Home · Register · Search · View Winners · Software · Hosting · Software · Join Upload & Sell

Moderated by: Fred Miranda
Username   Password

  New fredmiranda.com Mobile Site
  New Feature: SMS Notification alert
  New Feature: Buy & Sell Watchlist
  

FM Forums | Pro Digital Corner | Join Upload & Sell

  

Archive 2013 · Becoming a Professional & Tax Deductions
  
 
Johnny B Goode
Offline
• •
Upload & Sell: Off
p.1 #1 · Becoming a Professional & Tax Deductions


I searched but didn't find much on it. I even googled and while I haven't clicked every link I thought I'd try and gather information here to aid in finding my answer. Yes already I know I should consult a tax professional and not rely on the interwebs but I'd like a good jumping off point.

My situation:

I love photography and others seem to enjoy my work as well. So much so that I've been contacted to take the occasional senior/family portraits. I have a full time job and do an okay job at saving up money and would like to invest in better gear if I'm going to start taking this seriously. However IF I drop 5 grand on new equipment for the purpose of establishing a business I'd like to know I can deduct that cost. Furthermore can I only deduct it from the income I've obtained from photography or can it be deducted from my gross income. Especially during this first year I can foresee being in the red due to gear investment and learning how to market myself effectively.

Before I make any serious investments I plan on talking to tax professionals and family members with this sort of experience but would like feedback from pro photographers here first. (I'm okay looking like a fool over the internet but like to sound intelligent in person).

Thanks,

Peter



May 05, 2013 at 08:34 PM
GoGo
Offline
• • •
Upload & Sell: On
p.1 #2 · Becoming a Professional & Tax Deductions


Hey Peter,

You will get all of your answers from a good accountant.

Look into the creation of a corporate entity, that would be a good first step. Then look for a professional organization like PPA or ASMP.org or WPPI and join.




May 06, 2013 at 02:31 PM
Micky Bill
Offline
• • • •
Upload & Sell: Off
p.1 #3 · Becoming a Professional & Tax Deductions


GoGo wrote:
Hey Peter,

You will get all of your answers from a good accountant.

Look into the creation of a corporate entity, that would be a good first step. Then look for a professional organization like PPA or ASMP.org or WPPI and join.



Why would you advise someone who really is not interested in creating a real business but more of a way to pay for his hobby to incorporate? That seems like a lot of hassle for a dubious result....



May 06, 2013 at 09:33 PM
cwebster
Offline
• • • •
Upload & Sell: Off
p.1 #4 · Becoming a Professional & Tax Deductions


The IRS looks askance at deductions for "hobby" expenses, especially photography. They may ask if you really have capital at risk, whether you have a business bank account, whether you have a business license, as ways to support your assertion that you're a "pro" and therefore have "a reasonable expectation of making a profit." They also tend to audit small businesses that don't make a profit in five years, and part-time photographers seldom make a profit, at all.

Get professional advice regarding the deductibility of your expenses and capital costs. Oh, and you generally can't use losses from a small business to offset income from a wage-paying job.

I'm not a lawyer or financial professional, but I have operated several businesses, large and small over the years and have some experience in these matters, including being audited over a "hobby" business.

<Chas>



May 07, 2013 at 02:50 AM
andyz
Offline
• • •
Upload & Sell: On
p.1 #5 · Becoming a Professional & Tax Deductions




Why would you advise someone who really is not interested in creating a real business but more of a way to pay for his hobby to incorporate? That seems like a lot of hassle for a dubious result....


Incorporating is a legal way to separate and protect personal assets from business assets. Also, if this became a viable business it is easier to sell if desired, when there is more separation from the person - if it is operated that way. The corporation is an entity in itself. More work and cost but more protection for the individual.

Get a good accountant first. In fact I recently listened to a podcast with Zack Arias and that his advice based on his first failed photography business. His opinion is they can save you more than they cost. That may well be true if tax reporting or depreciation get screwed up.



May 07, 2013 at 03:21 AM
Johnny B Goode
Offline
• •
Upload & Sell: Off
p.1 #6 · Becoming a Professional & Tax Deductions



andyz, cwebster, GoGo: Thanks for the feedback. I have an uncle that's a CPA and I'll touch base with him next time we chat. I don't know what you mean Micky by dubious. If I made a go at starting a business I'd want to make a go of it. That being said, it'd be foolish to upgrade my gear tomorrow then start the business in a week only to realize had I waited the extra week to upgrade I'd be able to deduct the gear as a business expense. My time frame is much longer than a week in case you were wondering. This is step 0.001.



May 07, 2013 at 05:23 AM
Micky Bill
Offline
• • • •
Upload & Sell: Off
p.1 #7 · Becoming a Professional & Tax Deductions


You said that some people asked you to take some pictures, and that you were wondering about "dropping five grand" and starting a business. You need to think about adding another fifteen grand to start To me it just sounds a little early to incorporate. there are other ways to set up a business. Good luck



May 07, 2013 at 05:50 AM
Johnny B Goode
Offline
• •
Upload & Sell: Off
p.1 #8 · Becoming a Professional & Tax Deductions


Fair point. Thank you for the advice.


May 07, 2013 at 04:38 PM
Milezero00
Offline

Upload & Sell: On
p.1 #9 · Becoming a Professional & Tax Deductions


The comment regarding protection of personal assets by incorporating is 100% on target. It is easy to incorporate and relatively inexpensive. You probably want an S-Corp first. You can incorporate on line using websites like LegalZoom. It will probably cost you about $500.00 Obviously you will keep your "day job" and you may need to talk with your employer about secondary income but your accountant should be able to provide you with guidance on this. Not connected with LegalZoom just thought I would post my $0.02. Hope it is helpful. Good luck.


Jun 19, 2013 at 04:57 PM
 

Search in Used Dept. 



RustyBug
Online
• • • • • •
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 ).




Jun 19, 2013 at 06:04 PM
colinm
Offline
• • •
Upload & Sell: Off
p.1 #11 · Becoming a Professional & Tax Deductions


Milezero00 wrote:
You can incorporate on line using websites like LegalZoom. It will probably cost you about $500.00


You can do it far cheaper and just as easily by going to the library and borrowing an appropriate Nolo book. In many states now, you don't even need to do that much: The state will walk you through it online from the comfort of your underwear.

LegalZoom charges out the wazoo for perceived difficulty and perceived convenience. It doesn't take 7-10 days and $289 worth of your time to fill out LLC or S-Corp paperwork in most states. Most states will provide you an annual tax calendar for free when you form your business and at the beginning of every year. LegalZoom tries to scare you into buying theirs for $69. Getting an EIN takes less than 30 seconds and is free. LegalZoom charges $79.

In many cities you can even sit down with an actual lawyer (LegalZoom is a simple form-filling program and explicitly disclaims any liability), who can make decisions relevant to your jurisdiction and business, for less money than LegalZoom will set you back.



Jun 21, 2013 at 06:49 PM
RustyBug
Online
• • • • • •
Upload & Sell: On
p.1 #12 · Becoming a Professional & Tax Deductions


+1 @ self EIN ... which is about all you need if you're going to be a sole proprietor. That and your state's tax merchant info.

LLC and S-Corp, etc. are certainly options, but they are not "required" to be a legitimate business, just that they might make better (taxation/liability) sense for a given entity than sole proprietor. Even without an EIN you can be operating as a sole proprietor under your SSN ... just that an EIN (which is associated to your SSN @ sole proprietor) shows a more business oriented perspective.

Most wholesalers will require an EIN and state tax info before they will deal with you. Somebody along the way has to be collecting the state's piece of the pie and wholesalers have to know that you are on the hook for doing it, so they can sell to you without collecting it.



Jun 21, 2013 at 08:59 PM
Z_man
Offline
• •
Upload & Sell: Off
p.1 #13 · Becoming a Professional & Tax Deductions


The IRS is quite clear on what constitutes a business versus what constitutes a hobby:

The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year.

If you do not show such a profit, the IRS will go back to prior years, and disallow deductions for the "hobby."

For more info: http://www.irs.gov/uac/Business-or-Hobby%3F-Answer-Has-Implications-for-Deductions



Jul 02, 2013 at 03:35 AM
lukeb
Offline
• • •
Upload & Sell: On
p.1 #14 · Becoming a Professional & Tax Deductions


Micky Bill wrote:
You said that some people asked you to take some pictures, and that you were wondering about "dropping five grand" and starting a business. You need to think about adding another fifteen grand to start To me it just sounds a little early to incorporate. there are other ways to set up a business. Good luck


Will those people who like your photography pay for your services. Liking and shelling out the bucks are two different poles at the opposite ends of the earth.

Its something to seriously think about.





Jul 02, 2013 at 03:40 AM
James L
Offline
• •
Upload & Sell: Off
p.1 #15 · Becoming a Professional & Tax Deductions


+1 on the sole proprietor. I had a prior internet side business and went through all the expense to become an "S" corp and realized it was pointless. Save the money for marketing, insurance and gear. In the end will be cheaper when filing taxes each year (accountant fees) in my experience.


Jul 09, 2013 at 05:30 PM
justruss
Offline
• • • •
Upload & Sell: Off
p.1 #16 · Becoming a Professional & Tax Deductions


Not a tax lawyer, lawyer, or accountant. And you NEED to talk to one of those. But...

It's far too early for the OP to be making a firm decision on incorporating. The decision includes far more than just separating your business from your person and questions of liability.

The bigger initial question is hobby vs. business. And word is that the IRS pays close attention to these situations, particularly for writers and photographers (low barrier to entry, common hobbies). The most concrete standard is the 3 out of 5 years business generating a profit concept-- profit being defined as your net profit after expenses. But that's not enough to prove you're running a business; it's just a hard limit you have to at least overcome.

The less concrete measures are going to be if you're acting, looking, and smelling like a business. Do you have a website/advertising? Are you taking paying jobs regularly-- or ramping up in frequency over the first years? Are you charging enough to have a profitable business? Is your business contributing something significant to your livelihood? Do you carry commercial/business insurance? Are you using your gear primarily for business or personal purposes? These aren't questions whose answers definitively determine your status. But they can support or not your contention that you're running a business and not a hobby.

Also, keep in mind that you don't generally get to take your gear purchases and just subtract that (creating a loss at first) from your income. It doesn't usually work that way. Instead, you'll have to declare what percentage of your use of each piece of gear is for business vs personal use, and you'll only be able to deduct that % of the cost, and to even do that you may have to declare the business % above a certain threshold (which the IRS can ask you to justify/prove if audited)-- and then you'll most likely have to amortize that deduction over 7 years or something. And all of that only makes real sense if you're going to be running a real, profit generating business for years.

Expenses and deductions from running a business will not lower your taxes from before you started the business; they will help reduce your additional tax liability from the increase in income you generate from the business.

And as others have said, many a talented amateur has gotten the, "Hey, we love your photos, how much to shoot TK?" inquiries before. Following up on a few of those inquiries and making a few bucks with personal-use gear is easy enough-- and that's a hobby. Actually pursuing photography as a business-- even if you're going to keep your primary job-- is a totally different proposition.



Jul 16, 2013 at 06:17 AM
Corojo
Offline
• • •
Upload & Sell: Off
p.1 #17 · Becoming a Professional & Tax Deductions


(Here in Ohio) You will need a Vendors license from your State to start. You will need to charge State sales taxes for ANY labor for your shoots. You will need to charge sales tax for any items sold. Need to be on the "up and up" about this... home based togs are a RED flag for audits from State and IRS. Don't mess around with the "man"... Find a good Accountant/CPA to help you get off the ground. Develop a business plan - (for weddings) have proper liability/indenicfication insurance. As far as 'S' corp - or others, trust your accountant.


Aug 06, 2013 at 07:13 PM
elkhornsun
Offline
• • •
Upload & Sell: On
p.1 #18 · Becoming a Professional & Tax Deductions


You can only deduct from actual earnings and need to have enough income to be viewed as a business by an audtior. It is probably not worth the trouble when so little is needed to setup a basic portrait business in terms of a camera, mid-grade lens, and a simple 3-flash lighting setup with a few modifiers.

If you have a day job and any of your income falls into a higher bracket then any photography income is going to be taxed at that top bracket rate. If you make an extra $10k you may find yourself handing $3k to the feds to finance our next war. If you write off $3K in new photo equipment that still leaves $7k in income and paying the feds at least $2.

A good CPA can provide parameters for avoiding an audit and in general a "hobby" business is a red flag for the IRS. You may want to consider not writing off the photo gear and having friends provide a cash gift to you.

The PPA is a great source for starting and running a portrait operation as a paying business. Nothing else comes close - best photo mag available comes with the membership. Good place to start.



Aug 12, 2013 at 11:02 PM





FM Forums | Pro Digital Corner | Join Upload & Sell

    
 

You are not logged in. Login or Register

Username   Password    Retrive password