My next step in setting up my photography business, Saguaro Shadows, was understanding the tax system. This will vary from state to state, and often city to city. But I think the steps I had to go through will be similar in most areas of the U.S.
Federal Income Tax was pretty straight forward.
After talking to my accountant, he explained that my income drawn from photography could be reported on my normal income taxes, since at this point, photography was a side business, and not my primary income. I will not have to report estimate income tax on the photography business on a quarterly basis until it reaches a significant percentage of my regular income. He gave me a target figure to keep in mind.
Next, I had to come to an understanding of the state and local sales taxes. The state of Arizona is unique from most other states in this regard. Rather than a strict "sales" tax, Arizona has a Transaction Privilege Tax (TPT). The easiest way to explain the difference between sales tax and TPT is to refer to the Wikipedia definition:
"Transaction privilege tax (TPT) refers to a gross receipts tax levied by the State of Arizona on certain persons for the privilege of conducting business in the state. TPT differs from the ?true? sales tax imposed by many other U.S. states as it is imposed upon the seller or lessor rather than the purchaser or lessee. The seller/lessor may pass the burden of the tax on to the purchaser/lessee, but the seller or lessor is the party that remains ultimately liable to Arizona for the tax."
Thus in Arizona, you have a choice. As an example, you can charge someone $100 for a service, and $8.20 in TPT. Or you charge them a straight $100, and then pay 8.2% of your $100 as TPT to the city and state, hiding the "sales tax" from your customer's bill.
I also discovered that the city of Tucson and the State of Arizona collected the TPT income separately. This varies in Arizona depending on what city you live in, but it holds the same for most of the larger cities in Arizona.
In addition to registering my business as an LLC with the state of Arizona, I also needed to register as a business with the State of Arizona, and the City of Tucson.
For the city, I contacted the Business License office through their website for help. They responded by email and recommended I come down to their city hall offices for assistance. They were quite helpful in the process. After registering with the city, I now automatically receive a form every month in the mail that I fill out and return with a check for what I owe the city in TPT income.
The State of Arizona was quite similar. Through the state's Department of Revenue website, I was able to register for a state business license. The state also sends me a form each month, but I can also pay online through their website.
Before starting your own business, you should consider doing the following:
• Visit a tax accountant
• Contact your city's business license office for information.
• Contact your state government for information.
Most cities and states have websites that can provide you with much of the required information. If you still have questions, the people in the government offices are generally very willing to help. After all, it's in their best interests to encourage new business and bring in more tax dollars!
