On a recent episode of a popular photography podcast, the listener asked a question about turning his photography into a legal business. He said right now he was just earning money but wanted to convert to a legal business. It’s an interesting question, and one I am sure many entrepreneurial photographers ask.
I wanted to provide my own answer to this question, based on years of freelance and business experience. Please bear in mind this answer comes from my own personal experiences in this matter. I am not a lawyer. This answer is also based on the laws of Canada, but I would expect their similar in the US and other similar countries.
There is a short answer; and a longer explanation.
Relating back to the listener’s question, he has no need to convert his business into a legal business. He’s already operating one. That’s the short answer.
Here’s the explanation as I understand it. The moment a person accepts a payment for services rendered (like photography), that money is considered by the Canada Revenue Agency as self-employment income. It must be declared on an annual personal income tax report, and you will be expected to pay all taxes due on that money earned. You are operating a legal business under your personal name. Under Canadian law, you must also collect and remit sales taxes once your gross annual revenue exceeds $30,000 in a calendar year.
If you’re a photographer and you accept money for services, you’re in business. If you receive more than $30,000 per year in revenue, you’d better be charging sales tax on your services and remitting the collected funds to the government.
So, if the listener was operating in Canada, his question is moot.
Now, let’s assume for a moment the listener was asking a slightly different question. Perhaps he is considering registering a business name for his photography and equates that with converting to a legal business. The question then becomes at what point do I register a name for my business?
The answer to this question is whenever you are ready. It’s a simple process if you only intend to operate as a sole proprietorship. This is sometimes also referred to as a trade name.
The important thing to keep in mind is when you convert from earning money in your own name to learning money under a sole proprietorship (or trade name), the status of your business doesn’t change. You’re still a self-employed individual. You’ll be required to claim all business income(or loss) on your personal income tax and you’ll be responsible to remit any taxes due at the end of the year.
Let’s look at a simplified example:
A nice guy by the name of Steve has a camera. A friend (we’ll call him Fred) takes a liking to the photographs Steve creates and asks him to pop over on Saturday to take some pictures at his kid’s birthday party. Fred offer’s Steve $100 for his time. Steve accepts.
Steve is now a business owner and has landed his first client. He’ll have to claim the $100 on his personal income tax report as self-employment income.
Notice there was no official business registration process. Steve went from ‘guy-with-a-camera’ to ‘photography business owner’ in the amount of time it took for the money to change hands.
Our story continues as other parents who met Steve at the party called to request his services at their kid’s events. Steve is building a reputation as a solid and reliable birthday party photographer. He increases his rates and adds more booking to his calendar. Steve begins to think about taking his photography business more seriously and maybe even setting up a website.
He decides to register ‘Steve’s Party Photography’ as a business name with his provincial government. Steve now has the ability to start conducting business as the sole proprietor of Steve’s Party Photography.
The important thing to keep in mind is all the profit (or loss) from ‘Steve’s Party Photography’ will need to be claimed on Steve’s personal income tax report. If you’re collecting money in return for photography services, you’re already operating a legal business. Choosing to operate under a trade name is a completely optional step, but one that most entrepreneurial photographers choose to take.