As a photographer, your primary goal is to take great photographs and translate your artistic vision into a frame. These artistic talents also have great commercial value, being used by clients for a large variety of projects. While focusing on your craft is important, how you handle the money you make and the business you run is equally important as a good business owner.
Should photographers be an LLC? Deciding to register as a Limited Liability Corporation (LLC) is dependent on a variety of factors pertaining to your individual business. When considering becoming an LLC, the size of the business, the risks associated with the business, and your tax concerns should be considered. Most photography businesses are not LLC registered.
This article will break down the pros and cons of registering as an LLC. For larger photography companies, an LLC may be beneficial in offering protection against your assets in the event that you are sued. The paperwork and fees associated with filing for an LLC may not be worth it for a small business. We’ll discuss all the factors to make this decision for your business.
Becoming an LLC as a Photography Business
Many companies have to decide how they will set up their business officially to provide the most benefits and protections through operation. Photography businesses should make the same considerations to be successful and function the most efficiently.
What Is an LLC?
Before diving into the details related to a photography businesses, it is important to know what an LLC is. LLC stands for “Limited Liability Corporation,” which provides certain protections for businesses that register as one. The main function of an LLC is to separate business assets and personal assets. In the event that your business is sued, your personal assets are safe.
This essentially “limits” the liability that you have if you owe large sums of money. You are only liable to pay up to the amount invested in your company and not be responsible for values that exceed this. Setting up an LLC requires additional paperwork and fees, making it a better option for larger companies that can afford it, or in the very least, thought it through.
An LLC will separate your business and personal finances completely, making it very clear where money comes and goes in your business. This is helpful for advanced bookkeeping. An LLC is a separate entity from yourself, where all money brought in and expensed is the responsibility of the company. This structure gives the benefits of a corporation with some flexibility.
Even if you don't go the route of creating a separate corporate entity, you should separate your “business” finances from your personal finances for easier bookkeeping.
Sole Proprietorship vs. LLC for Photographers
As an individual photographer, the largest debate when setting up a business is whether or not to operate as a sole proprietor or an LLC. Both provide their own benefits and drawbacks depending on your need for certain business features.
A sole proprietorship means that your business is not incorporated. There is no official separation between an individual and their business. Your taxes exist as one with your personal finances, you have complete control over business decisions with an ability to use business money for personal use, and this is seen as a simplest business structure.
Sole proprietorship is best suited for smaller businesses as there are not typically complicated business transactions involved, and it gives you the most flexibility in making business decisions. Drawbacks to this structure include the total liability one incurs unlike the LLC and potential difficulties one may have in borrowing money as there is no official business structure. You could also potentially pay more in taxes by going this route as well. More on taxes later in this post.
Most sole proprietors will buy business insurance to protect their assets and potential lawsuits. This may be less costly than setting up an LLC with the fees and upkeep of maintaining an LLC status.
What Should Photographers Consider When Setting Up an LLC?
There are many considerations one should make in setting up an LLC as a photographer. These decisions should be applied to your individual business as photographers work on different types of projects at different levels that may take on certain risks more than others.
When setting up an LLC as a photographer, you need to evaluate these aspects of your business:
- Size of Business: The amount of money that your photography business takes in should be a major consideration in deciding whether or not to set up an LLC. The price and paperwork will vary from state to state (it is best to look at the official state websites for current pricing), but this could cost you a couple thousand dollars with filing fees as well as accountants and lawyers to ensure you are following the necessary steps for proper LLC status.
- Potential Risks: The main reason people choose to set up their business as an LLC is for the limited liability they have in the case of problems. If you are more likely to get sued in your business, having an LLC status will prevent the suing party from taking your personal assets. An LLC may not be as beneficial for a photography company that assumes little to no risk.
- Tax Benefits: An LLC is not related to taxes, but provides tax benefits with flexibility in choosing a tax plan. Unlike a sole proprietorship, an LLC can choose between setting up their tax structure as a sole proprietorship, a partnership, or a corporation. These should be dependent on income and individual business considerations.
An LLC is designed to protect your company and your assets from financial instability related to lawsuits, bankruptcy, and other trouble your business may encounter. If there are risks associated with your business, setting up an LLC for protection may outweigh the costs and fees of this business structure.
Pros of Setting Up an LLC as a Photographer
Now that we understand the philosophy behind setting up an LLC and what to consider as a photographer, there are certain benefits that may convince you that an LLC is a great decision for your business.
1. Protection from Liability
As mentioned previously, the main benefit of this structure is to only allow your business assets to be exposed to liability if they need to be seized for whatever reason. If any money is owed to an outside party, your personal assets and money will not be used to pay debts. Only the money and assets from the business will be used to pay these debts.
For photographers, bankruptcy is the most likely cause of financial trouble. In the event that you must file for bankruptcy, your personal finances will not be considered in the debts the business owes.
Photographers are not subject to lawsuits as commonly as other professions, but there are certain lawsuits that they do encounter:
- Breach of Contract: This usually occurs when the photographer and the client have different understandings of the agreement they made. This often comes down to subjective issues related to the work, and it is easiest to be protected. This can be particularly costly in commercial photography when lots of money is at stake.
- Misrepresentation: Photographers may be sued if they misrepresent the work they have done for clients or claim to have worked with clients that they have not.
- Copyrights: Businesses and photographers may argue about copyright claims.
- Privacy: Subjects in photos may argue that they did not provide consent to be featured in images, especially ones used commercially.
These factors are far costlier than the expenses incurred by setting up an LLC. For the most protection and safety of your business, consider an LLC as your photography business structure.
Because the photographer has these protections, they are able to make riskier decisions that may lead to greater financial success. Risky but calculated business decisions may fail, but they also have a greater opportunity to pay off. An LLC is more likely to take these risks if they know the businessperson is not held responsible beyond the finances of the business.
2. Tax Flexibility
There are different tax structures an LLC can choose from unlike a sole proprietorship. This is beneficial for companies depending on the revenues they bring in and what their balance sheet and income statement looks like. As an LLC, your photography business can register as a sole proprietorship, partnership, or corporation.
Each of these tax structures brings specific benefits depending on the size and financials of the company. Smaller companies should file as a sole proprietor for simplicity and more limitations on taxation compared to operating as a corporation (including double taxation).
3. Expansive Ownership
An LLC is a particular benefit if your photography business has multiple owners. Companies with a variety of partnerships, founding members, and business owners will be protected by an LLC. A photography business operated by multiple photographers may benefit from an LLC in that none of the photographers are personally responsible for business expenses.
4. Separate Entities
An LLC acts as a separate entity from the individual business owner, making it easy to separate from yourself for whatever reason. There are a couple of reasons that being a separate entity from your business can be beneficial:
- Death: Unlike a sole proprietorship that is tied to your name, the separate LLC can live beyond the owner. When a person dies as a sole proprietor, their company ends with them. This limits future earning potential for others involved in the business and ends contracts with existing clients. An LLC will allow this company to live on beyond the owner. If you have multiple photographers working for you, the business can still be operated by them.
- Selling the Company: As a separate entity, you can easily sell the company to another party as it is not attached to your name. The business is its own “person,” making it much simpler to distribute or hand off. If you decide you no longer want to be a photographer or a business owner, you can sell the name and value you have established to another party.
5. Loan and Credit Opportunities
Because an LLC is a more formal business structure, banks and lenders have a heightened sense of confidence and trust that you will be able to pay back loans and credit cards. This makes it much easier for an LLC to get a loan from a bank than a sole proprietor.
If your photography business plans to make large investments into equipment or a physical studio, getting a loan may be necessary. This will be much easier to achieve if you are operating as an LLC, which enjoys these particular benefits of acting like a corporation. The banks know they can seize any business assets if these loans are not repaid.
Cons of Setting Up a LLC as a Photographer
While the LLC status provides plenty of benefits to a photographer, there are drawbacks to consider in making this business decision.
There are costs associated with becoming an LLC, including fees for registering, maintaining LLC status, and paying an accountant to make sure your finances are separated and in order. For photographers that do not make significant amounts of money or run smaller businesses, it may be costly to operate as an LLC (particularly in renewal fees, but check individual states).
If you make over $90,000 per year as a photographer, you should set up an LLC. Anything under this is not as much of a financial risk as you do not earn enough to need advanced protection. One can opt for insurance as protection at a lower rate and with less hassle than setting up an LLC.
Some companies avoid costs by filing for their LLC in states that are more business-friendly. This can vary in the protections offered but also may mean lower costs.
2. Advanced Organization and Pay Structure
An LLC is a much more organized and rigid business structure than a sole proprietorship, requiring careful bookkeeping and separation of business and personal finances. Just as an LLC protects you from personal liability, it requires that you make a clear distinction between the two to prove that the business is operating as a separate entity.
Not only is tracking your finances clearly important, you must go through a more complicated process to pay yourself. You cannot simply take money from your business for personal use but must record these payments as a salary or as withdrawals by an owner. This system requires a bit more organization which can be beneficial or more of a headache for owners.
3. Taxes Complications
While you can use a variety of tax strategies with an LLC, the IRS requires that you fill out the proper paperwork based on the tax structure you use. Filling out the right paperwork correctly can be challenging for many business owners who operate their LLC on their own. Seek assistance from accountants to make sure you file these correctly.
Missteps in filing the correct tax paperwork can result in penalties and fines. Taxes must be paid strictly based on the tax strategy you designate for the company.
4. Difficult to Raise Capital
While registering as an LLC may make it easier to get a loan from a bank, it is more difficult to attract outside investors. This is generally not a huge consideration for a photography business, but if you need to raise financial capital for any reason, this may be more difficult as an LLC. Outside investors typically invest in formal corporations.
You cannot buy shares in an LLC, so investors must buy into the company and serve as a member. If you hope to raise money or equity capital, you should not register as an LLC. Other incorporating strategies, such as a S-Corp or C-Corp will be more beneficial.
Should a Photographer Be an LLC?
After reviewing the benefits and drawbacks to registering yourself as an LLC for a photography business, you should be an LLC if you plan to follow a business plan that will lead to large growth. Larger companies benefit from being an LLC as they accumulate more revenue and work with a larger clientele. This opens you up to more risk of lawsuit and more money to lose.
Setting up an LLC does not have to be incredibly expensive and can provide great protection and tax benefits for photographers who have larger businesses and greater streams of income. You can be an LLC and still file taxes as a sole proprietor if you want full protection without paying taxes with the double taxation of a full corporation.
If you operate a small operation, sticking with a sole proprietorship will suit your business needs. It allows for the most control and flexibility in all business decisions, giving you full autonomy to run your business and use the funds for business or personal expenses. This makes filing taxes straightforward but does not protect you from financial troubles.
There are more benefits of becoming an LLC than drawbacks, making it a good option for photographers to structure their business to. Ultimately it comes down to how risky your business is, if you need liability protection, and how detailed you want to be in controlling your business. For a more structured system that delineates personal and business, go for an LLC.