Hobby vs. business and taxes?

Can someone give me some quick intro into the whole photo-as-a-hobby-

tax-break thing?

 

I'm currently employed full-time in a field not related to

photography. I am, however, passionate about photography, and I'm

considering growing this into a business.

 

Last year I made significant investitions (~5k) into

camera/lenses/lights. Can I get a tax deduction for them? Do I have

to have an incorporated business in order to do this? If so, is it

to late to incorporate it now?

I was told that as a Sole Proprietor with an unrelated full time job I could only write of my photography expenses against my photography income. That was a big let down for me. Now I am searching for an aggressive accountant.

I assume you are in the US

 

There is NO photo-as-a-hobby-tax-break thing.

 

A hobby is a hobby. There are no tax breaks. None.

 

There is a photo as a business tax break thing. If you are operating a business, you can deduct your business expenses. Are you licensed? Are you advertising? Do you collect and pay sales tax? If you're not, guess what. You are not a business!!!!

 

If your hobby was water skiing, could you deduct your 30,000 dollar ski boat. Nope! Even though it was expensive, you still can't deduct it.

 

You can't deduct for a hobby.

If you consider yourself in business you can do a schedule C(sole proprietor) on your tax return and deduct your equipment. I would have something to show you are in business like an ad, collection of a fee, etc. Being in business doesn't mean making a profit. Another point is if you bought the equipment towards the end of the year, you could justify this by start up costs.

If you are committed to making it a business, perhaps.

 

The IRS specifically discusses most of your issues at:

 

http://www.irs.gov/businesses/small/article/0,,id=99336,00.html

 

If you have trouble understanding what is there, get a referral to a good accountant. You do not, not, not want trouble with the IRS--they are a very bad creditor.

 

More general resources are available at:

 

http://www.nolo.com/lawcenter/index.cfm/catID/19B45DBF-E85F-4A3D-950E3E07E32851A7

 

http://www.irs.gov/businesses/small/

 

http://www.sba.gov/

If you weren't operating a business last year, you can't deduct anything against last year's taxes. If you start a business this year, you can possibly convert personal property to business use and take a deduction for the depreciated amount, but ask an accountant. If you still use the gear for personal use you won't be able to take the full deduction.

 

Incorporating doesn't have anything to do with it. If you're attempting to make a profit, you're in business, though in the long run you won't be considered to be running a business (and won't be allowed any deductions) unless you make a net profit at least some years.

"Being in business doesn't mean making a profit. Another point is if you bought the equipment towards the end of the year, you could justify this by start up costs." If this is true, the IRS will really like to know you better....

 

 

 

If you earn enough money to gather equipment, the IRS will expect you to have a bit of 'sharing the money' with them for self-employment and social security tax on your 'income.' Income provided the funds for your equipment, thus you should be prepared to share some $$$s with the fine folks at the IRS.

 

 

 

But if in doubt, find a good accountant or tax lawyer. If you go into business, the fee paid to a good accountant or tax lawyer is a business expense. The advice on Photo Net is free, and like most free things, not a business expense that is duductible.

"duductible." should be deductable.

Options:

 

1. Role up your sleves and become a small business expert; do every thing your self.

 

2. Keep a solid cash receipts and disbursements journal and hire a CPA/business advisor.

A timely question. I am just now beginning my photography business, while still employed at my full-time job. I met with my accountant yesterday and discussed these issues. Basically, what you've been told above is true - don't screw with the IRS and try to get deductions for your hobby by claiming it's a business. There are so many tens (hundreds?) of thousands of photographers out there and many of them, at some point, get the same idea. "Hey, somebody paid me for the little league team shot, so maybe I can deduct all of my equipment and the 12% of my basement that I used to make the print, as well as part of my computer and new printer!"

 

In short, if it seems too easy, there's something wrong.

 

Don't even go there. And if you do begin a business, be sure you are scrupulous about record-keeping, because, for the reason mentioned above, photography is one of those businesses that gets "red-flagged" quite often because so many try to sneak something past the government. To emphasize what was said above - if it's a hobby, so be it. Enjoy it, but don't try to get something for nothing. You know what a business is. Is it a business? Did you apply for a seller's permit so you can charge the appropriate state sales tax on your products and services? Did you fill out a business tax registration form to that effect? Are you keeping business bookkeeping records separate from your personal finances? Check your state regs for what you need.

You definitely need to be able to show that you are operating a business in a way that intends to make a profit. That is key....and no you cannot show a loss year after year. As mentioned, if you start the business this year, then you could probably put a depriciated amount from that equipment towards it, but the expenses do only go against the photog income - take a look at the schedule "C". My mother-in-law is actually an IRS auditor, currently working Business Compliance, so we get great tax advice!! Over the years I've heard tons of stories from her of files that pass her way, and it really is amazing what people try to pass off as a business. While not all, many of the problems do arise from people not hiring decent CPA help, or just blatantly trying to get away with the obvious, hoping to beat the flags. It really is better to play it safe, because there are enough headaches in life without the IRS being one of them!