Business or Hobby?

[lissthis]

Hey guys, so I know asking this question probably means I am not ready for a business... I have been doing more shoots lately but they are still pretty casual. I am now "hired" on to do a photo shoot for my company (headshots, buildings, etc), but I don't have a business license. Do I need to get one? While I should be making a good chunk off of this, I have never profited before because I am buying new camera equipment. I am not afraid of what comes along with a business, and am interested in businesses (accounting major), but I don't want to end up losing a lot money because I have a business. This is also something that I do more as I can since I work full time too. [Sorry I'm so scatter-brained!]

Thanks!

 

[tirediron]

There's absolutely nothing wrong with a side-business/hobby-business or part-time business; call it what you will, BUT, it needs to be legitimate. It's almost certain that you will need a municipal/county/state business license to conduct business, and depending on the volume of business and income, likely state and/or federal tax numbers as well (which, if you'll pardon my saying so, an accounting major would know, I should think). You also need insurance. Liability and equipment insurance so that if something happens, you are not out thousands (or even millions of dollars if you get sued). You also need to draft and adhere to a business plan so that what you do with the money from this gives you maximum benefit. Yes, putting most back into the business at start-up is very common, but it's not necessarily the best plan.

There was a post here some months back by a woman who made money from her hobby, and had been 'found out' by her municipal government, who were trying to levy fines and penalties against her for operating without a license which amounted to many times the amount she had made.

Granted it's likely that you could operate "under the table" for a long time before you get caught, but after doing the risk/reward analysis, I know which side I'd opt for!

 

[Stevepwns]

You dont need anything other than your Social Security Number to have a business. Now there are things that you can purchase as an individual to protect yourself and you clients like insurances. But for legal purposes, as long as you claim the income (anything over $600) in a calender year, you are completely legit and breaking no laws (federally). I would suggest looking into any local laws, but as far as a business is concerned, if you have an SSN you are straight. Keep all your reciepts, and claim everything you can on your taxes as a "right off". Yes its better to have Articles of Incorporation, or become an LLC. But you dont have too.

 

[tirediron]

You dont need anything other than your Social Security Number to have a business. Now there are things that you can purchase as an individual to protect yourself and you clients like insurances. But for legal purposes, as long as you claim the income (anything over $600) in a calender year, you are completely legit and breaking no laws (federally). I would suggest looking into any local laws, but as far as a business is concerned, if you have an SSN you are straight. Keep all your reciepts, and claim everything you can on your taxes as a "right off". Yes its better to have Articles of Incorporation, or become an LLC. But you dont have too.

While I can't speak with great authority on US law, I suspect that your approach here may be a bit simplistic. Certainly not everything purchased for any business can be a [sic] "right off", and I suspect that state, county and municipal authorities may want to be involved at least to some degree.

 

[ShooterJ]

Operating on just your SSN is typically what you do (in the US) when operating as a sole proprietor.. and that's perfectly ok. However, do keep in mind that you'll probably want to play it safe and take the neccesarry steps to obtain a sales tax permit in your state. Any tangible product in the US will require that (including prints, flash drives or discs with images).. you could register a "doing business as" name if you want, also called a trade name.. you'll want to see about an EIN and you'll need to check with the state you're in regarding sales tax and reporting. tirediron was correct in that regard.. and as he said, insurance!

EDIT: Just about anything purchased for business use can be a tax write off. Also, if you work out of home a certain portion of that can be a tax write off.

It gets complex though.. so you really need to research what's considered legitimate business expense.

 

[Ilovemycam]

Biz license?

I don't know. But good for you and your success!

 

[runnah]

Operating on just your SSN is typically what you do (in the US) when operating as a sole proprietor.. and that's perfectly ok. However, do keep in mind that you'll probably want to play it safe and take the neccesarry steps to obtain a sales tax permit in your state. Any tangible product in the US will require that (including prints, flash drives or discs with images).. you could register a "doing business as" name if you want, also called a trade name.. you'll want to see about an EIN and you'll need to check with the state you're in regarding sales tax and reporting. tirediron was correct in that regard.. and as he said, insurance!

EDIT: Just about anything purchased for business use can be a tax write off. Also, if you work out of home a certain portion of that can be a tax write off.

It gets complex though.. so you really need to research what's considered legitimate business expense.

I've been doing it for a bit. There is a loop hole that since I don't produce physical goods I don't have to charge sales tax. Also I do write off all my equipment and software purchases along with any fee associated with servers and internet. The tricky part I had to deal with was the fact due to my home loan stipulations I wasn't able to run a business out of my home but since customers don't actually come to my house I am ok.

It seem daunting but it's not nearly as hard as one would expect. My one word of advice would be to KEEP TRACK OF EVERYTHING!!! Learn to love Quicken or Excel. Write down every single expense and any income. Always have a slush fund for when tax time comes around because you always end up owing more than you think.

 

[ShooterJ]

Yeah, as I understood it sales tax only has to be collected when you sell tangible goods. Most photographers probably will unless they deliver 100% of their work to clients electronically.

 

[runnah]

Yeah, as I understood it sales tax only has to be collected when you sell tangible goods. Most photographers probably will unless they deliver 100% of their work to clients electronically.

You can get around it by having them go to places like smugmug for printing and having smugmug charge sales tax. This way you are technically only offering a service.

 

[tirediron]

...EDIT: Just about anything purchased for business use can be a tax write off. Also, if you work out of home a certain portion of that can be a tax write off...

Is it not the case that a PORTION of the item's value can be written off? For instance, if I buy a new D4, but I only make 25% of my income from photography, than I will only be allowed to claim 25% of the value as a write-off? Likewise with a vehicle; you may be able to claim some of your transportation costs, but unless you have a vehicle that you use exclusively for (and I suspect registered to) the business, you're not going to be able to write off all of the costs.

Like legal advice, if you want the correct answer, book a consult with a local CPA who deals in small business. It will be well worth the couple of hundred dollars to get correct answers from a qualified authority!

 

[runnah]

...EDIT: Just about anything purchased for business use can be a tax write off. Also, if you work out of home a certain portion of that can be a tax write off...

Is it not the case that a PORTION of the item's value can be written off? For instance, if I buy a new D4, but I only make 25% of my income from photography, than I will only be allowed to claim 25% of the value as a write-off?

Well the personal photos you take with your business camera can be considered as training for your business.

It all depends on how creative your CPA can be and how comfortable you are with bending the truth.

 

[tirediron]

...EDIT: Just about anything purchased for business use can be a tax write off. Also, if you work out of home a certain portion of that can be a tax write off...

Is it not the case that a PORTION of the item's value can be written off? For instance, if I buy a new D4, but I only make 25% of my income from photography, than I will only be allowed to claim 25% of the value as a write-off?

Well the personal photos you take with your business camera can be considered as training for your business.

It all depends on how creative your CPA can be and how comfortable you are with bending the truth.

A lot less comfortable than the revenue authorities would be bending me over to extract their pound of flesh!

 

[ShooterJ]

Indeed a portion of most business is written off, not 100% of it. The US tax code is over 7 million lines... which is why I said it gets complex and research is a good idea.

 

[Tony S]

Since you are in Alaska check with the state to see what is required to have a business or hobby/business. I'm seeing some very uniformed answers and generalities here that could get you in trouble. A lot of states now will collect tax on what you make even if it is electronic transmission of a file that you get paid for, so it's important to check with the local agencies that govern where you live (in Alaska no sale/Use tax but local city/county governments might have a sales tax). Or spend the $100 or so for an initial consult with an attorney or CPA on setting yourself up for success, as a business or hobby. There is nothing worse than a letter for the tax folks making an appointment for you wanting to see records... better have them.

Department of Revenue, State of Alaska

 

[vtf]

I would seek a good accountant. Creative accountant worries me. Remember it is ok to avoid, not evade, but you should already know this.