Best Business Practices for Photographers [81]
There are a few tax-deferred plans available to freelancers, but I'd be doing you a disservice if I advised you of the best plan for you and your circumstances. There are skilled investment and retirement specialists at your bank who can send you in the right direction. The important thing to do is to get one started. This tax year, ask your accountant to advise you of the maximum contribution you can make to your account(s). (See Chapter 11, "Accounting: How We Do It Ourselves and What We Turn Over to an Accountant," for a discussion of why you should have an accountant!)
One word of caution: There are a wide variety of financial advisors who are paid a commission based on every time you effect a financial transaction, how much you invest in certain types of investments, or when you put money in investments their financial institution is handling. Make absolutely certain that you are aware of these fees and that the investment advice you may be receiving could be tainted by this. In addition, your accountant should be an excellent resource for qualified investment specialists, and further, both accountants and investment specialists can advise you about retirement planning to maximize your savings and tax liability.
If Everyone Hiring You Is Paid a Salary, Shouldn't You Be, Too?
This idea dovetails well with Chapter 32, "Charity, Community, and Your Colleagues: Giving Back Is Good Karma," where I discuss pro-bono work. If the person hiring you is being paid a salary to do his or her job, then it stands to reason (and common sense) that you're paid a salary by your business! Too often, however, photographers fail to consider themselves as due a salary. This is shortsighted.
Typically, when a photographer's business starts up, every dime gets reinvested in the business, and a scant amount of money gets directed toward non-photo-related endeavors. However, to fairly and accurately pay you, your business must begin to pay you a defined salary sooner rather than later, and it should be a cornerstone of your CODB (cost of doing business).
As times change, you should be getting raises—most of the rest of the working public is, and they're more than likely not working as many hours as you are. To that end, you need to determine just what your salary should be.
Establishing a Fair Salary
Because most photographers tend to undervalue themselves and the contributions they make, let's start with a few figures so you don't sell yourself short out of the gate. The NPPA CODB calculator automatically defaults to a $40,000 salary, and that hasn't changed for several years. Salary.com shows a median amount of $54,210. A survey by Salary.com yields the results shown in Figure 9.1.
With a base salary of $54,210, there are still other things to factor in. Numerous other expenses are associated with an employee whose salary is $54,210. Drilling down into Salary.com's bonus and benefits details reveals an interesting set of additional figures, shown in Figure 9.2.
As shown in Figure 9.2, this same employee is actually costing the company just over $77,000 a year. These aren't made-up numbers; they are real, fair, and most important, reasonable figures. Understand that if you were to pay this same amount yourself, you'd have to consider that expenses such as self-employment tax, health and disability, and social security are not expenses that your company (in other words, you) can pay part of or all of, but instead, you are responsible for those expenses.
Figure 9.1
Salary.com survey results.
Figure 9.2
Total compensation as reported by Salary.com.
To see what this same photographer's take-home pay is, Salary.com also provides an insightful breakdown in Figure 9.3.
Figure 9.3
Total compensation as reported by Salary.com.
That's a whopping $1,562 a paycheck, take home. With these results, you want to consider