At what point do I need to start a business?

<p>Hello all!<br>

<br />I'm wondering, at what point does it become necessary to start a business? Or, rather, at what point could you be in trouble if you don't?<br>

I've been shooting weddings, families, engagements, etc...for a while now but mostly on my own time (I'm a stay at home mom and College student) and by word of mouth. I've got a Facebook page (who doesn't?) and a website, and cards for anyone who wants to find my work. I don't actively advertise, but I do get work.<br>

I'm beginning to wonder whether or not I would be getting myself in trouble (IRS? ect...) if I continue to behave as if I've got a business when I don't actually have a licensed business. <br>

I've done a lot of reading, but most of it seems to cover what you should do if you want to start a business. Right now I'm fairly happy shooting when I want to and making the occasional few bucks. I intend to start a business eventually, when my youngest is in school, but I'm not sure if I want to take that leap yet...that is, unless I would be getting myself in trouble if I don't.<br>

Any advice would be appreciated! <br>

Thanks!<br>

Nicole</p>

See an accountant for tax issues. If you are earning money, you are already engaging in business. Lack of advrrtising is irrelevant. Imagine the untaxable fortunes made if that were a distinction. Business licensing is a more of a

local issue.

<p>The requirements vary according to where you are located and what type of photography you are doing. Here in the United States, photography as such is not a licensed profession in the sense of being a physician or attorney (or even a plumber or electrician). If you are freelancing and selling images to publications or other business-to-business clients -- as opposed to prints and wedding albums to retail clients from a storefront studio -- you might not have any licensing requirements at all. Selling tangible products that are subject to sales tax, or even services in some states, can be a point that triggers certain requirements. Doing business under an assumed name -- Pretty Pictures Photography instead of Nicole York -- can require registration of the business name. Setting up a storefront operation may require a general business license even if it's not specific to photography, though an "office" might not. Even if you don't need a business license, you do need to report your income to the IRS. The bad side of that is you have to pay tax on it. The good side is that you can then deduct your equipment and other costs as a business expense. If I were you, I would go talk to an accountant. They know tax requirements, including local, state and federal, and are usually familiar with licensing and similar requirements. From there you might or might not need to talk to an attorney. I would not contact your local business licensing office or any other government agency just yet -- you don't want to get on their radar and subject yourself to regulations and reporting requirements before you are really at the point where you are a real business.</p>

<p>You might start by consulting with an advisor with the Small Business Administration. I did that last year, and concluded that I would continue to operate as a hobbyist. (I'm not earning much, and I don't want to deal with the tax issues.) <br /><br />He answered the big questions and helped me clarify my goals. If you decide to move beyond that, then I think an accountant (and probably an attorney) is essential. </p>

<p>Thanks for the advice everyone!<br>

Craig S, right now clients buy prints and albums etc. from an online storefront, and I am using my own name.<br>

Lisa E, thats where I am at as well. I don't really want to deal with everything that comes with operating a "business." <br>

I have talked to a local tax guy who basically said that as long as I am declaring what I earn and filing, thats all the IRS is concerned with. I mentioned state and local stuff, but he said since clients don't buy anything directly from me and no goods change hands from mine to theirs, I don't have to charge sales tax.<br /> Does this sound right from your experience?</p>

<p>What Craig said is pretty much spot on. But it's not the taxes which would be your reason to become an LLC or a Corporation. For taxes you can simply claim the income and operate as a sole proprietor and it's pretty straightforward. Your business income just gets incorporated into your individual income.<br>

<br />The reason why it's beneficial to do something such as become an LLC is for your own legal protection. Let's say a light stand falls over on someone at a wedding and they decide to sue. They would sue you personally and your personal assets are at risk. They would sue and if there's a judgement then it would go against your personal name. If you are an LLC then that restricts what they can go after. The jist of it is that your personal money and possessions are protected when you operate as an LLC. There are exceptions to this, but they are not as common.<br>

<br />If you are taking jobs and getting paid for it then you should absolutely 100% become an LLC. I would not operate a day further as a sole proprietor.</p>

<p>To add a few more comments... I recommended the SBA just as a place to start, and to help you think through your options. I didn't think the SBA consultant knew enough about a photography business to give me more than a few broad guidelines. And I thought some of his tax advice was questionable. (He said something similar to your tax guy about income for services. I don't know the answer to your question about sales tax on prints. I've never sold prints, just my services.) </p>

<p>Since I only do an occasional portrait, I decided that I would continue as a hobbyist. Most of what I do is serve as a volunteer photographer for my son's gymnastics team. I provide photos for promotional use, and the gym has assured me in writing that my work covered legally under their photography policies.</p>

<p>But even with my limited experience, I've run into some issues where I needed professional advice. (See above, where I talked about the potential for legal problems just serving as a volunteer mom-photographer.) That's why I said that you probably need an accountant and an attorney. At a minimum, as Michael pointed out, you need protection if you are sued. </p>

<p>So, even if you decide not to operate as a business, I think you probably need to understand all the pros and cons of different options.</p>

<blockquote>

<p>I provide photos for promotional use, and the gym has assured me in writing that my work covered legally under their photography policies.</p>

</blockquote>

<p>Just curious, what does this mean? Covered how? What policies? A writing could be anything and, even if desirable, totally unenforceable. </p>

<blockquote>

<p>You might start by consulting with an advisor with the Small Business Administration. I did that last year, and concluded that I would continue to operate as a hobbyist. (I'm not earning much, and I don't want to deal with the tax issues.)... ...I thought some of his tax advice was questionable.</p>

</blockquote>

<p>It is.</p>

 

<p>Obviously you need to report any income you make one way or another.<br /> As I understand it, and did for a time on the advice of my tax accountant, operating as "Yourname Associates" or some such title doesn't require anything other than filling out the business tax forms. Going to an incorporated business or a limited liability company requires actual paperwork, but gives you some protections in case of lawsuits, etc, as I understand it. There may be special requirements, depending on how you go.</p>

<p>As already said, if you need to "become" a business, then you need tax and accounting advice. Start with the "gummint" first as the other respondents have already suggested.</p>

<p>John, the gym has a detailed photography policy. I'm not comfortable discussing the agreement (or the potential conflict we had with a parent) any further on a public forum, and it's not relevant to the discussion here. The only reason I brought it up is to reinforce the recommendations that Nicole get additional counsel. </p>

<p>"making the occasional few bucks" implies income and that you have already started a business. Not reporting income (regardless of the source, even illegal activities) to the IRS can lead you to trouble! Some of the "big time criminals" have gone to jail for tax evasion when they could not be convicted for other criminal activities. I'll never forget what my Federal Taxation professor drummed into the class and that was and I am paraphrasing "not declaring income to the IRS is a criminal offense. Taking a tax deduction that is disallowed by the IRS is not a criminal offense and the worst that can happen is you pay back the deduction plus a late fee." The Tax Professor's advice was to take every tax deduction to which you believe you are entitled but never to not declare income.<br>

When to or what are the requirements for starting a business is a different question that, as already stated by other, depends on local, state, and federal government regulations. Consulting with subject matter experts like, lawyers, tax advisors, and SBA counselors is always suggested but not required to start a business. Photography started as a hobby for me and much like you, by popular demand, evolved into a part-time business. Before I started accepting payment for services I registered my business with the state and incorporated as a LLC. I pay state sales tax (required in MI) and declare all income on my state and federal tax returns. Whether you register/incorporate the business or not be sure to declare all your income to the IRS and that will be one less worry for you. (No, I don't work for the IRS!) Best of luck!</p>

<p>Business rules can and do vary by state and sometimes by city within a state. </p>

<p>Start with the SBA, but quickly go to your state's website and see what you need to do. In some states, a license is required. In others a Tax Id is needed / given and in others you don't have to do anything but pay taxes on the revenue. </p>

<p>Not only are you avoiding the IRS, but you are also avoiding the state tax collector as in most states, photographers / photograph sales are required to pay "sales tax" on items sold as well as potentially state income tax. Minnesota makes an exception for items delivered electronically but not all states do that. </p>

<p>Being a hobbyist all all well and good - but again - if you accept payment, you need to declare that as income... </p>

<p>Dave</p>

 

<p>Nicole, you have gotten good advice here so far. I would simply confirm that you need to sit down with two professionals and get their advice-- a lawyer who is experienced in your state with small business issues, and a tax accountant in your state with similar experience. You will pay a couple hundred dollars for these consultations, in all likelihood, but the advice will be worth a lot more than that to you. Tax evasion can send you to jail, so be careful there. <br>

You also need to look into buying some liability insurance in case that light stand falls over on a wedding guest. Don't put your personal assets at risk; it is very easy to avoid doing so with the proper business entity and some insurance. You may need to incorporate in order to get proper insurance. <br>

I am not a professional photographer. I am, however, both a practicing attorney and a small business owner. </p>

 

<p>Everyone who has replied so far,<br>

Thanks so much for taking the time to give me advice!<br>

JUST TO BE CLEAR, I am declaring the income on my taxes. I have no intention of trying to hide that money on the sly. Trouble with the IRS is the LAST thing I want or need.<br>

I've got insurance on my equipment, but nothing right now to cover anybody else if something were to happen like Bob suggested. I realize the potential trouble there, and that really gets toward the heart of my original question. I've been wondering for a while if I've crossed over the line into business territory without realizing when it happened. From what has been said so far, it seems as if I have.<br>

It feels like a lot to wrap my head around.</p>

 

<p>I think you are still operating in more of a hobby status. The IRS recognizes this terminology and it makes a difference in what you are required to do to report your financial earnings as income. Business owners report their earnings and expenses on their 1040 Schedule C form. They may also have to report separate self employment taxes on their 1040SE form. This is how self-employed people turn in their Social Security withholding. There may be other forms (or not) depending on the nature of your business and the activities you are engaged in. Your State like mine may have modeled its tax reporting requirements after the Federal ones meaning that there could be a requirement for you to fill in State tax forms corresponding to the IRS forms.</p>

<p>TurboTax Home and Business edition seems to sort this stuff out pretty well for me.<br>

Your State likely has separate reporting requirements for taxable sales you make. TurboTax is no help for this. You have to keep track of your Invoices if this requirement applies to you. QuickBooks probably does help here, but it is expensive and the smaller editions don't include purchasing. The back door trap for a lot of business support software is that the makers keep changing it all the time. Each year they want you to buy the same package over again to get the new release. "If it ain't broke - don't fix it" doesn't apply because the software company has an interest in deliberately breaking your package by dropping support for it.<br>

The key and heart of financial reporting is to keep good records. I maintain a spreadsheet I call my General Ledger I use to record everything I spend and everything I earn. I have disciplined myself to take this seriously and I fill it in all the time. This document contains all the detail I will summarize later for my financial reporting.</p>

<p>You know you are running a business when it makes sense to be systematic about keeping track of what you are doing because a larger "force" has an interest in looking over your shoulder. You know you are running a business when you find that the standard personal income tax forms no longer work for you. Many business expenses for example are not deductible under individual rules. If you are spending so much money on your hobby that your accountant says you should charge expenses against your earnings you are becoming a business.</p>

<p>Some things make sense whether you are a business or not. Liability insurance is one. Insurance doesn't protect you from your own incompetence. Providing twenty blurry photos of the bride's shoes is not the basis for a claim. It does protect you from accidental damage you might cause to someone else's property. There are lots of ways to hurt someone or break something. This is what liability insurance is for.</p>

<p>It is nice idea on your part to start photography business. But most important for you to start any business is to fullfill proper complainces. You have to register your company and have to apply sales tax number. You have also to pay tax on your business income. If you want to gain more knowledge on tax issues, you can meet professional tax attorney and gain idea from him. </p>