This post is long over due. As California business owners, we need to get real candid about what it means to run an honest business here.
I'm actually hysterically laughing at the number of "photographers" in California. Everyone and their mom (literally, so many moms) are photographers or some kind of entrepreneur.
Which, is great! I mean, why not? Living in California, hitting the beach, sunshine all the time... tacos. California is the greatest state ever (don't argue with me). It's so magical and wonderful but all that glitter comes with a price tag. That price tag comes in the form of... T A X E S .
California is the absolute worst place to be a business owner because we pay the most taxes. The taxes imposed on business entities in California, plus the cost of doing business is close to forty percent.
You read that right.... FORTY PERCENT.
And this is where I start laughing (crying, actually crying). Because we get doubled taxed. Yep, DOUBLE TAXED. We get taxed on a personal level AND on a business level (you so mean, California).
Let me just give you a quick breakdown of possible taxes (we say possible because depending on your entity you pay some and not others)....
Federal Tax - 1.5% + | (may or may not have to pay based on your entity) LLCs and S Corps don't pay Federal Tax because the income earned passes through to the business owners so they only get taxed at a personal income tax rate.
Income / Self Employment Tax - 15.3% | This part just hurts and I don't even want to talk about it. But, it is what it is. Everyone has to pay some kind of income tax.
Sales Tax 7.5% - 9.5% | (depending on your city) But, you need to charge sales tax on tangible products. Technically, you do not need to charge for digitals or services, but I've heard rumors that as the IRS is catching up with technology, that will change soon. We incorporate sales tax into our collections just for safety. Also, pro tip, sales tax does not apply if you ship products out of state. So say a couple eloped in Yosemite, but live in Phoenix, and they ordered prints to ship to their house... no tax for ya.
Corporate Tax - 8.84% | Complicated, and only applicable to corporations, which most photographers are not, so I'll skip this one.
Franchise Tax | (Varies depending on entity) but we're an LLC so we "thankfully" just a pay a flat rate of $800.
Alternative Minimum Tax (AMT) 6.65% This one really only applies if you're making millions. We don't so.... pass lol
You might be doing the math like, "wait, that's only like 31%" Y'all, word of advise, round up. And if you aren't a strict bookkeeper, there is easily 9% of income you forgot to mention. EASY. Better safe than sorry. Or, if you want to be super appalled by 40%, we haven't talked about what is costs to actually run your business.
So now that I probably just ruined your day... one step further. Do you really think charging $1000 for a wedding is going to feed your family? (The answer is no).
We haven't even talk about hours yet, but let's do some pretend math.
Let's say you charge $1000 for a wedding. Hours are irrelevant at this point. Deduct the 30(ish)% in just taxes (that's $300) that you need to pay. Okay, cool, you're walking away with $700.
*hits loud buzzer* EEEEEEEEEEH. Wrong.
$700.... did you hire a second photographer?(-$400) Also guys, don't be cheap paying your second shooter... But that's a different blog. Now you're down to $300, awesome! Nope. You still have to pay for insurance, Adobe, the gas it took to get to the wedding, your rentals... you get the picture. You're actually -$2000 a this point.
So, like many photographers, not having a clue as to what they should charge, we made a pricing guide for you <3 (You're welcome).
Honestly, it wasn't actually for you, it was for us lol.
We made this sheet so that:
(1) We knew how much we needed to set aside for taxes
(2) We have a real number as to what we should charge and
(3) We are confident and firm in our pricing (this was a tough one because we love giving everything away) But, business is business and with nearly 40% of our income going to taxes, we gotta eat. Which brings me to
(4) Definitely wanted to make sure we were setting aside money for the business AND paying our bills.
It's an excel sheet that actually factors in the real cost of doing business, what your hourly rate should be, savings, and yes, taxes. We're all about budgets and we're pretty proud of this one and hope it helps you get organized with your business. <3
While we do have financial and tax prep backgrounds, we are NOT tax lawyers or CPAs are in no position to tell you how to run your business. Consult your CPA to make sure you are on the right track.