How to define my profit, with regard to estimated taxes

[frankie_withers]

<p>Hello everyone</p>

<p>I recently graduated in the spring from College and am starting my professional career in photography. I have been working in Ocean City, Maryland, shooting about 4-5 weddings per month on the beach for an auxiliary wedding-planning company. Each wedding is a contracted assignment. It has all been very easy, simple work. I am contracted for one hour of photography (some times only a half hour) per wedding, so its not nearly as strenous as covering an entire wedding. That I have only done 3 times. </p>

<p>At any rate I am trying to begin understanding self-employment tax and such, and I was wondering if I should even have to file yet. I've made roughly $5000 this summer, however before I started shooting, I also spent a considerable amount (around $6000) on a Sony A850, CZ24-70 f/2.8, Sony 70-200 f/2.8, battery grip, F58 flash, and even more this summer (another $500 on a laptop, $220 on a camera case, $280 on a battery pack, etc)</p>

<p>My simple question is, should I not even worry about filing taxes until I have technically made a profit? In my eye these are business expenses that I have yet to surpass with income. . . or is that not how any of this works? </p>

<p>I have been keeping track of all business-related purchases, including gas spent on driving to locations, meals, etc. What I am wondering is if I actually qualify or am required to submit quarterly taxes in my current situation.</p>

<p>I did try to google this and I found several threads about taxes on this site, but only pertaining to actual businesses which I do not have set up (from what I understand this process differs considerably). </p>

<p>Thanks for any help you can provide. </p>

<p>Frank</p>

[Matt Laur]

<p>In the same way that they're paying you for an hour of your time, you should spend a little money for an hour of a CPA's time, and get this right.<br /><br />In short (but speaking in anything but an official-advice-capacity, as I am merely a caveman): yes, you need to report that income, AND report the capital expenses, showing that you're at a loss or nearly so. If you don't leave that paper trail, then they might easily notice the several thousand dollars you've made, and assume that you're trying to avoid paying taxes on it. You did make the money, and so you need to report the incomce. Doesn't mean you'll have to pay taxes on it, if your start-up costs legitimately kill off that profit. Even a simple copy of TurboTax will handle this for you - but a CPA will help you with a proper strategy.<br /><br />Just because you don't have a formal business established doesn't mean this stuff doesn't matter. It's personal income, and it's enough to matter. You might also want to see if the people who've been hiring you will be filing a 1099 with the IRS (they likely will, or should, since you're a contractor for them to whom they've paid over $600 for the year). The IRS <em>will</em> match their reporting about what they've paid to you up with the income you report when you file your taxes. If you don't demonstrate (convincingly, with good records) that despite that income you weren't actually profiting, you could be in for an unpleasant round of correspondence with the IRS.<br /><br />Did you pull your own wisdom teeth or take out your own tonsils? You need a pro to help with this, too.</p>

[lornesunley]

<p>+1 for Matt's comments about consulting a CPA.</p>

[JDMvW]

<p>+2 for Matt.</p>

<p>You shouldn't have to pay estimated taxes or a penalty for failure to do so for the first year of your business even if you were to make a hugh profit in your first year. But you should have so many start-up expenses that it will be hard to show a profit (or to actually make one unless you forget or fail to count your actual expenses and treat your own time as of no value). Overhead is real, it is not a fiction of accounting. Lots of people can't figure out how they're going broke when they're pulling in so much money because they fail to account (literally) for their expenses and overhead.</p>

<p>The famous economist Galbraith once described this class of self-employed persons as "philanthropists" since by failing to realize what their costs were, they put more money <em>into</em> the economy than they took out. It's the most common cause of start-up business failure, I think.</p>

<p>Mind you I am not a CPA or tax lawyer on the tax advice given above, although I once paid one ...</p>

[Jerry_]

<p>Spend $8,000. Earn $6,000. You have a $2,000 loss (or a loan...)</p>

<p>The IRS, kind folks they are, want you to contribute part of that $6,000 for self-employment tax, Social Security tax...and if you are really lucky, they will charge you a bit of interest if you cannot pay them.</p>

<p>If you are into accounting, you can depreciate your equipment over a number of years.</p>

<p>But as noted above, get to a CPA in your city-state for the best information.</p>

 

[sam_ellis]

<p>Talk to an accountant, but I would doubt that you would need to pay estimated taxes at that income level. If memory serves me correct, there's a point in the tens of thousands where you need to pay estimated taxes.<br>

Welcome to the neighborhood! I'm in Bethany Beach.</p>

[Jerry_]

<p>"...there's a point in the tens of thousands where you need to pay estimated taxes..."</p>

<p>The IRS will very likely provide a small-business owner a quarterly *contribution* packet for the second year the business is in operation. The first year of business results in a tax return, which provides the information needed for the IRS to take a keen interest in collecting (even small sums) on a quarterly basis.</p>