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06/09/2006 07:26:24 AM · #1 |
I have sold a few prints here and there. Is that enough for me to start my own photography business? My goal isn't to support myself with photography, and I don't expect to ever have much income, but I think it makes sense to start a business so I can write off equipment purchases (like that 24-70 f2.8L I have been drooling over)? Can somebody point me towards resources that cover the requirements and tax benefits of this approach or explain how they benefit? For example, could I write off vacations if I am taking pictures that may end up being sold as prints?
Thanks!
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06/09/2006 07:42:04 AM · #2 |
While this kind of thing can possibly be done in a legal fashion, it's one of the most common triggers for an IRS audit. You can only lose money (be in the "red" as a business) for three years in a row; if you never show a profit, they'll start red-flagging you and investigating. They also have a real power of discretion to tell you something is a hobby instead of a business, regardless of what you think, based on personal use of the equipment and how much revenue you actually have. For instance, if you buy a $4000 camera, write it off as a business expense, then use it to make 2000 snapshots of your vacation but only have one paying gig for $500 for the entire year, they are REALLY going to frown on that, simply because the camera is not being used to generate income. As well, having a full time job in addition to the so-called "business" is a real alert.
Believe me, if you're only doing it to fool the taxman, he's pretty smart, and virtually anything tricky that you do three years in a row will not make him happy.
Most people still don't understand, for instance, that a "home office" has to be DEDICATED 100% to "home business" use before you can count it as a deduction. It can't be a breakfast nook one minute and a tax writeoff the next. |
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06/09/2006 08:36:00 AM · #3 |
That is what I was afraid of. As soon as I have to make a profit at photography it will go from being fun to being work. I'm not sure that is worth the tax benefit for me. On the other hand, it might not be too hard to show a small profit in year 2 assuming all the equipment was expensed in year 1 and not amortized over multiple years. Then selling a couple of prints should cover recurring expenses such as a website.
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06/09/2006 09:05:42 AM · #4 |
You might consider shooting stock, whether macro or micro.
Message edited by author 2006-06-09 17:13:40. |
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06/09/2006 12:32:33 PM · #5 |
1. Talk seriously to an accountant who prepares business taxes and has had clients who have been audited.
2. If you decide to "open" a business, then treat it as such. Meaning, filing a DBA (Doing Business AS) at a MINIMUM.
3. Plan on meticulous records for the business (don't be afraid to call your accountant for advice).
4. A key element of many businesses is ADVERTISING. If you cannot show evidence of advertising (the "intent" to promote and get business), then it will be much more difficult to prove you were a business, regardless of your claims.
5. All businesses do not make a profit. Many businesses lose money for decades and still remain viable businesses for IRS audits and are allowed the claimed deductions. However, they have evidence of advertising and the intent to market their business.
6. Talk seriously to an accountant who prepares business taxes and has had clients who have been audited.
7. Talk seriously to an accountant who prepares business taxes and has had clients who have been audited.
8. Talk seriously to an accountant who prepares business taxes and has had clients who have been audited.
And lastly, "Talk seriously to an accountant who prepares business taxes and has had clients who have been audited."
Remember, you can always enjoy it as a hobby if you are not a good business person.
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06/09/2006 12:47:08 PM · #6 |
Flash has it right - it's the intent that matters. You don't have to make a profit, just show that you intend to, or are trying to run a real business. (so says my accountant, 2nd generation CPA)
see what the IRS has to say about hobby vs business
and remember, you are legally obligated to claim all your income even if you don't or can't claim the expenses. and you have to pay sales tax. so they say.
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06/09/2006 12:49:08 PM · #7 |
Originally posted by Flash:
1. Talk seriously to an accountant who prepares business taxes and has had clients who have been audited.
6. Talk seriously to an accountant who prepares business taxes and has had clients who have been audited.
7. Talk seriously to an accountant who prepares business taxes and has had clients who have been audited.
8. Talk seriously to an accountant who prepares business taxes and has had clients who have been audited.
And lastly, "Talk seriously to an accountant who prepares business taxes and has had clients who have been audited."
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If your accontant has that many clients getting audited perhaps you need another accountant! :P
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06/09/2006 01:42:58 PM · #8 |
Originally posted by Prof_Fate:
If your accontant has that many clients getting audited perhaps you need another accountant! :P |
I think that a really good or really bad accountant has been through a lot of IRS audits - it's the really good that win most :-)) An accountant not getting hit with a lot of audits is not trying hard enough to be just this side of the line :-) |
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06/09/2006 03:30:34 PM · #9 |
I would ammend this line to:
Talk seriously to a lawyer, and an accountant (in that order) who can help you successfully survive an audit.
Lawyers have great advice when it comes to businesses, and how to make sure they fit in with the IRS as well, as well as all of the things that you need to do to be sure that your business can stand on it's own to the letter of the law, making it easier for the IRS to recognize it as a viable business.
WHatever you decide, good luck.
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06/09/2006 03:41:36 PM · #10 |
Self-help books on setting up a business, incorporation, intellectual property law, and all kinds of other relevant topics are available from Nolo Press -- they've been helping people handle their own legal and business matters for over 30 years.
If you see a title you like, you might check with your local library to see if they have it before ordering. |
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06/09/2006 04:31:27 PM · #11 |
Originally posted by Prof_Fate:
Flash has it right - it's the intent that matters. You don't have to make a profit, just show that you intend to, or are trying to run a real business. (so says my accountant, 2nd generation CPA)
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Please note that I made no comment as to whether an audit would discover any PROBLEMS, I simply said that losing money on a "business" for three years in a row can easily TRIGGER an audit.
Most people in search of a "tax shelter" in the fashion that the OP posted really don't want to be subjected to an audit as all the things you guys are mentioning are invariably found out ALONG WITH many other problems. There are simply a lot of things that TRIGGER audits. If you stay away from those things, a lot of little things don't matter. However, in the course of an audit, the little things suddenly DO matter.
Losing money on a business is not automatically a problem, no. But, as is clearly mentioned, you have to be able to prove a LOT of things to show that you are running a legitimate business if you are ever audited. |
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