The Hard Way
Remember when you were growing up and your parents would tell you, “ you just had to learn it the hard way, didn’t you?” Well, do yourself a big favor and take this lesson from me and and learn from my mistakes. You don’t have to learn it that way the hard way, but how many of us actually do that? Hmm. Maybe sometimes, but a lot of the time we probably learned it the hard way. We wanted to experience the things for ourselves. Today I’m going to tell you all about the biggest mistake that I have ever made in my photography business in case you decide to listen to that age old advice.
The Big Mistake
All right, let’s get to what I did. All right. So this has been years ago, back to about 2009. I was really at the inception of my business and I wanted to feel legit,.even though I really wanted to be totally all the way legit, but I wanted to feel legit. So I got a EIN/Tax ID number and set up a new business account so that I could keep things separate. Now in some cases you may only need to use your social security number, like for a sole proprietorship. Anyway, I took into account income taxes, but didn’t charge or remit sales tax, because I had no clue.
Sales Tax Basics and Business Foundations
Let me start off by telling you I’m no tax professional and I’m only speaking of my personal experiences. Seek out professional counsel. Go to the IRS website for the most up to date information for your state.
Time went on and I was building my business and finally heard of sales tax. I went to a new CPA and he confirmed that I needed to register for a sales tax account for my state and remit payment monthly based on what I’ve made. In making the sales tax account it flagged my account and I got a letter from the IRS, which said they would be conducting an audit of my business.
What is Use Tax?
Know those cute props and outfits you buy on etsy? I learned through this process that if the vendors I buy from, mamas typically working to make a living or side hustle for there family, didn’t charge me sales tax that I would have to pay use tax. What is use tax? According to Investopedia.com, “use tax is a sales tax on purchases made outside one’s state of residence for taxable items that will be used, stored or consumed in one’s state of residence and on which no tax was collected in the state of purchase. If the purchase would have been taxed if it was made in the purchaser’s state of residence, then use tax is due.” In short, you pay the sales tax to your state if they didn’t charge you for it.
A $30,000 Lesson
Through weeks of the IRS combing through my accounts I learned a lot. I learned that even though in the beginning of my business I didn’t know I was supposed to be charging sales tax, even for digitals files. I learned that I needed to pay sales tax even if I didn’t charge sales tax. I also learned just how resilient I can be.
I was sick to my stomach when they came back to me with the final number….$30,000. I was ready to throw in the towel and hang up my camera and quit. I was distraught and emotionally and physically exhausted. My two youngest were super young and I was sleep deprived, stressed and frustrated. Ultimately, I decided to dig my heels in and paid that hefty bill to the IRS and now I hope that you learn this lesson the easy way.
Set a Solid Foundation
Now I have a business foundations module to help photographers who are looking to do things the right way as they move to an IPS sales model for their business. This is in module one of my online course, Serve to Sell IPS System and will give you the tools and resources to set a solid foundation for your small business. I don’t want to scare you with my mistake, but empower you to set your business on a solid foundation. You can do this!