Of course I report it. It's my job.

Just add up your income (from all photography sources), then add up your expenses (from same) then deduct the second figure from the first to determine profit a.k.a taxable income. If you can't work it out for yourself then pay someone who can. Simples.

Do your government want you to report the income you have earned, or the income you have recieved? We report the latter. This means that (if I didn't need the money asap, and I earned enough to get past the hobby-regulations) I could keep all my money at the stock sites, and collect them when it would be benificial to do so for tax reasons, e.g. a year my other income was low and my expenses were high.

I log in each of my payout requests and check them off (with the date) as they are received.

Also, at the end of the month I total my income from each site, received yet or not, on a spreadsheet.  This is how I calculate the % of income from each site.  These totals are also what I used to calculate my quarterly estimated tax payments.  In April I total the monthly spreadsheets for the year and that is my gross income.  I don't have any significant other income so that simplified it for me.

This year, though, I am incorporated, so I have to make monthly payroll payments and file a quarterly tax return.  I use an accountant for the quarterly taxes.

The beauty of my country is that income earned abroad is not taxable... Soooo sweeet... 

 Hi All,

 Good choice on the incorporation Lisa. You should always file an extension as well at the end of the year. Hold onto your money as long as you can and collect the interest, which is also taxable but at least it is more money in your account at the end. What are people using to follow their write offs. if you are unsure a good accountant might actually make you more money after you pay them their fee if you are not clear on all the options. The U.S. has areas that throw up red flags when your return comes through, learn to avoid the red flags and avoid an audit. An accountant is very good at helping in that department trusting you have a good accountant. Audits are not the end of the world but they are a royal pain in the behind, stay very organized.

Cheers,
Jonathan

Far as I know in the US an extension is just for the return itself. The money is still due on April 15 and if it is short of what is actually owed there are interest to pay plus penalties.

That's what I thought.  It isn't a free ride.

Thanks for the answers:
@Lisa ... are you receiving 1099 or equivalent from agencies?
I had followed your thread about incorporation but can't remember the option you chose??
I haven't been filing quarterly ... that is one thing I was most curious about.  Getting a little concerned. 

The sites I have gotten 1099's from are SS, BigStock, FOT, and used to be DT but they stopped sending them as of 2008 tax year. 

I do report income from the sites that don't 1099 me though.  Much better safe than sorry IMO.

The only reason to pay quarterly estimated payments (1040-ES) is if your income from stock is high enough that what you pay in from your day job (w-2 income) won't cover the tax.  It's a way to avoid a huge tax bill at the end of the year. 

I am an S-Corp so I do have to actually file a quarterly tax return too, but if you aren't incorporated you don't have to bother with that. 

Jonathan is dead right IMO about the benefit of hiring an accountant.  They aren't that expensive and so far have always saved me more than they cost even when we were just living off my husband's (W-2) salary. 

Thanks, Lisa.  I am being safe.  Everything is reported.  I could probably save more on expenses but.... 
I almost take that incorporated step then back away.  I think it may be the solution to passing this on to my grandson?  Currently, the books are an absolute mess.  Only I can make any sense of it.  I should ask my wife for help.  She's organized.   

LOL!  I am the organized one in my marriage too, but unfortunately that isn't saying much

Incorporation is definitely worth considering at some point if you get very serious into micro and you generate enough income to get hit hard with taxes.  Until the tax man is taking a significant portion of your photography income, it probably isn't worth the paperwork.  I have found that the paperwork is more of a PITA than I anticipated. 

Particularly the unintended paperwork and expense of having the state audit my new corporation for back "use taxes" that I had no idea I would have to pay.   (apparently anything we buy online without paying sales tax that is later used in our business is subject to "use tax")  I ended up getting slapped with back taxes on photography equipment, lighting, props, etc. going back 3 years.  If I hadn't incorporated I wouldn't have had to deal with that. 

My accountant still assures me I will save more money ITLR by being incorporated.  I hope she's right!!

is the reason you were hit with these back taxes due to having reported these online purchases as expenses for your business deductions? this is just for the state and not the federal, right?

this is such a conundrum. you want to be successful, but not to the point of having to deal with all the new paperwork.

No, in my case they were quite honest about the fact that they were targeting photographers.  When I opened my corporation under the name LisaFX Photographic Designs, Inc., it was automatically flagged by their computer. 

Hindsight is 20/20 - if I had opened under LFX Enterprises I would never have been targeted. 

But yes, I'm with you - the extra paperwork and expense is not worth it unless you stand to save a fair amount of money.  After I do my taxes for 2009 if I haven't saved a significant % of money I may reevaluate being incorporated.

Also something that appeals to me about being a corporation is the protection of my personal assets if anyone should decide to sue me.  Like we all do I am careful to upload proper releases with my images, but with the occasional misuse of images, and with istock offering guarantees to their clients, but no additional safeguards for their contributors, that extra layer of corporate protection is nice to have.

thanks a lot, lisa. that's really helpful for deciding what to do with all the pennies one's earned down the line. i never knew photographic cos were in the irs line of sight. 

i can understand your reasoning for incorporating. but, you don't feel just limiting one's output to only stock cos (rather than individual clients) is enough protection since they are doing the licensing, and not the photog? i mean, if anything should happen, i'd let the stock cos take the heat. 

Actually in my case it was the Florida Dept. of Revenue's line of sight.  :/

I'm guessing that your exposure to lawsuits is proportional to the amount of sales you are having.  I was at this for 4 years without incident.  Then I had one model used the wrong way and even though it could be proved the misuse came from IS they did absolutely nothing about it.  Still haven't heard back from my initial complaint sent in February.  Meanwhile it cost me $1,100 in legal expenses to get the show to pull the image off the air.

In this case the model was a friend of mine, so she would probably never have sued me over this.  But she could have and none of the agencies would have done anything for me.  It was quite a wakeup call!  The sites are about protecting their own interests, not the contributors. 

Unless you are doing this full time it probably isn't worth bothering with the incorporation thing or business liability insurance, etc.  I know I didn't bother with any of it until this became a FT gig. 

but, i thought (not having any experience with this), the first one in line to be sued is the company (or the show) that's misusing the photo in the first place. then, the second in line would be the agency or the photographer who licensed the photo to them. third, would be the hapless photographer, who just took the photo but didn't actually license it to the end user.

I am sure you are right that there probably isn't much of a danger.  

I just look at the corporation as extra splatter protection on the off chance the stuff hits the fan

I am an S-Corp so I do have to actually file a quarterly tax return too, but if you aren't incorporated you don't have to bother with that. 

This is actually not true. ANYONE, even sole proprietors like myself, or just plain old individuals who earn enough non-withheld money in one fiscal year that would require paying greater than $1,000 in taxes on, is required to pay quarterly taxes. No one escapes it! It just so happens that most people don't have to worry about that, because you have to earn around $10,000 in extra non-withheld income per year, and many hobby shooters never reach that level.

I use a custom created spreadsheet that actually calculates my tax debt in real time for me - pretty cool

I'm considering incorporation in a few months - but at the moment I'm a little unsure if I'm "there" yet. Motion picture jobs for me tend to be temp employment where I work under another company. As for the stock photography - I did considered S-Corp for while, but I discovered thats SCREAMING TO BE AUDITED. S-Corps can save lots of money, and as of late, have been increasingly targeted by the IRS. It's due to a loophole regarding dividend payments and "reasonable" salaries. You can pretty much blame John Edwards for lighting this fire - he saved quite a bit of money using the S-Corp loophole and ever since the light was shined on that, it's never been the same since. Given the current political climate, S-Corps are more and more in the government cross hairs. I'm also weary of how LLC's might be targeted by the current crop of politicians looking for blood to suck, another factor to look into if you think it's time to leap.

iStock is Canadian.  They don't have to give you one.

Well I am expecting to reach $400 there in next 12 years :-)

Quote from: melastmohican on October 19, 2009, 16:01

Aren't agencies required by law to send 1099 if you earned more than $400 per year?

iStock is Canadian.  They don't have to give you one.

I'm an LLC, filing as an S-Corp in 2010 to save on the self-employment taxes.  I actually talked to my CPA today, and we're going to use around 60K as the "average" photographer income, as far as "salary" goes.  It will be well worth it.  I don't see what they can audit me for.

It depends on how low you go with the "salary" - and yes, that is where you can actually save big on taxes. Last time I looked around, self employed / small business people are the biggest target for IRS audits. They claim more "abuse" of the tax code happens in that demographic than any other sector. Not sure I agree with the word "abuse" - tax avoidance is perfectly legal

How big a pain is the paperwork for LLC's? I've read up on them a bunch, but have never really dived into the paperwork required for them.

Quote from: cardmaverick on October 19, 2009, 16:16

I did considered S-Corp for while, but I discovered thats SCREAMING TO BE AUDITED. S-Corps can save lots of money, and as of late, have been increasingly targeted by the IRS. It's due to a loophole regarding dividend payments and "reasonable" salaries.

would you say that it's s-corps across the board getting audited or just those who are using these loopholes? if the latter, perhaps just be more careful when using them.

Well, when I researched S-corp's I found that after the John Edwards thing happened, S-Corp audits across the board jumped up, I can't remember how high, but I think it set some records... Paying yourself a salary of "$1,000" is a sure fire way to be targeted. What kills you the most is the HIGHLY opinionated definition of a "reasonable salary". This is the famous S-corp loophole - what is reasonable? What you think is reasonable pay is all you get hit up for on self employment taxes. Another thing to consider is overall income you pull in. $50,000 might be fine if you made $100,000 and had lots of expenses, and took a $5,000 dividend payment - but it might not be viewed by a judge as reasonable enough if your business did say $1 Million in business and you took a six figure dividend payment.

Ah, thanks for the clarification on that Lisa! Gotta love the tax maze :/

This is what keeps the accountants rich and us pulling our hair out

And that John Edwards - don't get me started!  Would you believe I voted for him in the primary?  Kicking myself ever since, LOL.

Quote from: cardmaverick on October 19, 2009, 16:43

Well, when I researched S-corp's I found that after the John Edwards thing happened, S-Corp audits across the board jumped up, I can't remember how high, but I think it set some records... Paying yourself a salary of "$1,000" is a sure fire way to be targeted. What kills you the most is the HIGHLY opinionated definition of a "reasonable salary". This is the famous S-corp loophole - what is reasonable? What you think is reasonable pay is all you get hit up for on self employment taxes. Another thing to consider is overall income you pull in. $50,000 might be fine if you made $100,000 and had lots of expenses, and took a $5,000 dividend payment - but it might not be viewed by a judge as reasonable enough if your business did say $1 Million in business and you took a six figure dividend payment.

Well, here's a reasonable salary for a photographer:
http://swz.salary.com/salarywizard/layouthtmls/swzl_compresult_national_CM02000016.html

I don't buy the percentage argument.  If you say $50,000 is reasonable, and the business brings in $60,000, I don't see that as being any different then bringing in $600,000.  Especially for us, who are licensing past work repeatedly.

I totally agree with you, but keep in mind, its not so much the salary, but the dividend payment (more technically it's called a "profit distribution") that really rouses suspicions. If you pulled in a ton of money but only took a small salary and never any profit distributions, you'd probably be left alone. Suddenly taking a big profit distribution would probably raise red flags. Anyhow, its highly opinionated.