Business, tax considerations for part-timer

So I don't get too many responses saying I didn't give enough

background information, here it is: I am a part-time photographer,

but have been shooting for over 35 years. Until about 2 years ago, I

used 35mm and medium format film cameras and did a little of

everything from landscapes to portraits to snaps. I am currently

using digital SLRs and doing a lot of work for our rather large

church (at no charge, of course). I have a "day job" as a health care

professional and do not need (but would certainly like to spend)

additional income. I have a good high-end kit with backups for

everything as well as studio lights, so equipment is not a problem.

 

I have been asked to photograph 4 weddings this year (one toward the

end of February, two in May, and one late summer/early fall) by

people who have seen my photographs. I enjoy this type of thing and

have educated myself on many aspects of wedding photography by

reading, following Photo.net, and looking at lots of examples.

 

My question is this this: from those of you who entered photography

in a similar way, what are some of the ways I can treat income I make

from photography. I don't want to go through the hassle of getting a

business license and setting up books. Can I treat this as hobby

income for tax purposes? (I suspect this would not allow deducting

photography associated expenses.) Is there a "Small Business Light"

approach that's not too big a headache? I'm sure just declaring the

income as earned income would take a sizeable chunk out of it in

taxes on my regular employment return. I also don't know if this new

activity will continue as a trend or if this is just a fluke...

 

I would like to hear as many (well founded) suggestions as the forum

can come up with.

There is no such thing as "hobby" income. Any income you make from your photography work is taxable income. Most likely it would be reported on schedule C.

If you 'hobby' your equipment expenses (i.e., cost of equipment,) the IRS will want to 'hobby' a quarterly tax payment from you.

First off, see a Tax Accountant because this stuff changes on a regular basis.

 

As far as I know, it's most likely it's form 1099 income. If you have a full time job, and pay

enough withholding to cover this additional income you could be fine. Where Uncle Sammy

gets miffed is when you owe a lot of tax at the end of the year... which he wants up front,

not a year later.... thus the quarterly payments mentioned above.

 

As far as profit/loss from a side business where you are deducting expenses and

depreciable equipment ... you have to show a profit one year out of three, or it's

considered a hobby, and you get to pay taxes on the income but can't deduct the gear,

etc.

I don?t post much, but regarding your business practice I second the Schedule C

http://www.irs.gov/instructions/i1040sc/ar01.html

Thats the problem if your just a part timer. I'm sure it changes for state taxes, but I think you have to have a profit of more than 600.00 per year for 3 out of 5 years. If you don't, you are considered "Hobby" and don't get to deduct your equipment. My photography right now is part time, and just basically allows me to buy all the expensive equipment that I want. So, I don't end up paying too much in taxes because I spend it all on equipment which is a deductable expense. Don't forget you can claim a lot more than just your equipment to reduce your taxes. You can claim your milage, and anything else that is related to your photgraphy. If you have a specific area in your home that is only for photography, you can claim a percentage of your household expenses (heat, electric, and such). Don't forget if you are going to start this as a partime business, you need a sales tax license. Yes... I guess we are starting to get to a lot of bookwork. Good luck.

I'm in a similar situation, and while I don't expect to be making an excessive amount of money right away (just starting out part-time...photography on the side), I still took the necessary steps to make this into an 'official' business, primarily for tax purposes.

 

However, in addition to the profit attempts mentioned above, there is also a somewhat confusing phrase I've seen that reads, "intent to make a profit". I take this to mean if I set up a business type (LLC), get a sales license, make business cards, conduct advertising, etc, that even if I don't make a profit in 3 years, my "intent" is to make money, so it is considered a business (not a hobby) and all associated costs are deductable.

 

I am far from being an accountant or even intimate with tax codes, but from the reading I've done this seems to have calmed my fears of being audited (at least for the time being - gulp). Of course I DO hope to be making a profit within 3 years...even being part-time working out of my house.

<I>I don't want to go through the hassle of getting a business license and setting up

books. </I><P>You don't have a choice - you are running a business.<P><I>Can I treat

this as hobby income for tax purposes? </I><P>And be legal? No. if you ever get

investigated your headaches are going to be a lot worse that he anticipated hassle. What

my accountant says is "it is good to avoid taxes where you legally can, but it is illegal to

evade taxes" and evasion is what you are proposing. <P>You need to

consult an accountant. Perhaps one who specializes in small businesses is a member of

your church?

Based on the previous posts, I'm running a hobby since I will not show a profit in my third year. I can however show significant expenses that no hobbiest would ever incur. These expenses are to ensure a future income and profit. Next year (my fourth) I expect to show a tremendous profit and by the end of the fifth, recooup all my investment from the first three. What happens after that is continued profit.

 

Not showing a profit for three years may simply get you audited. It does NOT make your business a hobby. If your taxes are paid withing the law, there should be no concern about an audit.

See a tax accountant. The IRS doesn't give a shyt about anything you read here.

Tax questions on the internet. Free. Taking the answers you get as fact. Potentially very expensive.

 

Marc is right. Seek professional advice. Not just any "tax advisor" however. Tax advisors are plentiful this time of year. Most of the extra advisors at the big tax mills just know about personal taxes and very little about the business side of the tax code. A CPA would be better. Even better would have been consultation with a CPA prior to tax time.

Thanks for the advice, everyone. I think the best advise given is to see a CPA or tax attorney. There are several CPA's in the Finance Division at my workplace. I'll see if one of them can steer me to someone with expertise in this area. I will also speak to one or more of the small business owners who are members of my church. Thanks again.

 

Rob

I have been audited twice since 1990 on my wedding business income and expenses. I won the first audit and I lost the second. At the first audit I was told I was doing everything correctly and that I was showing the "intent" to earn a profit. At the second audit, everything I did was wrong. The difference was in the auditors' attitudes and perceptions and objectives.

 

Interestingly: The audit I lost was just a couple of weeks before the congressional hearing on IRS agents increased hassling of small businesses!

 

One example: I had one car I used just for photographic purposes (with a business sign on it) and I declared total milage. The auditor said I had to pay a certified mechanic to write a milage statement at the beginning of the year and that I would have to do the same at the end of the year to prove my milage claim. She would not accept my milage statement. I asked her where that requirement was stated in the tax code but she said she didn't know.

 

Even the IRS agents don't always agree.

 

Take Marc's advice and see a good business tax accountant or attend small business classes at a community college. I think the IRS has such classes. Also, get some books on the legal aspects of small businesses.

 

Regarding a business license: that depends on where you live. I do not live in an incorporated city. I live in an unincorporated area of the county, and they don't issue business licenses.

 

The "home office" issue will raise a red flag in the IRS computers and increase your chances of being audited. At my losing audit I was told that my "home office" had to be a separate building from my house or have a separate entrance, which I consider BS!

 

I'm now in the process of getting up-to-date with these issues.

 

You don't want a bad audit, and if you're audited,you ARE assumed guilty before YOU prove you're innocent!

When getting an accountant, be sure to ask what help they will provide if/when you are audited. The SBA and SCORE have good resources.

I sympathize with Todd's experience. It made me think hard how I wanted to do the books and numbers. My questions are:

 

1) Is that there is a guideline or suggestion of standardized procedure on how to substantiate business expenses? For example, using personal vehicle to for business, every mile is worth $0.??. If one follows the standardized procedure, shouldn't one be able to "dodge the bullets" when he/she is audited?

 

2) If there is no standardized procedures, who knows what one does to substantiate any business expense is indeed ... substantial? It sounded like in Todd's case, if an auditor does not like you, then whatever proof you show would not be good enough. Where can one go to look for justice in this case?

Hey just make sure you are paid in ways that cant be traced.If they make out the checks to you personally, what is the difference between that and a gift?

 

Just have everyone pay you in giftcards for B&H for awhile ! :-)

In some areas a business license triggers a vist from the local tax man. Some counties tax you on inventory; equipment; work in progress; and even capital in the bank. These are taxes like personal property taxes; except they are on the business items. A 50K printer can be taxed at 2.2 percent per year; or 1100 bucks; even if it is not used. IF it is in your business; the taxman needs his cash fix. We cut up an old printer with a sawzall; and pushed the pieces out the door; to get one off the tax rolls at one place I worked. The number of feet of front counter are taxed; the printers and cameras; the computers; then alarm system; then phone PBX box; the coffeepot and microwave; the front sign(s); the cash register; the calculators. The tax chaps arrive with clip boards; and write everything down; and then value your old junk usually way higher than you think it is worth. <BR><BR>One place I lived long ago taxed you on capital in the bank and stock and bonds. This was not an income tax; but a local county tax on your capital; at the same 2.2% rate. Folks would hide cash to make their bank balances low for the "books"; around the Jan 01, XXXX basis of the tax man. Folks would remove inventory before an audit; their buddies tipping them off. What a rackett.<BR><BR>Many states have fees you pay yearly IF a corporation; a "franchise tax" etc' that goes to the state's recording dept of corporations. They basis the tax on the "size" of the business; ie total capital and worth. This is not an income tax; but a corportation tax. You pay the darn thing every year; whether you make or loose money. <BR><BR>In areas that have local taxes on business property; this tax is often hidden when one leases an item. If you lease an item; you may get a tax bill from the leasor at the end of the year; for the property tax. Find out who pays this tax before signing a lease. Sometimes the tax is hidden in the missmash of the lease payment breakdown; and you maybe paying the taxman your self too; so the taxman gets double; and lives high on the hog.

my idea is best, your only shooting 4 weddings this year. why would you want to tell irs? if you profit $250-$500 for a wedding, pocket the money, buy more equipment. thats only $1000-$2000 in a years time. keep an eye on your equipment, don't let anyone trip on your extension cords, if you use any, cause you wont have insurance probably. these people who are planning on an "actual loss" for three years as apposed to "showing a loss" to the i.r.s. need to get a little more savy. no one in any buissness i know of, says, " hmmm, i think i'll take a loss for the next 3 years, then i'll turn the corner. your 4 weddings will give you time to make a better plan, portfolio, keep an eye out for a higher priced market,(people with money). thats my simple advise. forget the world, relax, shoot for a year, and make some needed cash.