Upload & Sell: On
| p.1 #10 · Becoming a Professional & Tax Deductions |
As with most here ... not qualified to give tax advice.
But, the issue @ hobby vs. business is one that the IRS is very attuned to. Taking a few pics for some folks, making a couple bucks and then trying to deduct $$$$ @ gear is a tough nut to pitch over the IRS. The IRS allows for business losses, etc. but they do expect to see at least a viable approach to becoming a sustainable business at hopefully some point in the relatively near future (3-5 years ) and a business plan that structures beyond the "Well, I'll put my toe in the water and see what happens."
When in that mode, the "If it doesn't pan out, I've still got my day job." is kind of "red flag" @ hobby. It doesn't mean that you have to quit your day job to qualify as a business, but there are a variety of factors that can lean an enterprise from hobby to business. But even if one never reaches "break even" with regard to capital investment, it still should have a plan to be sustainable @ revenue vs. operation costs, or some hope of therein.
It isn't necessarily required to incorporate, etc. Sole proprietor (with its own pro's / cons) can be fine. Sporadic revenue that doesn't generate enough profit to overcome expenses such as liability insurance, marketing, rental, software upgrades, backup gear, etc. is likely a "red flag" that this an enterprise (not saying yours) that really doesn't have a chance of ever becoming a sustainable, profitable business ... and thus gets perceived as a "hobby".
Many businesses don't generate a profit early on ... but they generally have an approach in place (even if they fail entirely) that suggests a plan for sustainability. Again, not a tax/accountant ... but I was trained by the IRS back in the late 80's to do volunteer tax return. They gave us some insight into their perception @ hobby vs. business so that when Uncle Joe wanted to deduct his $3,000 video camera because he used it to make money when his buddies called him to videotape their kids wedding for $100, we'd know it was hobby ... and a few other "red flags" they were attuned to.
Basically, if it is run like a business (in whatever form that may be), it gets perceived as a business. If not, hobby. Of course, that was over 20 years ago ... but it is offered up as some "food for thought" as you go into discussion with people who can give real advice into current IRS law (which you can read for yourself as well ).