Whether you’re just starting your photography business or you’re an old pro, you’ve probably thought about incorporation. The process just might intimidate you.
The truth is, incorporating a business can be straightforward and low-cost. Your business doesn’t need a lot of income to benefit. Incorporation can help you feel more secure in the administrative aspects of your business.
This article will outline the potential benefits of registering your photography business as an LLC, or Limited Liability Corporation. We’ll consider factors to help you determine whether registering as an LLC is right for you. And we’ll walk you step-by-step through the process of how to become an LLC.
If you’re charging money for your photography, you’re already operating as a business as far as your state and the IRS are concerned. Without any formal registration, in most cases, you are automatically considered a sole proprietor.
So the decision you’re actually facing is whether to stay a sole proprietor or become an LLC.
These business structures are alike in many ways. The biggest difference between the two? Legally, as a sole proprietor, you ARE the business. As an LLC, you and the business are separate entities. This means protection from personal legal liability is the biggest benefit of incorporation for your business.
The United States is pretty litigious, and clients could take legal action against you as a photographer in a lot of situations. A few examples:
If you are operating as a sole proprietor and a client decides to sue? Everything you own– including camera equipment, your car, your house, whatever’s in your personal bank account– could become part of the lawsuit. In some states, your spouse’s assets would also be on the table.
If you’re operating as an LLC though, only your business assets are available to become part of the lawsuit.
In general, you probably won’t pay more or less in taxes as an LLC than you would as a sole proprietor.
As a single member LLC, your process for filing federal taxes also shouldn’t change much.
However, unlike a sole proprietorship, an LLC can choose to be taxed as a corporation. The tax benefits would really only kick in once your business income reaches around $80,000 a year.
For most small photography businesses, this won’t be beneficial tax-wise. It will just add more requirements and paperwork.
If your business income approaches $80,000 a year or you otherwise think a corporate tax status would help, consult a CPA. And rejoice! Because you currently have awesome problems.
Incorporating your business is a signal to potential clients and business partners that you take your work seriously.
Most clients aren’t photography experts. Even if they like the work in your portfolio, they’ll probably still be looking for other clues that they can trust you.
Along with assets like a stellar portfolio, polished website, and educational or professional awards, LLC status can help communicate a sense of professionalism and expertise.
Think about the future of your business. Maybe your client list will grow to the point that hiring a full-time photo assistant becomes necessary. You might decide to outsource your bookkeeping so you can spend more time shooting and editing.
As you bring more people into your business, your risk grows. And as your risk grows, the previously mentioned liability protections an LLC brings become more critical.
You might also have increased access to business loans and banking as an LLC. Even if you don’t need those resources right now, you might in the future.
Thinking about your situation through the following parameters can help you figure out if an LLC makes sense for your business right now.
As we’ve covered, the biggest benefit of incorporation is the legal protection offered. Any time you charge for your photography services, you are taking on risk.
That said, certain types of photography work do come with more risk than others. Wedding photographers should strongly consider incorporation for this reason.
Commercial photography, particularly for big brands, can also bring elevated risk along with its higher compensation and visibility.
In reality, though, any time you’re working with other people, in any type of photography, there is risk involved.
Some of this comes down to your personal relationship with, and tolerance for, risk. Some business owners simply prefer the peace of mind that an LLC brings, even if their liability is generally low.
Generally, the initial costs for incorporation will be in the range of $200-350. Annual costs associated with being an LLC will likely be a little less than that, depending on your state.
Remember, even if you’re charging very little for your photography work, if you make any income from it at all, you could be opening yourself up to liability. If you have any personal assets, it might make financial sense to incorporate to protect those assets, even if that means your profits essentially zero out.
Once you’ve decided that incorporation is right for you, the actual steps involved won’t take much time.
While you can undertake all of these steps yourself, it is always a good idea to consult a lawyer and/or CPA in your state if you have any questions. There are also services available that offer comprehensive packages to do some or all of this initial set-up work for you.
In most cases, you will register your LLC in the state you reside in. You won’t need to register in multiple states unless you plan to do a significant amount of regular business in another state.
Your business needs a name. It needs to be something unique enough that the average person would not confuse it with the name of an existing business.
You can utilize the Trademark Database of the United States Patent and Trademark Office, your Secretary of State’s state registration website, and Google to check for duplicates.
Also, research your state’s requirements and guidelines for LLC names. You’ll always need to make sure you’re respecting intellectual property rights (so “Darth Vader Death Star Photography LLC” is probably not an option).
In most states, you’ll be required to add some kind of designator to your business name to signify it is a Limited Liability Company. This might be as simple as adding “LLC” at the end.
For most sole proprietors who are incorporating into an LLC, you will be a single-member LLC. In a single-member LLC, you’re the only member, and this step is pretty simple.
If, however, you’d like to appoint a manager or business partners, you will need to identify that in the coming steps.
Regardless of whether you’re incorporating into a single-member LLC or an LLC with multiple members, you will need a registered agent. The registered agent is someone who can be available during normal business hours to accept legal mail for the LLC. In other words, if someone wants to sue the LLC, they need a contact on file.
The registered agent can be you, the single member of your LLC. However, your registered agent contact information will become public information..
To protect your privacy, and to make sure you never miss important communications, you may want to consider using a business who offers registered agent services in your state. The rates can vary, but generally around $35-$65 per year will get you basic services.
You’ll need to file a relatively simple document, called “Articles of Organization” (AOC) in most states, to give your state the basic information it needs to know about your LLC. Your state’s Secretary of State website should have all the information on how to file this document.
Along with your AOC, you’ll need to pay a filing fee. The amount of this fee varies by state, and should be listed on your Secretary of State’s website.
You’ll be required to renew this annually (your state should send you reminders). It should take you about five minutes to handle your renewal each year, as it’s generally a short form. You’ll also need to pay an annual renewal fee, which varies by state but is typically less than your initial filing fee.
Be sure to check your state’s specific requirements for incorporation.
Most states don’t require that you file or prepare this document. If you are a single-member LLC, it might make sense to wait to draft this document until you have business partners and/or employees.
If you do have any other members or managers, drafting and agreeing on this document as soon as possible in the incorporation process is crucial to the organized, smooth operation of your business.
The following steps aren’t necessarily legally required of you as an LLC. They are, however, best practices to consider in setting up your business, whether you are operating as an LLC or a sole proprietor.
To take full advantage of the state liability protections offered by becoming an LLC, you’ll want to separate your business finances by opening a separate business account. Not only will it make filing simpler come tax season; it will also help protect your personal assets.
A Wrapbook client recently did a film shoot in which his crew spent five hours setting up a rented green screen worth about $7,000. The minute they finished setting it up, it started to rain, completely ruining the equipment.
Without insurance, their company probably would have had to go out of business, as they would have had to cover the cost of the water-damaged equipment themselves.
However, they had insurance, so they could file a claim and get the cost covered.
The moral of the story is, find a way to get insurance, regardless of what stage of business you are in. Wrapbook can get you started with quick quotes on your specific insurance needs.
Don’t own your equipment? You should be able to access insurance through the company you’re renting from.
You should have access to insurance regardless of whether you are operating as an LLC or sole proprietor. But operating as an LLC will protect you in case your insurance fails or only covers part of the cost.
You may need to pay sales tax to your state sales tax commission.
Whether you are an LLC or sole proprietor, you could be audited and owe back taxes if you don’t follow your state’s sales tax policies.
The same goes for your state’s B&O (business and occupation) tax.
Your Employer Identification Number (EIN) will need to be used in certain tax situations. It’s free and extremely easy to get online at the IRS website.
Depending on where your business is based, you may need an additional local business license or other certification to operate. This will likely be the same process and cost whether you are operating as an LLC or as a sole proprietor.
Put together a binder or folder in the Cloud with your business documents. This should include your business bank account information, your EIN, a copy of your filed Articles of Organization, your business insurance details, and your Operating Agreement, if you have one.
Utilize your calendar to remind you of important deadlines.
Regardless of whether you incorporate, invest some time in setting up basic organizational systems.
Incorporating your business doesn’t have to come with piles of paperwork and monumental fees. In fact, it’s a relatively simple process that can save you money in the long run with its added protection from personal legal liability. With a little information and reflection, you’ll know if incorporating your photography business is the right choice for you.
Scouting production locations? We’re breaking down 10 states with considerable film tax breaks so you can get the most bang for your budget buck.
Wrapbook's newest resource is our podcast, "On Production," which features experts in the field and tips on how to navigate the production world. Check it out!