervals.

    I got my salary figures from a few job sites on the internet, and the Bureau of Labor Statistics. The CPA agreed with my salary as “reasonable”.

  • I went the S Corp route this year as well and will save a couple thousand in taxes.

    I also keep track of mileage and is probably by far my biggest deduction. I probably logged 35k miles last year alone.

    All expenses are placed on a business cc so I can keep better track of the charges.

  • Jerry Miller – as usual you are very clear and correct. The only advice anyone should take is from a CPA! Not only does rumor or misreading or misinterpretation of the tax laws have huge consequences, but everyone has a unique and different situation. Real Estate photography is no different than any other business except that instead of selling apples or haircutting, you are selling photography.

    There are so many good resources out there to find out about running your business and paying your taxes. I personally love the Arizona Small Business Association – aside from having great professional speakers and a host of great business advisors all included in the membership, it is a huge source of networking for our photography business. Other sources of information include SCORE – a group of retired business people who help others get on track. Then there are the courses at a community college.

    Although I coach real estate photographers on how to set up and run their business and a section is on corporations and taxes, lately I have had the client’s CPA in on the conversation so that the advice is correct to the situation. Yes, it costs more, but the results are more personalized and therefore more effective.

    My father always told me – if I was paying taxes – it meant I was earning money.

  • @Jerry Miller – Forgive me, I’ve given Anonymous1 permission to be anonymous. I assure you that he is not a troll. He is one of the best in the business and I consider him one of the original contributors to the PFRE blog. It was his idea back in 2007 to have a Flickr group associated with the blog. Thanks for your concern but I can see who he is.

  • A question for Ray who asked the question that sparked the post…I am also in NC and keep getting conflicting answers on sales tax from different tax professionals–what does your CPA say?

  • Whether or not a formation or change of business entity, such as organizing an LLC or incorporating, will actually minimize tax owed, will largely depend on both your personal situation and the state(s) in which you do business. In California, S-corps have an $800 minimum franchise tax that is essentially an annual fee for having a corporation. For most individuals in California, a minimum of $100,000 per year in net revenue would be necessary to make the process worthwhile, particularly when you include the additional accounting requirements and formal filings that you would generally be well advised to have your accountant prepare for you. But even that is not absolutely true and still highly dependent on that person/business’s individual factors. Never make a change like this without speaking with a CPA to investigate the consequences.

    As many of us are well aware, deductible business purchases are not a dollar-for-dollar credit against tax owed—you’re still spending money when buying something for your business, even if the expense does reduce the tax owed. The best way to legitimately minimize your taxes is to proactively speak with your accountant. If your business is trending upward, have a plan in place ahead of time as to how you will handle it, whether that means a change in form of business entity, transferring funds into a retirement account, the purchase or lease of new equipment, or whatever makes the most sense for your individual situation.

    @Kara Sheppard, what conflicting answers are you receiving? Are the two accountants making conflicting statements about the actual tax laws, or simply as to what their strategy would be? I think being an accountant is a lot like being a real estate agent, in that there are multiple strategies you could follow to achieve a similar end goal.

  • I am not an accountant.

    My best tax tip for the self employed is an easy one: set up a SEP IRA. It’s easy, it’s very inexpensive, and it’s good for your future. Save money on your taxes this year by setting money aside for your future. If you don’t have one yet, you can still file the paperwork and fund a SEP for 2017 before the tax filing deadline. You can set one up with a financial planner, or at a do it yourself online broker such as Vanguard of Fidelity. The IRS allows you to contribute the lesser of: 25% of your gross profit or $54,000 per year.

  • The IRS and the tax code are set up to reward two things: spending and investment

    That means you can buy equipment and cars etc and the more you buy, the more you reduce your taxable income. Any item under 20k can be completely written off in the tax year you are in, whereas over 20K has to be depreciated. How you do that depends on your own situation.

    Get a 401k going, and other tax exempt investments from somewhere like Edward Jones. I am invested in multiple things in which the interest income is tax exempt. They return me between 4-26%. So what I contribute is tax exempt, and so are the dividends.

    Instead of sending in quarterlys, I put 25% of every sale in into an Edward Jones personal account. Penalty from IRS is roughly $100, but dividends can be 10-20x that much. I draw it out in April, pay the tax, and reinvest what’s leftover.

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