So, the first thing that comes out of people’s mouth’s when I say I went through a tax audit is first a ‘gasp!‘, followed by the question, “Why are YOU getting audited? How did that happen?” The answer is, there is no real reason. For me, it was kind of like being called up for Jury Duty. I hadn’t done anything wrong, ever, and I was simply just chosen by the state to have a Sales and Use Tax Audit. Photographers, if you are ever audited, it is probably going to be for Sales and Use Tax. My audit went back from January of 2009 to June of 2012. That’s a giant chunk of time and I have never been so happy to have ALWAYS, like from the beginning of time, been incredibly organized when it came to receipts and paying in my sales tax on time. During the audit, the government takes ‘samples’ from random months within this time period and you have to look up receipts and prove the payment of sales and use tax. Because I have always been so organized, this was the easy part. Many times people see audits as a very scary thing and it’s mostly due to the disorganization far before the audit. Here are some words of advice to either put into practice and/or keep in mind, should your photography business every get called up for an audit:
1 // Know When you File:
Over the course of our business growing, we have gone from filing our sales tax from yearly, to quarterly to now monthly. I. LOVE. FILING. MONTHLY. For us, paying in each month simply works best with the cash flow of our business. Every month, we have our bookkeeper to come in and reconcile. At that time, we also pay in any sales tax that was due. On the slower months, we owe less and when we’re busy, the proper amount of money is in the bank to pay. I’m not saying this is the perfect way, but it has really worked for us and makes paying in taxes as stress-free as it’s ever been. No matter how you pay in your Sales and Use Tax, make sure you know when things are due – those penalties on filing late are quite steep! Check your states Department of Revenue for their filing and payment schedules.
2 // Have Patience, Communicate Clearly and Assemble your Dream Team:
From the get-go of my business, it was important for me to have the best CPA/EA that I could find. I go to Fox Tax, which is a tax firm that is geared specifically towards working artists! As time went on, I realized that I couldn’t handle QuickBooks all myself, so I hired my (amazing) bookkeeper thru Fox Tax. Hiring my bookkeeper was honestly life-changing and worth every penny. When it came to being audited, my auditors didn’t really understand my photography business. It took a lot of patience to explain what certain things were and determine with them whether or not a certain program, piece of equipment, print sale, or wedding booking was taxable or not. The reality is, these auditors might be working with a construction company, a photography business, and a mechanic all at the same time. You want to make sure that they understand your business, so you don’t get charged for something unnecessary. Your CPA/EA and bookkeeper will also be a giant help in explaining your filings and financial reports as well.