Taxes: Hobby? Deductions? Help...LOL

Canon EF 100mm f/2.8 USM Macro

11/07/2005 08:35:17 AM · #1

I am a SAHM and do photography on the side for fun. I have made ballpark $2500 this year doing shoots and selling stock photography. My hubby makes roughly $50K a year, but only about $35K of that is taxable income. (military) I have never filled out a 1099 form for the magazine I have done some work for, if that matters.

I just ordered a TON of equipment. Is there any way to deduct any of that from my taxes?

I just don't understand the whole hobby thing when it comes to taxes!

Thanks!
Jenn

Spork99

OM System OM-1

11/07/2005 08:59:07 AM · #2

Originally posted by JRalston:

My advice is to talk with a professional.

I'm assuming that you have a business license, pay stae and local business taxes etc. Generally, you can consider equipment purchases as capital expenditures and they will be depreciated over some period of years. Meaning that you can deduct some portion of the cost each year for a set number of years. There are different depreciation schedules for different things usually depending on the expected life of the asset.

I saw your shopping list in your other thread and really, the best advice would be to talk to a professional advisor. The last thing you want to do is screw this up and have the IRS knocking at your door asking all kinds of questions.

Canon EF 100mm f/2.8 USM Macro

11/07/2005 09:05:23 AM · #3

Originally posted by Spazmo99:

I'm assuming that you have a business license, pay state and local business taxes etc.

I DO NOT have a business license. Quite frankly, I didn't expect this to happen this year! I still consider it a hobby. Other than the stock photography site, which I originally joined for feedback on my photos, I have not persued any ventures. They all have come to me! My expenses have far outweighed my profits, especially with my new purchases.

Thanks for your help. I hope they have tax specialists in Guam..LOL I'm wondering if I should just leave it alone.

Spork99

OM System OM-1

11/07/2005 09:13:03 AM · #4

Originally posted by JRalston:

Originally posted by Spazmo99:

I'm assuming that you have a business license, pay state and local business taxes etc.

I DO NOT have a business license. Quite frankly, I didn't expect this to happen this year! I still consider it a hobby. Other than the stock photography site, which I originally joined for feedback on my photos, I have not persued any ventures. They all have come to me! My expenses have far outweighed my profits, especially with my new purchases.

Thanks for your help. I hope they have tax specialists in Guam..LOL I'm wondering if I should just leave it alone.

Don't make any decisions based on my advice. Please, for your own good consult someone.

Flash

Nikon D700

Nikon AF-S Nikkor 17-35mm f/2.8D IF-ED

11/07/2005 09:29:15 AM · #5

As posted above, professional advice is needed. The IRS historically frowns on deductions for Hobbies and they are keenly aware of those who try to disguise their hobby as a part time business for the business deductions. Audits are up (although you are below the target income range), however should you become audited it is very prudent to have followed the guidelines carefully. Hence, advice from professionals. An accountant in your area would be a good start. One of the key elements of a "business" is to be able to prove advertising. If in fact you are a business, and in business to make a profit, then you must have some means to promote your business, thus advertising. Otherwise, it will be harder to prove the deductions were for a business, when you were not actively engaged in business promotion.

Ask a local business owner that you admire (beautician, grocer, video rental) who their accountant or CPA is. Then contact them for advice.

Prof_Fate

11/07/2005 11:11:48 AM · #6

Go see an accountant. I am not one, but have been 'playing this game' for about 8 years now.

The IRS views any and all money paid to you as INCOME and it is taxable. Including lottery winnings, ebay sales, etc. Remember, Al capone went to jail for not paying taxes!
On the plus side, you can now deduct (depending on the specific details of your home office, etc) - a portiion of your office expenses - as in home repairs, utilities, mortgage, taxes. office furniture, computer, phone bills, biz cards, internet, etc. You make prints - the materials are deductible. The mileage you drive to get to 'work' form your office is deductibale at 30 some cents a mile (it changes yearly). You photographic equipment can be depreciated as well.

SO it works like this...
You have revenue of $2500. TO make that, you had to use the phone, internet, print up 8x10s, have them framed, drive 100 miles, get a hotel...these are expenses and can be deducted against the $2500. So they add to $1500 lets say. You now have a taxable income of $1000.

YOu have a room that is exclusively used as an office for your photogaphic business. It is 200 sq ft, and your house is 2,000, so 10% of your utilities (gas, elec, water), 10% of your property taxes, 10% of the repairs in the past year are all deductiable as well. I think a portion of your mortgage is too..not sure on that one. So this might be another $500.

Now you bought PS CS this year for $700, and a nice 70-200 2.8 IS lens for $1400. That is $2100, but it will 'last' or have a useful life of 3 years (or 5 or 10 - see the IRS for details) So you divide that $2100 by 3 (in this exapmple) and get $700 worth of depreciation. that adds to the $1500 and $500 from above to get a total of $2700.

Congratulations - your business lost money! YOu brought in $2500 and spent $2700 to make it! The upside is the $200 loss can be deducted from your taxes - so if you and hubby file jointly, your Scedule C will show a loss of $200, and that get deducted from his $35,000 taxable income!

YOU must have receipts for every claim, and the items (legally speaking) have to be used for the business - no family fun shots with that nice new lens and don't process them with that PS CS you got...but realistically that beach shot of Junior is for your portfolio...so it can be considered advertising! and advertising is a legitimate business activity and expense!

Not that i'd write the summer vacation to teh grand canyon off as advertising for portfolio use, but if you went there to make fine art pics or a calendar then yes, that trip can be wriiten off, as in deducted from your taxes as a business expense.

See, working withing the system is fun and profitable - if you learn the how teh sytem works!

As for business liceses, etc - that is a local or state thing. Here in PA if you have no employees and the biz contains your name (with some limitations) then no license is needed. Locally as long as no customers come to my house i am fine. If i have a studio in my basement (the winter project) then i need to register so that the local goct knows i am not breaking laws and that i meet whatever laws they have on teh books for this type of activity (hours of operation, fire code, etc)

Message edited by author 2005-11-07 11:14:20.

RonB

Canon EOS-300D Rebel

11/07/2005 11:16:16 AM · #7

Under IRS regs, a "business" is considered a "business" if it produces a profit in 3 out of 5 years. The government is not in the business of subsidizing hobbies, but recognizes that small businesses often run for the first couple of years "in the red", or will run "in the red" after major investment toward future growth - hence the 3-of-5 rule. For a "start up" there is no 5-year history, so you can request deferrment of the determination, but be advised that if you then fail to qualify, you will owe back taxes on disallowed deductions.

If you DO qualify, there is no requirement to prove "intent" to make a profit. If you do NOT qualify, all the proof of "intent" is meaningless.

If you have a social security number, that can be used as your "tax id" or TIN, so long as you do not have have to pay federal taxes other than your own income tax ( e.g. federal taxes for "employees" or federal excise taxes, etc. ).

You should nevertheless obtain a business Tax ID if you are required to collect sales taxes from your customers, or if you wish to avoid sales taxes when you purchase consumables or other business related items and charge the taxes ( deferred ) to your customer.

Note: I am NOT a tax expert, but have claimed deductions, successfully, under these regs in the past.

Refer to IRS Publication 535 for more info - ref: here. Pay particular attention to the paragraph "Presumption of Profit" under the section "Not for Profit Activities" off the main page.

If you DO expect to make a profit in 3 out of each 5 years, this is the way to go.

edited to note, I only pointed out FEDERAL regs. As Prof_Fate says, STATE regs concerning business ventures are another story.

Message edited by author 2005-11-07 11:18:39.

Canon 12x IS USM (S3 IS built-in Lens) -- 36-432mm (35mm EQ)

11/07/2005 03:00:04 PM · #8

Thank you all so much! I can now see why it is advisable to hire a tax consultant...LOL!!! Just reading that much made my head spin ;)

GeneralE

Canon PowerShot S3 IS

11/07/2005 03:34:50 PM · #9

Originally posted by JRalston:

Thank you all so much! I can now see why it is advisable to hire a tax consultant...LOL!!! Just reading that much made my head spin ;)

Read it again slowly in a couple of days and it will make more sense -- you've been offered a lot of excellent info here. If nothing else, you'll be able to converse more intelligently with your tax advisor if you choose to hire one.

hankk

Canon EOS-5D

Sigma 24-70mm f/2.8 EX Aspherical DF for Canon

11/07/2005 04:23:15 PM · #10

There's a difference between a business and a hobby. see //www.irs.gov/businesses/small/article/0,,id=99239,00.html

You must report income from your hobby, but can deduct certain items (but you can only deduct as much as you make--you can't have a loss with a hobby). See //www.irs.gov/individuals/article/0,,id=140252,00.html

So you can deduct something, but the law gets convoluted, especially in regard to hobbies and items that are used for both business and personal use. As everyone else says, see a tax guy.

Message edited by author 2005-11-07 16:24:40.

C-Fox

11/07/2005 04:23:49 PM · #11

The other point is if you made an income you HAVE to claim it. The Tax department can get very grumpy if it finds out that you had unclaimed income. Plus it is much easy to find all your receipts etc now, instead of later under audit conditions. (Take some of this with a grain of salt since the government grumpyness is normally cured by paying additional taxes, but why take the risk)