Tax Question (USA) for Freelance Photography

astrostu · Mar 30, 2008

Last year I had a "major" sale to an ad firm for some of my photos, to the tune of $3k. They sent me a 1099-MISC. I'm still in the 15% tax bracket even with that income, so my taxes should have increased by $450. However, I plugged it into TurboTax and it says my tax burden actually increased by ~$850.

The reason? Apparently, this sale means that I own a home business and have to pay a $424 "Self-employment tax" and fill out a Schedule SE. And even if I say I bought my L lens for my "business" and tack on a tiny bit of driving around, the business deductions don't come anywhere near my standard deduction, so it's effectively taxing me 30% for that one sale.

My question: Does this make sense to those of you 'Mer'cans who do freelance work? Or should I be counting it as some other type of income that gets me out of this self-employment tax ¢rap?

JIP · Mar 30, 2008

I know any time I have recieved in excess of $900 in a year I have been 1099'ed so this is pretty much the way but I am not so sure about the $424 self-employment-tax. But I guess as the annoying commercial goes if you have a problem "why don't you ask the box".

c_lawrence · Mar 30, 2008

yep... when you file 1099, you pretty much get "hit from behind"...

Guess it's the "reward" for being independent, intelligent, and self-sufficient in this country! -- and no, I'm NOT saying that if you are W-2 employee, you are none of the above, just pointing out that the "powers that be" don't seem to want "the people" to be too self-reliant (this could cause trouble... people may actually be able to make it without so much assistance from the government... to be able to save $... can't let that happen...), so they take more than their fair share!

Go ahead, I know it's coming -- someone cursing me and getting themselves all worked up because they make assumptions that I'm ripping on America...

FYI -- FAIRTAX.ORG !!! :thumbup:

ok, I diverge.... a little... my advice - make a call to your local tax guy - find someone through a referral if possible and they will know all the ways to legitimately maximize your deductions, etc. Of course, you will have to pay them a little to do this, but if you can find someone who is willing to go through everything with you, then you can do the same for yourself in the future and save even more money in the long run.

Also, if there is a university near you with a law program, you may give them a call to see what kind of help you can get. The University of Georgia Law School, for example, provides the community with FREE tax preparation done by students in the tax law program. I had them do mine a few years back and there were no problems. The only 'drawback' is that certain populations have priority (which is good) but you may find it difficult to get help this late in the game... never hurts to try though.

MX962 · Mar 31, 2008

My 1099 added up to about 7k and I only got hit with about 800.00

astrostu · Mar 31, 2008

MX962 said:
My 1099 added up to about 7k and I only got hit with about 800.00

What tax bracket are you normally in? And how did you classify the income? As wages or some type of consulting?

MX962 · Mar 31, 2008

astrostu said:
What tax bracket are you normally in? And how did you classify the income? As wages or some type of consulting?

Sorry to sound like an idiot but i just let my accountant figure it all out for me she did it as self employment income thats all i know

JIP · Mar 31, 2008

MX962 said:
Sorry to sound like an idiot but i just let my accountant figure it all out for me she did it as self employment income thats all i know

As I said in my post quoting an annoying commercial you have an accounant he has a "box". I always wanted to slap the woman in that commercial but it make sense. I think some people are a little too clever for their own good. I don't know if I am lucky but I have a person who has always done mine and my wife's taxes and it never exceeded $50 which is a small price (for me) to pay to let an expert figure out something that is too complicated for me.

astrostu · Mar 31, 2008

Well, I figured out a way around it, for the most part. I classified it as income from a hobby (which is really more accurate than as a "home business") which also allowed me to subtract out over 70% of the pay because of what I spent on the hobby last year. I still owe my 15% on it, but no longer do I owe a "self-employment tax."

I still don't like this situation, nor that I have to play games with the tax code, but that's an issue for a different thread, one that would probably be quickly locked on this forum.

crazy_dragonlady · Apr 2, 2008

JIP said:
I know any time I have recieved in excess of $900 in a year I have been 1099'ed so this is pretty much the way but I am not so sure about the $424 self-employment-tax. But I guess as the annoying commercial goes if you have a problem "why don't you ask the box".

Having to deal with sub-contractors on a regular basis, and being one ourselves I know for a fact that the total yearly earnings you can make as a 1099 is $600 not $900. Once you make above the $600 limit then you are supposed to get that form.

I do our business taxes myself and if you plan on having your own business either learn the tax laws pertaining to self-employment or get someone else to take care of it for you. I do a bit of both to be honest. I get all the numbers together out of our invoices and stuff for the year and take the totals to my "tax guy" .... as the commercial says "I have people"

Regardless of how you get your taxes done it is always helpful to know what kind of deductions you are entitled to as a self-employed person. It can save you a lot of money in the long run. However, the self employment tax is a PITA and difficult to figure out unless you are good at that sort of thing.

Sorry for such a long post... Hope it helped! :blushing:

ttfn
CDL.

Jemmind · Apr 8, 2008

c_lawrence said:
Also, if there is a university near you with a law program, you may give them a call to see what kind of help you can get. The University of Georgia Law School, for example, provides the community with FREE tax preparation done by students in the tax law program. I had them do mine a few years back and there were no problems. The only 'drawback' is that certain populations have priority (which is good) but you may find it difficult to get help this late in the game... never hurts to try though.

OH crap, I wish I knew about this like a month or two ago.

This is a very interesting thread though, and I'll be watching it carefully. Right now I've only ever done about $90 in business so I think I have a while before I need to worry about my photography income. I'd love the Fair Tax to become reality by then too.