Buying lens from my husband? - DPChallenge Forums

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

09/27/2009 11:38:26 AM · #1

I'm going to talk to an accountant about this, but I wanted to throw this out there and see if you've had the experience.

I started my LLC recently. My husband put my new lens on his credit card right before I got my biz checking account and now my business is paying him back for it (in one payment, if that matters). Does anyone know how this would work as far as a write-off?

Would it be considered a used item (and therefore worth less) since my business is paying an individual instead of straight from a company? Is there anything else here I'm missing, i.e., does there need to be an invoice, etc?

(We were going to wait until my biz account was open, but, well, we're highly impatient and it was my first L lens. I couldn't help myself! ;) )

GeneralE

Canon PowerShot S3 IS

09/27/2009 12:05:00 PM · #2

If you get the original store receipt you can probably deduct the full price, handling this payment as a reimbursement. I buy stuff at Costco for my boss all the time -- he writes a check to me, takes the original receipt, and (I assume) writes off the full amount.

Talking to an accountant or tax attorney is a good idea ... you might also want to look into the many books/articles on running your own business and taxes and copyright/intellectual property available from Nolo Press. Seriously, for less than the cost of a cheap lens you can get an entire reference library for your business, and avoid a lot of headaches (and legal/accounting fees). Also, check your local library -- some carry these books, so you can read them for free ...

Message edited by author 2009-09-27 12:05:45.

Tammster

Canon EOS-60D

Canon EF-S 18-200mm f/3.5-5.6 IS

09/27/2009 12:11:35 PM · #3

Assuming the lens is a valid business expense (treated by the IRS as an actual business and not a hobby, see below), as long as you retain the original receipt and clearly document the reimbursement from your business to your husband, the IRS should not disallow the expense.

Having said that, the IRS frequently challenges businesses such as photography, especially when the business incurs net losses year after year. If your business falls into this situation, you probably should speak to an accountant if you haven't already.

Here is an article that will provide more information:
Forbes article - "IRS seeking to tax your hobby"

09/27/2009 12:12:55 PM · #4

Depends on how your are writing it off. If you use quickbooks to track your records you could add him as a vendor and buy it from him as you would buy something from anyone. If you pay him or ever plan on writing him a check for services rendered then you need to create 2 names because you can't pay wages to a vendor.

To add him as a vendor create the name J_Smith and buy the lens from him. Print out a receipt and keep for your records. No one knows if the lens is new or not so just say it's new. Then if you ever pay him for services you create the name Joe_Smith.

OR

You could create an expense report for the month and pay your LLC can pay you back for it. This is called an owner drawl and an expense report would make a paper trail.

Another thing you could do is just add his Credit Card to your records and as if it was your personal CC and just pay off the CC with the LLC which is allowed also.

Just out of curiosity what did you pay for your LLC?

09/27/2009 12:38:01 PM · #5

Wow, thanks guys. Such quick answers! :)

I'm actually planning on incurring a profit from the biz (and hopefully a nice one!) - I'm not just writing off to write off. :) As far as how much I paid for the LLC, in Oklahoma, it's $100 to register with the state...then another few bucks for a sales tax permit, both of which I've done.

Good call with adding his CC to my records - I could probably have him add me as an authorized user on the cc so my name is there as well (I'm the only one listed on the LLC).

Great responses - thanks everyone!

09/27/2009 12:46:44 PM · #6

Originally posted by ttwphoto:

Did you talk to an attorney to start the LLC or did you do it through something like legal zoom?

BTW make sure that you now advertise your business as your BUSINESS_NAME, LLC. if you don't you can be held liable personally if sued. If you change everything to LLC then the LLC will take the hit.

This means, business cards, advertising, phone numbers, websites, everything.Everything you have as your photography company now needs to have LLC after it.

Message edited by author 2009-09-27 12:49:25.

Canon EF-S 18-200mm f/3.5-5.6 IS

09/27/2009 12:54:31 PM · #7

I didn't talk to an attorney for the LLC, no. (Though I plan on finding one for contract and tax reasons...I'm currently shopping around.) Nor did I use anything...I'm not even sure what legal zoom is. I just did some research and went directly through the Secretary of State.

Thanks for the input. I think the only thing I don't have the LLC on right now are my business cards - I'll do that on my next order. :)

Tammster

Canon EOS-60D

09/27/2009 12:56:07 PM · #8

Originally posted by ttwphoto:

Good call with adding his CC to my records - I could probably have him add me as an authorized user on the cc so my name is there as well (I'm the only one listed on the LLC).

I'm actually not thrilled with this alternative, although I'm sure it will work. As a practicing CPA for (wow) 18 years now, I find that it's usually best to separate business and personal accounts. I think the transaction stands alone if you reimburse him, especially if you create an expense report and staple the receipt to it. However, if you start directly paying personal credit cards, the line between business and personal may become blurred and upon audit, the IRS may ask to see your personal credit card statements. Not a big deal but I don't see a reason to do it this way.

Also, to be clear about terminology, an "owner draw" is not an expense of the company. An owner's draw is when you take money out of the company that has already been taxed.

I may not feel comfortable giving photography advice but I will be happy to help with tax or bookkeeping questions (including Quickbooks if you use it). Feel free to PM or email me anytime.

Tamron 16-300mm Di II VC PZD MACRO w/Canon Nikon mount

09/27/2009 01:04:58 PM · #9

Originally posted by Tammster:

As a practicing CPA for (wow) 18 years now, I find that it's usually best to separate business and personal accounts. I think the transaction stands alone if you reimburse him, especially if you create an expense report and staple the receipt to it.

Ahhh, yes. How easily I keep forgetting this. Very good point - I do want to keep it separate...thus the LLC. Thanks!

JulietNN

Canon EOS R7

09/27/2009 01:20:58 PM · #10

It really sounds as though you really need to take a business course. IT is hard enough starting up a biz with all the knowledge that you can get from professionals and biz courses.

Message edited by author 2009-09-27 13:22:18.

Canon EF-S 18-200mm f/3.5-5.6 IS

09/27/2009 04:27:40 PM · #11

Originally posted by JulietNN:

It really sounds as though you really need to take a business course. IT is hard enough starting up a biz with all the knowledge that you can get from professionals and biz courses.

Or you just find a CPA that knows uses the same booking system you do, which in my case I use quickbooks. Then you just ask the questions as to how you reimburse a personal account from a business account.

Honestly the best way I know is to create an expense sheet and do it that way. For the record you already put some personal money into the account unless you took out a loan under the company name to start the company and with the economy the way it is now I don't see that as an option. So mixing personal and business isn't a bad thing as long as you do an expense sheet every month and have the company pay you back. A general rule is that you can only go back to the 1st of the year so make sure you enter all your personal bills before your 1 year mark.

Tammster

Canon EOS-60D

09/27/2009 05:10:08 PM · #12

Originally posted by Dirt_Diver:

[quote=JulietNN] Honestly the best way I know is to create an expense sheet and do it that way. For the record you already put some personal money into the account unless you took out a loan under the company name to start the company and with the economy the way it is now I don't see that as an option. So mixing personal and business isn't a bad thing as long as you do an expense sheet every month and have the company pay you back. A general rule is that you can only go back to the 1st of the year so make sure you enter all your personal bills before your 1 year mark.

I agree with everything you're saying. I also agree that Quickbooks is the way to go. The important thing is to keep a separate bank account and try to run everything through the books, including the expenses you pay for personally in which the company pays you back.

Canon EF-S 18-55mm f/3.5-5.6 IS

09/27/2009 10:53:14 PM · #13

Thank you for all your help, everyone. I love this site. :)

And...

Originally posted by JulietNN:

It really sounds as though you really need to take a business course.

...YES I DO!! lol And I certainly plan on it.

ChadH

Canon EOS-450D Rebel XSi

09/27/2009 11:19:03 PM · #14

From Chad's wife:

I'm an accounting student, not an accountant, but this is my best answer for you. I assume you are using accrual accounting. Sure, your business can purchase the lens from your husband. In the eyes of the IRS, it doesn't matter what you think the lens is worth--its cost is simply the cash price your business pays your husband for it. This historical cost is always the asset's value on the books. You may not claim the entire cost of the lens as a business expense in your first year, unless you plan to throw out the lens after a year. Instead, you must divide the cost of the lens by the number of years you'll use it to generate income. (called straight-line depreciation, the easiest method). For example, a $1,000 lens with an estimated useful life of 5 years can be deducted as a tax expense $200 each year for five years. This is true for all assets which will generate income for your business for longer than one year.

Canon EF-S 18-55mm f/3.5-5.6 IS

09/27/2009 11:57:51 PM · #15

Interesting. I knew it had to depreciate, but was going to save the other questions until I talked to a CPA about it. So, with that said, what IS the normal depreciation rate/life of a nice L lens? Is 5 years about right or were you just throwing out a number? Is there a minimum/maximum set of years or do you just guess?

ChadH

Canon EOS-450D Rebel XSi

09/28/2009 12:28:04 AM · #16

Originally posted by ttwphoto:

Chad's Wife:
I was just throwing out a number. Maybe the other photographers can answer... You can consider the fact that a functional lens might be technologically obsolete after a while, and need replacement for that reason.

Chad:
It's not like the IRS are photography buffs. The idea behind spreading out the write off is so: the IRS gets some taxes the first year (you don't get to write off everything you bought), and it gives you write offs for subsequent years when you have durable assets (so you are not taxed on every penny you make the second year because your equipment lasts that long).

Message edited by author 2009-09-28 00:32:48.