Tax and running a company

Learning goal

You will be able to recognize the basic concepts of the official processes someone who starts earning a regular income from photography will face, and explain why an expert's guidance is indispensable in these decisions. You will describe the risks informal work carries for both the photographer and the client, and see why keeping your income and expenses in an orderly record from the first day matters. You will learn what kinds of questions the difference between working in your own name and setting up a company raises, why an invoice or a similar document is needed, and the general logic of headings such as tax, social security and indirect taxes. You will plan to keep work documents, contracts, invoices and the permission documents of the people who appear in the frame in an orderly way. You will keep in mind that what is described only points a direction, doesn't replace expert advice, and that the rules change by country, by a person's situation and over time.

The question

Your friend now does a few jobs every month: café, bakery, florist, a product shoot now and then. Some payments come in cash, some to a bank account; some equipment invoices are in a drawer, some among emails. One evening at the club a member who is an accountant asks, with gentle firmness, where their earnings stand on paper; your friend shrugs.

The same week a new client, an institution, asks them before the shoot for an official document and company details; they say they can't pay without a document. What official processes does a freelance photographer face? What questions should they ask, and whom should they ask?

Context

In the price calculation you divided the software subscription, insurance and equipment wear into each job's share (Lesson 28.5). While preparing the contract you saw what showing the draft to an expert before signing gains you (Lesson 28.7). In the previous lesson, too, you wrote all your equipment with its invoices into an inventory (Lesson 28.12).

Everything here is to point a direction; it doesn't replace the advice an adviser will give by looking at your situation. Tax, company formation and social security rules change from country to country, by a person's way of working and from year to year; no rates, thresholds, document names or legal articles are given here. The aim is for a photographer to know what questions they need to ask on these subjects and to make decisions together with an accountant.

Simple explanation

Why is working officially necessary?

Informal work is earning income from a job without reporting it to the relevant official bodies and without issuing the necessary documents. It may look easy at first, but it carries many risks. In many countries, not reporting income can lead to legal penalties. Institutions and businesses often can't pay without an official document; this keeps the photographer away from the most regular and best-paying clients. Informal income also doesn't show up in a loan application, a rental agreement or social security rights. The risk isn't only the photographer's: a business that can't get a document can't show the price it paid in its own records, and so may prefer another photographer who can issue documents for the next job.

Working officially turns the photographer into a business owner. This requires issuing documents, recording income and expenses, reporting in set periods and paying taxes. In return, the photographer can work with institutions, can find out whether part of their work expenses can be deducted from their income, and can build their own work history officially. In some countries there may be special arrangements for small-scale or certain kinds of artistic income; whether these exist and to whom they apply can only be learned by talking with an expert or by looking at the relevant official body's current pages.

What basic concepts are there?

A sole proprietorship is work a person runs in their own name and under their own responsibility, without setting up a separate legal entity. Many freelance photographers start with this form. Setting up a company, on the other hand, moves the work into a legal entity separate from the photographer's personal assets; this has different consequences in terms of liability, formation and running costs, and taxation. Which is suitable depends on the size of the income, the clients worked with, the risk and the person's plans for the future; this decision has no general answer. Many photographers start with one form and, as the work grows, consider moving to the other together with their accountant.

Tax is the share of a person's or business's income paid to the state. In many countries, in addition to this, there are also indirect taxes, added to the price of goods and services sold, which the business collects from the client and passes on to the state. Freelancers also often pay their own social security contributions themselves. Each of these items is a cost that needs to be taken into account in pricing; leaving them out of the price calculation leads to earnings turning out smaller than expected.

An accountant / tax adviser, called by different names in different countries, is the professional who manages a person's or business's tax, accounting and official reporting, and gives advice on these subjects. For a photographer, the accountant says which way of working is suitable, which documents are issued and how, which expenses can be accepted and on which dates reports are made. Many freelancers meet with an accountant before starting to earn a regular income or in its first days. Going prepared to the first meeting with the accountant makes good use of the time: if a breakdown of income and expenses over recent months, the types of clients worked with and expectations for the coming year are on the table, the accountant can assess the situation faster. The accountant's fee also goes into the price calculation as part of overhead.

How are records and documents kept?

An income and expense record is the record in which a business regularly writes down all its income and expenses with their dates, amounts, counterparties and documents. If this record is kept from the first day, at year's end or in a reporting period everything sits in a single place. The record is also the basis of pricing and investment decisions: what each job earns and how much each expense costs are visible from here. Expenses such as lighting supplies, software subscriptions and equipment go into this record with their invoices. Many accountants recommend opening a separate bank account for the work and not mixing personal spending with work spending.

Record retention is keeping a job's invoices, receipts, contracts, quotes and permission documents in an orderly and findable way for the period official rules require. This period varies from country to country and is asked of the accountant; a scanned copy of paper documents is also added to the backups. Permission documents need special care: in jobs with people of different skin tones and ages, every written permission obtained is kept in that job's folder together with the contract and the invoice. When a photo's use in a publication comes up years later, the document showing that person's permission can only be found this way.

Visual evidence

One evening your friend empties the invoices from the drawer and the receipts from the emails onto the table and writes them all into a table by date. To the same table they add the payments they received over the last six months; they struggle to remember the cash ones and can find some amounts only by looking at their correspondence.

The next week they meet with an accountant. The accountant tells them which way of working may suit them for now, which document they will issue to the institutional client and how, which expenses can go into the record, and the reporting dates. Your friend opens a separate bank account for the work and, from then on, even if they receive a cash payment, records every payment the same day.

Finally they add a "Documents" subfolder to every job folder: quote, contract, invoice and the written permission of every person who appears in the frame. In the bakery job's folder, the master's and the apprentice's permission documents sit next to the contract. They also redo the price calculation, adding the tax and social security items the accountant mentioned.

Common mistakes

Summary

For someone who starts earning a regular income from photography, informal work carries risks such as legal penalties, being unable to work with institutions and an invisible work history; working officially requires issuing documents, an income and expense record, reporting and taxes. The choice between a sole proprietorship and a company, and headings such as tax, indirect taxes and social security, vary by a person's situation and country; a separate account for the work, a record kept from the first day and orderly record retention, including permission documents, form the foundation. This lesson is general information, doesn't replace advice, and decisions should be made together with an accountant.

Mini assignment

In this assignment you will build a record system and a list of questions to prepare for your own official processes.

1. Write all your income and expenses over the last six months into a table with date, amount, counterparty and document information; mark those whose document is missing.
2. Add a documents subfolder to every job folder and put in it the quote, the contract, the invoice and the written permission of every person who appears in the frame; note the jobs with missing permissions.
3. Write at least eight questions you will ask an accountant: way of working, document type, acceptable expenses, reporting dates, indirect taxes, social security, record retention period and a separate bank account.
4. Rework your price calculation by adding empty rows for the tax and social security items you will learn from the accountant. At the top of the list, write that you won't finalize any of these steps without getting expert advice.

Check yourself

• Can you explain the risks of informal work?
• Is your income and expense record orderly enough for a stranger to look at and understand?
• Do you know the questions you will ask an accountant?

Glossary

Mini quiz

1. What is one of the risks of informal work?

• A) Finding more clients
• B) Being unable to work with many institutional clients without an official document
• C) Taxes decreasing
• D) The quality of the photos increasing

2. What does the choice between a sole proprietorship and a company depend on?

• A) The camera's brand
• B) The photographer's style
• C) The size of the income, the clients, the risk and the person's plans
• D) The number of frames in the portfolio

3. What is the benefit of opening a separate bank account for the work?

• A) Personal and work spending not getting mixed, and the record being easy to track
• B) Not paying tax
• C) Making contracts unnecessary
• D) Making insurance cheaper

4. Where should the written permission documents of the people who appear in the frame be kept?

• A) They don't need to be kept at all
• B) Only on the photographer's phone
• C) On the desktop, to be deleted after a year
• D) In that job's folder together with the contract and invoice

Answers

1. B — Institutions and businesses often can't pay without an official document.
2. C — This choice has no general answer; it is made together with an accountant according to the person's situation.
3. A — A separate account makes tracking income and expenses and keeping the record orderly easier.
4. D — Permission documents are kept with the job's documents so they can be found when the photo's later use comes up.

Summary card

• This lesson is general information; decisions are made with an accountant.
• Informal work is a risky path that closes doors.
• An income and expense record from the first day; a separate account for the work.
• Include tax and social security items in the price.
• Keep the quote, contract, invoice and permission documents in the job folder.

Bridge to the next lesson

The records are in order, the accountant has been met and the work is growing. But one morning your friend wakes up with a sore back; four shoots in the last two weeks, editing until midnight and competition applications at weekends. Their eyes burn from the screen, and for the first time taking photos feels like a burden. The older member says that being able to keep doing this work for years depends as much on the photographer looking after their body and mind as on the work itself. How does a photographer protect themselves? The next lesson takes up ergonomics, eye health and burnout.