Tax Questions - Capital Expenses

[LindseyC]

I am a new photographer...purchased my camera, taking some classes, doing very low cost work to build up my website and portfolio. I plan to open as a sole proprietor and be up and running in 12 months or less.

My question is...should I go ahead and legally establish my business so that I can claim my start-up costs as deductions? This would include the camera, software, office in my home, education, etc.

Any advice would be appreciated. Thanks.

 

[Big Mike]

Best bet would be to talk to an accountant or maybe even a lawyer who knows about small business.

I don't know about your jurisdiction, but in if you are already taking money for work, you may be doing so illegally if you haven't set yourself up as a business. You probably have to be paying tax on any money you have made, for example.

 

[fiveoboy01]

Absolutely you should. Getting setup with the state isn't expensive and you can deduct your expenses. Keep in mind though that you will need to start showing your income. Mike could be right in that it's illegal to get paid for work as a business if you're not legit with the state yet. But if it's not a huge sum then really it's not a big issue. Like he said, get hooked up with a certified accountant, this is your best bet to make sure things are being done properly.

 

[KmH]

Be aware it's what the IRS considers a business, not what you consider a business.

Go right to the source:

Business or Hobby? Answer Has Implications for Deductions


Does your state have sales taxes? If it does and you're not already collecting them and forwarding them to the state you're vulnerable to some seriously expensive penalties.

Edit - From wikipedia.org:
Alabama has a state general sales tax of 4%, plus any additional local taxes which can amount to a combined total sales tax of up to 10% in some cities such as Montgomery. Alabama is one of several states that do not exempt food from state taxes[10]. The capital of Montgomery has a sales tax of 3.5%[11]. The largest city of Birmingham has a sales tax of 4%[12].

http://www.revenue.alabama.gov/taxpayerassist/brochures.html

Another thing you need to be aware of is one of your competitors maybe not being appreciative of you "doing very low cost work to build up my website and portfolio" and dropping a dime on you with the state and/or the feds. It's a very quick way to eliminate a newbie flying under the radar and some states give the dime dropper a cut of the penalty fees so it can be profitable too.

You'd be well advised to at least check the requirements in your state.

Are you aware of SCORE.org and SBA.gov ?

 

[LindseyC]

Thanks for the advice...I think my first post was a little misleading, I'm only shooting friends and family for free, so no profit yet.

Thanks again, I'm going to look into this.

 

[KmH]

Thanks for the advice...I think my first post was a little misleading, I'm only shooting friends and family for free, so no profit yet.

Thanks again, I'm going to look into this.

That isn't close to what you said at the start of the thread, which was:

"doing very low cost work to build up my website and portfolio."

Typically, people who have an emotional or blood attachment to you aren't completely objective when they view photo's you have made. As such, their feed back has to be taken with a grain of salt, a large grain of salt.

Further, 95 of 100 new photography businesses fail, not because the business owner lacked photographic knowledge/skill, but because the photography business owner lacked business knowledge/skill.

So, it is more important to acquire business knowledge and skill, than it is to acquire photography knowledge and skill, if you want to have a successful photography business. :thumbup:

 

[Chris Cummins]

Yes you should. You can file a schedule C as a loss if your photography income will not be greater than your expenses.

Plus, staying on the right side of the IRS (which is the only place to be) while protecting your business income is about developing informed, good, daily habits. The earlier you form these good habits the better off you will be in the short and long term.

 

[KmH]

Yes you should. You can file a schedule C as a loss if your photography income will not be greater than your expenses.

Yes, but you can only do that for a limited period of time, if you do it repeatedly the IRS will reclassify your 'business' as a hobby and demand back taxes plus penalties.

Plus, staying on the right side of the IRS (which is the only place to be) while protecting your business income is about developing informed, good, daily habits. The earlier you form these good habits the better off you will be in the short and long term.

Absolutely good advice and if coupled with also retaining a certified accountant.........

 

[Chris Cummins]

Yes you should. You can file a schedule C as a loss if your photography income will not be greater than your expenses.

Yes, but you can only do that for a limited period of time, if you do it repeatedly the IRS will reclassify your 'business' as a hobby and demand back taxes plus penalties.

Right. Thank you for the clarification. No one here's a certified accountant, all the more reason to talk to one!

 

[fiveoboy01]

Here are a couple of other interesting links regarding the business or hobby question.

Eight Important Questions for Hobbyists

Operating Losses: Prove Your Hobby Is a Business - Free Legal Information - Nolo

 

[bennielou]

Great answers here. Also remember, when you become a business you have to pay State Sales Taxes, and not just Federal.

The states are on to the "photographer with a website" deal, and are offering "bounties" on photographers. Just do it right and you will be ok.