What is the difference between federal, state, & sales tax for photographers?
Topic: Taxes & Accounting
Time Investment: 5 Minutes
Suggested Product: BizRevamp®
Please note: I am NOT a CPA or a Tax attorney. This blog post is merely to help unmuddy the waters when delving into your personal research of taxes, and to help you formulate questions when you go to see a CPA.
Business is so overwhelming. I totally get that.
I am well versed in education and experience of running businesses and even I find myself getting overwhelmed at times! I often see people write in forums, "I was told if I don't make X, I don't have to claim it." Yes, there are liability thresholds, however, it is often because there is confusion between INCOME and SALES tax. So let's check out these three major buckets!
There are three major types of taxes to keep in mind when running a photography business:
Federal Income Tax, State Income Tax, and State Sales Tax
There are other miscellaneous taxes but those are business formation and jurisdiction specific so lets stick with these. :)
FEDERAL INCOME TAX
Federal income tax is on your INCOME. There is no federal sales tax, that is a state driven thing (see #3 State sales tax). This is your responsibility to claim yearly during the dreaded tax time!
It is suggested that you save a portion of your income throughout the year so that you're not surprised at tax time when you get a bill from the IRS. Why would you get a bill? Think about it ! When you are employed by a "real employer", they have you fill out withholding forms and hold the money FOR you. When you run your own business and play accountant, you must do your own withholding!
STATE INCOME TAX
This is very similar to federal income tax, except it is at the state level!
STATE SALES TAX
If you have a business and are selling products, you are required to collect sales tax for your state. Some jurisdictions require that session fees be taxed for sales, others don't. But either way, you are required by law to charge sales tax on products that you sell. Don't fret, this isn't coming out of YOUR pocket. It is to be applied on top of your prices to your clients. You're merely the middle man. Sales tax permits are easy to get with states and are often free to obtain. Even if you have no clients for a taxable period, you must still file a sales tax return and input ZERO, or you'll get hit with a late fee!
Local sales and use taxes are collected based first upon the photographer's place of business. If the photographer is engaged in business in other local taxing jurisdictions, then he may be required to collect local use tax in addition to sales tax.
Sales tax permits are generally free to get from your state - some states do require you to pay! But either way, why not do it? Not to mention, it is the right thing to do!
I hope this helps to clear up and streamline the process. I always cringe when people ask a "tax" question but don't specify what tax bucket they are inquiring about - then I'm concerned because the tax authorities is not someone *I* want to mess with. :)
More helpful tools & articles:
Tax Issues with Bartering Photography Services
Where is photography sales tax charged?
Tax Deduction Checklist for Photographers
Tax Tools for Photographers
