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Best Photography Business Structure: LLC or Sole Proprietorship?

How to Choose a Photography Business Structure
Business 101June 03, 2024

Many photography businesses start small - a way to make extra money doing something you love. However, they often grow beyond what you expect. Consider Rachel Linderman, who began taking the odd wedding shoot at 18 to support her dream of opening a café. Over the next ten years, she photographed more than 100 couples across 15 countries, hired a team of employees, and opened her own studio.

With your needs constantly evolving, it can be especially challenging to determine the right structure for your photography business. Let’s explore what you should consider when making the decision and discuss the pros and cons of two popular options: sole proprietorships and limited liability companies (LLC).

Top 3 Reasons Your Photography Business Structure Matters

Your choice of entity structure has many implications for your photography business. However, some of them aren’t worth worrying about, especially if you’re just getting started and have limited time, energy, and capital.

Instead of getting distracted by relatively insignificant considerations (like whether prospective clients will care if you have “LLC” after your brand name), focus on the following factors when choosing your photography business structure:

  • Cost and ease of establishment

  • Limited liability protection

  • Tax strategy implications

These are typically the most relevant points for self-employed people, including photographers. Let’s explore what they mean and why they matter in more detail.

Cost and Ease of Establishment

Creating a legally separate business entity like an LLC is a manageable task (unless multiple owners are involved, in which case, get expert help), but it still requires some investment of time and capital.

For example, as an LLC owner in California, you must pay an annual franchise fee of $800, even if your business makes no money. You also have to file an extra annual tax return, or at least pay someone to do it for you.

In the early days of your photography business, it’s often practical to operate as a sole proprietorship, which you are by default. That allows you to focus your resources on growing your business. Once you’re more established, then it might make more sense to form a more advanced business structure.

Liability Protection

Creating a separate business entity can be expensive, but the liability protection they provide can be invaluable. It’s a lot like business insurance. You might not need it, but if you do, you’ll be glad you paid for it.

In this context, liability protection refers to the fact that entities like LLCs and corporations are their own person for certain legal purposes. If they default on a credit account or get sued, owners aren’t responsible for the debts or damages.

As you can imagine, that can be incredibly beneficial, but it might not be necessary if the risk you’ll get sued or default is tolerably low. Once again, it typically depends on how mature your photography business is.

For example, a freelance photographer who takes occasional headshots as a side hustle might care less about it than a full-time business owner who travels to a dozen wedding shoots every year.

Tax Strategy

Another great reason for self-employed people to change their business structure is to pay less taxes. Entities are subject to different federal and state tax treatments, which you may be able to use to your advantage.

However, you often need to bring in a respectable annual revenue before you can make sophisticated tax plays. As a result, this factor also varies in importance depending on your business’s circumstances.

To clarify, usually business owners get to write off the tax-deductible expenses they incur day to day, regardless of business structure. Changing your business entity doesn’t affect your access to those deductions.

For example, a photography business owner could write off “ordinary and necessary” expenses like the following no matter what business structure they use:

  • A new camera or lighting equipment

  • Photo editing software subscriptions

  • Business travel and vehicle expenses

  • Marketing costs, like portfolio hosting fees

Changing your entity status affects your tax treatment. For example, C Corporations owe a flat 21% federal income tax at the entity level, but S Corporations don’t. Instead, S Corp owners claim the entity’s net income on their personal returns.

Best Photography Business Structure: Sole Proprietorship vs LLC

As you may have determined from the previous sections, the best business structure for your photography business depends on your circumstances. In fact, the answer often changes as your operation matures.

Let’s explore the pros and cons of the two business structures typically most suitable to photographers.

Option 1: Sole Proprietorship

A sole proprietorship is the default business structure for self-employed individuals. You don’t need to fill out paperwork or pay fees to start one. From the moment you go into business for yourself, you automatically qualify for sole proprietor status.

However, sole proprietorships don’t provide any liability protection. Their owners do business as themselves, not through a separate legal entity. In other words, you'll be personally liable if your operation gets sued or defaults on its debts.

Similarly, sole proprietorships provide the least benefit in terms of tax flexibility. You owe ordinary income and self-employment taxes on your earnings, and there are fewer levers you can pull to avoid paying them.

Due to their lack of barriers to entry, sole proprietorships can make a lot of sense for a new photographer bootstrapping their business. However, they’re not the best option in the long term, and you’ll probably outgrow it eventually.

Option 2: Limited Liability Company

The limited liability company or LLC is the most flexible business structure and the one people typically graduate to after being a sole proprietorship. It’s the most well-rounded, neatly balancing:

  • Ease and cost of establishment

  • Liability protection benefits

  • Tax flexibility and savings opportunities

Setting up an LLC isn’t as cheap or easy as forming a sole proprietorship (because that’s free and automatic), but it's still easier than fully incorporating. It also grants you access to limited liability protection, which is often essential at a certain point. 

That said, the most significant advantage of an LLC is likely its tax flexibility. LLCs are unique in that you can change their tax treatment by filing an election with the Internal Revenue Service (IRS).

By default, single-owner LLCs are taxed as sole proprietorships, but you can request that the IRS tax them as a corporation. C Corp status isn’t typically desirable for small business owners, but S Corp status is popular for its ability to help lower your self-employment taxes.

How to Choose a Photography Business Structure

Even if you focus only on the most impactful factors, there’s a lot to consider when choosing a photography business structure. If you’re struggling with the decision, here are some tips that might help:

  • Focus on your current needs: Try not to get so bogged down in analyzing business structures and long-term tax strategies that it sabotages your momentum. Since you can always change your business structure later, emphasize what counts most today.

  • Consider your risk tolerance: Advanced tax strategies can save you a lot of money, but even a single lawsuit can ruin your finances. Getting sued as a sole proprietor is the worst-case scenario, so managing that risk should take priority if it’s at all significant.

  • Consult an experienced CPA: When in doubt, hiring a Certified Public Accountant who has helped photography businesses before is the best way to get an answer that lets you sleep at night. Their services aren’t free, but they’re at least tax-deductible.

Remember, your business structure isn't set in stone. When it no longer suits you, you can change it. In fact, that’s a perfectly normal part of maturing as a business and keeping up with an ever-evolving landscape.

Simplify Your Photography Business Finances with Found

Getting a photography business off the ground is plenty of work, so bookkeeping, accounting, and taxes are probably the last things you want to worry about. Fortunately, Found’s business bank account is packed with features that lighten the load.

For example, Found can automatically:

  • Track and categorize your business expenses

  • Generate a profit and loss statement, then transfer the details to Schedule C

  • Estimate your quarterly tax payments in real-time and auto-save for each one

Many of our photographer customers also love our Pockets feature. It lets you create subsidiary accounts within Found and set aside funds for specific purposes, like a new camera lens or bills in the off-season.

Get started with Found for free and streamline your finances so you can focus on growing your photography business.

Disclaimer: The information on this website is not intended to provide, and should not be relied on, for tax or legal advice. 

FAQ

Do You Need an LLC for a Photography Business?

Fortunately, you don’t need an LLC to start a photography business. You can operate as a sole proprietorship, which requires no paperwork and costs nothing to establish.

However, doing so means going without liability protection. You'll be personally liable if you get sued or default on a business debt. In addition, it might not offer the most favorable tax treatment once you pass a certain revenue threshold.

Do You Need a Photography Business License?

You often need a license to run a photography business. However, it depends on where you live, what type of photography services you offer, and who your customers are.

Make sure you research the requirements for your state and city, as you may need separate business licenses for both.

What is a Freelance Photographer?

A freelance photographer is another name for a photography business. Typically, it refers to individuals who run solo operations. However, freelance photographers can use any business structure, including separate legal entities like LLCs.

How Do You Start a Photography Business?

There are two primary aspects to starting a photography business. First, there’s the photography portion, which is essentially just having the creative skills and equipment necessary to be successful.

The second half of the equation is the business portion, which is often more intimidating. Of course, there are dozens of responsibilities wrapped up in that, but some of the most significant ones include:

  • Getting a separate business bank account to simplify bookkeeping

  • Choosing an appropriate business entity structure for your situation

  • Acquiring the required business licenses from your city or state

Consider consulting experts who can help you navigate as you get your business off the ground, especially if you hope to grow it into a full-time income stream. Potentially beneficial resources include other photographers, lawyers, and accountants.

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