Is my income from selling stock photography tax free?
photo credit: Joshua Davis (articnomad)
A few days ago I happened to post some advice on the Alamy forum in a thread where a person had just sold their very first image. Overjoyed though they were, I pointed out that among other things they had better save some of the money for the…the…I can hardly bear to type it….the tax man!
Today I got a message from another contributor who asked me about my comment. They were under the impression that income from selling their photos on Alamy was not subject to tax. This prompted the following reply which I’ve expanded here.
Is money you earn from stock all yours? read on…..
Stock Photography earnings and tax Q&A
1) so…..Is the money I earn from Alamy/Getty/Corbis/iStock/Age etc. all mine to spend on new cameras?
No.
Extra or supplemental income or earnings are rarely if ever tax free. When you sell a licence to use your images via a stock library or direct you are earning income. That income must be declared to the appropriate tax authorities for your country. You will also (in the UK) be liable for Class 2 and Class4 National Insurance contributions (even if you pay NI contributions in your full time job. Class 4 are paid on your self-employed profits.
2) But I only do stock part time, I have a day job and pay tax PAYE - does all this stuff still affect me?
Yes it does. By entering the business (and it is just that, a business not a hobby) of selling stock images you are now effectively part time self-employed and earnings from your stock business should be declared for taxation. (in the UK you need to register within 3 months of starting your business activities).
You can register as self-employed part time or note the additional income on your tax return. Either way, you must let the authorities know of your business. It is best to register self-employed as you will need to account for where your income comes from and that way you can also claim expenses against your income.
3) But I don’t own a photography company? How can I be liable to pay tax?
As a single person trading as their name i.e. John Smith Photos or Acme Photo you are a sole-trader and subject to the same tax laws as a regular employee on a salary. The only difference is that as a self-employed person you pay tax once a year not every month.
4) I’ve only sold four images , I’ve only just started, do I have to declare this small income?
I’m afraid you do. You have to declare all income; whether you end up paying tax depends on your personal circumstances and personal tax computation
5) I only sell a small amount of microstock. Surely I don’t have to declare that?
Again, yes you do. The tax man will treat all businesses the same. You have to declare your income. As in 3) it depends on your personal circumstances as a taxpayer as to whether you end up getting taxed or not on small earnings.
6) Its OK, nobody knows I do this, the tax man won’t find out will he?
Dodging taxation is a very serious offence. If found out you could be liable to fines and a huge tax bill. You may think the taxman couldn’t possibly know who you are, where you are what you do or what you earn on top of those earnings from the stock library…..or could he?
One look through any stock library’s books would show the taxman a schedule of earnings for you. Your bank details, your address. If you aren’t registered as self employed or you don’t declare your stock earnings on your tax return a data-match between the two could flag you up for investigation.
7) If the tax man calls I’ll say I didn’t know I had to declare it.
Unfortunately ignorance of the law is no excuse!
Declaring your stock earnings and registering as a part-time photographer
8) Any advantages to registering as part-time self employed?
Many! You get to put down your legitimate expenses i.e. a proportion of the cost of trips to shoot stock etc as expenditure (if you do this on holiday). You get to put props, hire of models and locations etc as expenditure. Anything connected with making images (yes…that means your equipment too) can all be offset against your earnings. A good accountant will advise you what you can claim for.
Please note: obviously the tax man can sniff a ‘dodgy business’ a mile away. You spend $20k on gear when you only make $75 on istock and…..well that’s not a business is it?? But (as your accountant may well advise) moderate operating losses can get you tax refunds ;). i.e. you’ve spent more than you’ve earnt so there’s nothing left to pay tax on. You may even get a refund…
Please note 2: I am not an accountant (I have a really good one though - worth every penny!).
How do I register with the tax authorities in my country?
I can’t list them all here but just get in touch with your government’s tax department - most have good sites with downloadable pdf’s and FAQ sections.
UK: http://www.hmrc.gov.uk/selfemployed/
USA: http://www.irs.gov/businesses/small/
Canada: www.cra.gc.ca
9) Any other recommendations?
Yes. Get a good accountant, they are worth their weight in gold and should save you their fee by claiming everything you are entitled to. They know the tax laws far better than you (unless you are an accountant…. ;))
Conclusion
A) Its up to you to decide whether you want to take the risk of running up a fine and a huge tax bill (not to mention the embarrasment) if you are caught earning income you are not declaring.
B) You can choose to register as self-employed or just declare the extra income on top of your regular earnings. Your tax office or financial adviser will advise what is best for you. If you are going to grow your business into a full-time photography job then why not register as self-employed and get a taste of the work involved early?!
C) Running a part-time business is easier than it sounds - if you can keep a simple spreadsheet you can do it. You’re probably doing 50% of the work now anyway. The positives to being registered far outweigh the negatives.
Your choice. Make it wisely.
PP
I couldn’t agree more.
I made the mistake of trying to register for tax in the UK myself (eventually). I ended up getting fined for not declaring my earnings soon enough, and it was very complicated trying to fill out the right forms seeing as I was already employed full time, AND self employed (it is a lot easier if you are just one or the other).
I advise everyone to take your advice and get a good accountant to do all this for you. A good accountant may cost a bit, but will save you money in the long run.
I also attended a local Government funded ‘Start your own business’ course in which they peddled the idea that the tax man was really nice and approachable and helpful - but I have to say that this was not my experience!
NB - As it turned out my fine was 22 pence! (So I was lucky in this respect at least)…