Tax advantages/disadvantages of starting a business

Kstorm · Jul 12, 2011

Hello all I am fairly new to this forum, but have a simple question. For those who have started a photog business, what are the tax advantages and disadvantages? Also how was the process of starting your business? Thanks for any info!

Big Mike · Jul 12, 2011

Your best bet would be to talk to an expert in your area. Maybe talk to an accountant, maybe talk to someone at your local city office etc.

Kstorm · Jul 12, 2011

Thanks Mike! I'll talk to a friend who knows a couple of accountants in the area.

Bitter Jeweler · Jul 12, 2011

Starting a business is far too easy. Keeping that business going, and profitable, is another ballgame alltogether.

There is also more to it than Tax advantages and disadvantages.

NikonME · Jul 12, 2011

Make sure you understand all of your states sales tax laws. A common mistake I see new photographers in Maine make is not charging sales tax correctly. Typically you tax any tangible personal property that is sold, but if you charge a sitting fee, that could be taxable.

The way it works in Maine is that if I charge you a sitting fee for taking photographs and you do not order any prints, than the sitting is a 'service' and not taxable. If I charge you a sitting fee for taking photographs and you do order prints, the sitting becomes part of the tangible 'product' that I am selling you, so I need to charge you sales tax on the sitting fee as well as the print price.

tirediron · Jul 12, 2011

NikonME said:
...The way it works in Maine is that if I charge you a sitting fee for taking photographs and you do not order any prints, than the sitting is a 'service' and not taxable. If I charge you a sitting fee for taking photographs and you do order prints, the sitting becomes part of the tangible 'product' that I am selling you, so I need to charge you sales tax on the sitting fee as well as the print price.

Not to hijack the thread, but... Wow! That's just stupid!

NikonME · Jul 12, 2011

I agree.

Christie Photo · Jul 12, 2011

NikonME said:
The way it works in Maine is that if I charge you a sitting fee for taking photographs and you do not order any prints, than the sitting is a 'service' and not taxable. If I charge you a sitting fee for taking photographs and you do order prints, the sitting becomes part of the tangible 'product' that I am selling you, so I need to charge you sales tax on the sitting fee as well as the print price.

It's goofy here in Illinois as well. We have a choice here: We can call out the cost of the processing (and other merchandise like albums, frames and such) separately and collect tax on just that portion of the bill, OR we collect tax on 10% of the total bill.

I do the latter.

-Pete

Kstorm · Jul 12, 2011

Thanks guys! Looks like I will be looking up SC tax laws over the next day or two.

KmH · Jul 12, 2011

Worry about the feds too. Starting a Business

If you claim federal business tax deductions, but do not make a profit in 3 of the first 5 years you are in business, the IRS can redefine your 'business' as a hobby and apply different rules to those 'business' tax deductions you previously took.

Business or Hobby? Answer Has Implications for Deductions

orljustin · Jul 13, 2011

Kstorm said:
Hello all I am fairly new to this forum, but have a simple question. For those who have started a photog business, what are the tax advantages and disadvantages? Also how was the process of starting your business? Thanks for any info!

The advantages are, you can write off expenses. The disadvantages are that you might make more money and have to pay more taxes.

"Starting the business" was not a one day thing. It evolved into being after a while.

behanana · Jul 13, 2011

If you are looking at starting a business check out your local chamber of commerce and they will most likely be able to set you up with a local mentor, typically some one in the local business community, that will be able to help you through the process of writing a business plan and getting started. Remember that a big key to any business is a strong, well thought out business plan that sets forth where you see your business going in the future. The tax liablity part of the business is only a small fraction of what you need to think about. Good luck with it though.

bentcountershaft · Jul 13, 2011

I'm not sure if this is true in the OP's case, but I think a lot of people that have little to no business experience misunderstand how writing off equipment expenses really works. A lot of people think that if they buy $10k in lenses then they have a $10k write off for the year and that isn't the case.

Diddy2theJJ · Jul 13, 2011

Christie Photo said:
NikonME said:

The way it works in Maine is that if I charge you a sitting fee for taking photographs and you do not order any prints, than the sitting is a 'service' and not taxable. If I charge you a sitting fee for taking photographs and you do order prints, the sitting becomes part of the tangible 'product' that I am selling you, so I need to charge you sales tax on the sitting fee as well as the print price.

Click to expand...

It's goofy here in Illinois as well. We have a choice here: We can call out the cost of the processing (and other merchandise like albums, frames and such) separately and collect tax on just that portion of the bill, OR we collect tax on 10% of the total bill.

I do the latter.

-Pete

Sitting fees aren't taxable by themselves here in ND, but if you include a disc or prints in with the package you have to tax a portion of the whole bill. It's easier for tax reasons to not have packages that include that sort of thing and to sell it separately and tax that alone, but everyone likes things that are included.

Diddy2theJJ · Jul 13, 2011

bentcountershaft said:
I'm not sure if this is true in the OP's case, but I think a lot of people that have little to no business experience misunderstand how writing off equipment expenses really works. A lot of people think that if they buy $10k in lenses then they have a $10k write off for the year and that isn't the case.

Nope...I learned that as well. It's a portion of it that's figured out according to a 5 year depreciation. I'm just glad I have my accountant to figure those things out for me. Although I do admit that I have made some mistakes along the way with not charging sales tax for sometime...but I did end up having to pay a penalty for that as well as the original sales tax my first year. Good thing I didn't make much the first year lol.

I definitely underestimated what goes into a business, but the things I have learned I surely won't forget!