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.