Buying gear through your business. Quick question

[lonewolfsx]

So I've photographed a few weddings, but was always paid through a studio which I did not own. However, I have recently moved and started networking a bit, and have an upcoming wedding (and maybe some other events) I will be taking care of. In the past, I've always had a second shooter with a telephoto... for a while I borrowed my brother's Canon 70-200 f/2.8L non-IS but I shoot my Nikon, while the other shooter was using the Canon. In general, I took care of the wider shots and she would do the kiss, rings, vows, etc. closer in. I will always have a second shooter, but I want to be certain I do not miss any kiss/rings/vows/etc shots requiring a telephoto, so I want to purchase a Nikon mount 70-200 f/2.8.

So backstory aside, I have the personal cash available to purchase now, but I have been informed that I can purchase the equipment through "the business" and write it off against taxes, so I won't be personally taxed income if it goes to the 1300-1800 or so it's going to cost. I don't currently have an official "business" persay, but since I have jobs lined up I'd like to register one and take advantage of buying the equipment I need through the business. I'm aware there is a fee around ~$140 or so to register a business for the year.

In short: If I buy the lens as the company, can I pay it with my personal funds now instead of accruing debt and then pay myself back for the purchase say, 6 months from now and have that not be taxed as income?
Basically the company will be paying me a %, my second/assistant a %, and keeping a % for itself to use for equipment, taxes, fees, whatever related to it.

So assuming I need the lens prior to the first paid event, should I buy it as a personal expense or as a business expense?
Obviously I'd like to get some other things too later on, second body etc.



-Hope that all made sense.

 

[bratkinson]

Unfortunately, I don't think there is anyone on this forum that has an accounting degree...and a real CPA is what you need at this point.

Disclaimer: I've only had a couple of college-level accounting courses over 40 years ago...I am not a CPA.

In setting up a business, as a proprietership, you can create the company name like 'Lone Wolf Photography', and only you, the state tax people and the IRS know it's really William Smith DBA (Doing Business As) Lone Wolf Photography'. That's the easy part.

Then, set up 'the books' for the business. The money in the business is NOT yours...it belongs to the business. Like any business, there's sales (income) and expenses that need to be properly recorded and accounted for. Like a mom and pop grocery store startup, you need to start with $xxxx dollars in the business as cash (credit) and an offsetting liability (debit) to William Smith. Anything you buy will be purchased from the $xxxx in the bank account.

But as a business, not every purchase is an 'expense'. Office supplies are an expense. Business-only phone is an expense. Website for Lone Wolf Photography is an expense. BUT...like desks, file cabinets, and even buildings, camera gear would be treated as an asset, with an expected useful lifetime, and then depreciated as an expense at, say, 10% per year (if 10 year life expectancy). You can't just treat assets as an expense where you get paid $3000 for a wedding and go out and spend $2500 for that new lens, leaving $500 to report as income to the IRS. Instead, you get paid $3000 for the wedding, have $500 direct expenses for that wedding (car mileage, gas, photo paper, pro-rated cost of having photos on your web site), and $2500 for gross profit. Then, quarterly, for example, against that $2500, depreciate the $2500 lens at 2500/10 year life/4 quarters = $62.50 in the depreciation column and -62.50 in the current asset value column. And that camera you bought...gets treated the same way. And the tripod...perhaps only a 3 year depreciation. I don't know. Your CPA would know what the depreciation cycles are.

Having had my own corporation in the past (stock issued, etc), I've learned the hard way that the IRS doesn't like 'smoke and mirrors' or any other parlor tricks. They need solid paperwork documentation to prove your income and expenses. The key is keeping every type of income/expense/asset/liability straight and the books 'balanced'. If you do all the paperwork, it's got to be accurate. The less work you hand over to the CPA, the more you'll keep in your pocket....and the less $$$ you hand over to the CPA...which is a deductable expense.

 

[tirediron]

This is most definitely something you need to discuss with an accountant, and to add to bratkinson's excellent post, generally speaking, you're only allowed a percentage of gross revenue as depreciation/write-off value at tax time (to stop people starting a shell business and then writing off all sorts of stuff).

 

[KmH]

I agree, you should consult with a qualified accountant or an attorney, though you really need to consult with, and/or retain, both

City of Orlando :: Business
http://www.cityoforlando.net/economic/BUSINESS/BUS_PDFs/CHECKLIST_FOR_STARTING_A_BUSINESS.pdf

Even if you have a registered business, the IRS expects a business to be managed with the intent of making a profit.

. . . Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.

If you do not make a profit in 3 of 5 years you are in business, the IRS will likely reclassify your 'business' as a hobby.

. . . The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year . . .

. . . If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. . .

My emphasis

Something else you may not have yet considered is that if you're using your camera gear in a business, a home owners insurance policy like no longer covers your camera gear.
Your car insurance likely does not cover use for business either.
Florida/Orlando likely requires a business have liability insurance, and will expect you to forward to the state all sales and use tax monies due them even before you had a legal business.
FL Dept Rev - Information for Businesses and Employers

Use Tax

Use tax is due on the use or consumption of taxable goods or services when sales tax was not paid at the time of purchase. For example:

• If you buy a taxable item in Florida and didn't pay sales tax, you owe use tax.
• If you buy an item tax-exempt intending to resell it and then use the item in your business or for personal use, you owe use tax.
• If you buy a taxable item outside Florida and bring or have it delivered into this state and you didn't pay sales tax on the item, you owe use tax.

On an unrelated and very minor matter, in your signature - it's Yonguo.

 

[orljustin]

BUT...like desks, file cabinets, and even buildings, camera gear would be treated as an asset, with an expected useful lifetime, and then depreciated as an expense at, say, 10% per year (if 10 year life expectancy). You can't just treat assets as an expense where you get paid $3000 for a wedding and go out and spend $2500 for that new lens, leaving $500 to report as income to the IRS.

Nope. You can fully write off any asset. That's what I've been doing for purchases for years:
Writing Off Assets in the First Year - Big Solutions for Small Business

 

[bentcountershaft]

BUT...like desks, file cabinets, and even buildings, camera gear would be treated as an asset, with an expected useful lifetime, and then depreciated as an expense at, say, 10% per year (if 10 year life expectancy). You can't just treat assets as an expense where you get paid $3000 for a wedding and go out and spend $2500 for that new lens, leaving $500 to report as income to the IRS.

Nope. You can fully write off any asset. That's what I've been doing for purchases for years:
Writing Off Assets in the First Year - Big Solutions for Small Business

Just remember if you sell any of those items you have to claim 100% profit.

 

[rolbai]

OP, I am a CPA and would like to offer my advice. If interested, PM this weekend. We can arrange a telephone meeting for Monday or Tuesday. Advice of this nature is highly personalized and very inefficient using a forum such as this.

Sent from my iPhone using PhotoForum

 

[bratkinson]

Nope. You can fully write off any asset. That's what I've been doing for purchases for years:
Writing Off Assets in the First Year - Big Solutions for Small Business

Note the warning near the bottom of the article! If you sell the item before the 'normal' depreciation cycle completes, you have to GIVE BACK the accellerated depreciation monies! So if you take a 'fast' depreciation and then sell it a year later, much of that fast deduction you took must be repaid, perhaps unconditionally so, for the tax year you sold it!

Remember, too...the IRS can charge penalties first, then YOU have to prove THEM wrong! It's not like 'innocent until proven guilty' with the IRS.

 

[orljustin]

Nope. You can fully write off any asset. That's what I've been doing for purchases for years:
Writing Off Assets in the First Year - Big Solutions for Small Business

Note the warning near the bottom of the article! If you sell the item before the 'normal' depreciation cycle completes, you have to GIVE BACK the accellerated depreciation monies! So if you take a 'fast' depreciation and then sell it a year later, much of that fast deduction you took must be repaid, perhaps unconditionally so, for the tax year you sold it!

Remember, too...the IRS can charge penalties first, then YOU have to prove THEM wrong! It's not like 'innocent until proven guilty' with the IRS.

Never had a problem. And I never sell anything anyways.

 

[KmH]

Never had a problem.

That sounds like famous last words. :mrgreen:

 

[lonewolfsx]

I'd like to thank everyone here very much for their responses, it helped me out quite a bit in steering my research. One of my events lined up was cancelled (they broke up... whoa.), and with only two more in the queue I think it makes the most sense right now to just purchase that one lens as a consumer for now. I will use it even if I don't start an official photography business, and I'll do these other events as a regular contractor and report it as income as normal. If it really takes off and people are just loving my services at these events, I'll consider stepping up to a LLC and then dealing with all of this entrepreneurship later on. If that ever happens, I probably won't sweat the $1300 (@ keh.com) I'm going to spend now since I'll be looking at buying plenty of other equipment if that happens (studio lighting, modifiers, backup bodies, more lenses... love to have the 85mm f/1.4 too).

One note though about depreciation... must be hard to judge in photography. Bodies, flashes, etc. generally go down at a predictable rate but lenses sometimes go up, sometimes stay the same for years (my brother's canon 24-70mm L has been worth ~$1000 even for the last 5-6!).

Also, thanks for the offer Rolbai, that's very nice of you though not necessary anymore. I'll be sure to pm you though if anything changes haha.

On an unrelated and very minor matter, in your signature - it's Yonguo.

Hahaha I knew that, I've searched it like 1000 times, must've had a brainstroke making my signature! Thanks, I corrected it.