Add and Subtract: Understanding Overhead

If you're like most photographers, you probably don't really want to know how high your daily expenses are. You just hope that good work will come in, making your overhead a non-issue.

Photographers deal with so many financial stresses already?late-paying clients, huge cash expenditures and a massive amount of credit card debt?it's no wonder they have avoidance issues around money. That said, calculating your overhead doesn't have to be a huge hassle. If you keep track of expenses as you go along (instead of scrambling to input all your receipts right before tax season), you may find yourself happily surprised and liberated by the knowledge of how you spend your money. You'll also be better equipped to weather the inevitable dry spell.

"The point is," says Seattle-based tax accountant and former IRS agent Howard Choder, "that you don't do this for the tax man. You do this for your business and for yourself."



What is overhead?

Also known as "operating expenses," overhead is defined as the amount of money you lay out to run your business each day: Rent, utilities, payroll, vehicle expenses, insurance, communications, paper and supplies, self-promotion expenses, even student loans (if you're just starting out). Expenses you bear on jobs?like film and processing?which ultimately get billed back to your clients, do not count as overhead.

Why the necessity to keep track of each of these items? Former APA-president Jeff Sedlik puts it plainly: "In order to determine your fees, you need to know the cost of keeping your doors open every day so you can bring in enough money to cover costs."

There are other reasons for keeping an eye on your overhead as well. Reducing your taxes is a big one. Because photographers are taxed on their net income (which is gross income minus overhead expenses), the only way to drive that taxable figure down is to keep track of your day-to-day fixed costs.

If all that isn't reason enough, Sedlik points out that a more competitive photography industry these days means that photographers have to be more cost-conscious than ever before: "The industry is saturated with photographers, most of whom face decreased demand for commissioned work. To survive, most photographers will need to reduce overhead."



Where to start?

If you haven't been tracking your overhead expenses, the best advice that tax accountant Choder can give you is to START NOW.

Choder, who works with a number of photographers and creative individuals, recounted in a telephone interview the all-too-common exchange between photographer and accountant each