Taxe Time Question

[Stevepwns]

Hey everyone, I live in the US and I am looking at tax time. I have started a business that I am sole proprietor of. I haven't brought more than $600 this year with the business. Is it worth filing taxes and writing off all the equipment I have bought? Is there any benefit to this at all? Or should I just consider it a wash and look towards next year? I am completely new to these types of taxes, any help would be appreciated.

 

[deeky]

The government is actually more interested in how much you make than how much you spend. Technically, generally you don't need to file if you make less than $600 in a given year. But......

My advice - find a good CPA regardless and ask them. If you have state income tax, that may be different. I've used one the last several years with my own business (non-photography) and it has been worth every extra penny I've paid beyond the software/cheap places.

 

[Stevepwns]

My concern would be the depreciation value of my gear though. Since I bought it this year, if I dont claim it as a loss. I dont know if I would be able to claim it in following years.

 

[deeky]

That's why you ask a good CPA that knows the answers.

 

[Tiller]

Ok, let me just preface this by saying that I am not a CPA, but I am a senior Accounting college student taking a tax course, and work for a CPA in a large business.

The first thing the IRS is going to look at if you deduct your purchases is whether or not your photography business (I'm assuming that's what this is) is a legitimate business or if it's a hobby. There are 9 factors which the IRS uses to determine whether it's a hobby or a business. Without going through all of those, it basically needs to pass the "smell test". It needs to SMELL like a legitimate business. Just a few things include whether or not you made a profit, your history of profits in prior years, etc.

You can deduct them either way. Ideally you want it to be trade or business, because then you can deduct your expenses on your Schedule C. If it's a hobby, you can deduct it on your Schedule A, under Miscellaneous deductions. The problem with this is that it's subject to two cutbacks. First, you can only deduct your expenses up to your gains. So if you only made $200, you can only deduct $200 worth of expenses. Secondly, your miscellaneous expenses are subject to a 2% Adjusted Gross Income "haircut". Basically, that means that you take your AGI and multiply by 2%. If your expenses do not exceed that number, you can't deduct anything.

Hope that helps a little!
Tyler

 

[Stevepwns]

Ok, let me just preface this by saying that I am not a CPA, but I am a senior Accounting college student taking a tax course, and work for a CPA in a large business.

The first thing the IRS is going to look at if you deduct your purchases is whether or not your photography business (I'm assuming that's what this is) is a legitimate business or if it's a hobby. There are 9 factors which the IRS uses to determine whether it's a hobby or a business. Without going through all of those, it basically needs to pass the "smell test". It needs to SMELL like a legitimate business. Just a few things include whether or not you made a profit, your history of profits in prior years, etc.

You can deduct them either way. Ideally you want it to be trade or business, because then you can deduct your expenses on your Schedule C. If it's a hobby, you can deduct it on your Schedule A, under Miscellaneous deductions. The problem with this is that it's subject to two cutbacks. First, you can only deduct your expenses up to your gains. So if you only made $200, you can only deduct $200 worth of expenses. Secondly, your miscellaneous expenses are subject to a 2% Adjusted Gross Income "haircut". Basically, that means that you take your AGI and multiply by 2%. If your expenses do not exceed that number, you can't deduct anything.

Hope that helps a little!
Tyler

Thank you for the info. I does help. I started selling prints late this year so I didnt make more than 600 bucks from them. Im going to call an accountant and see if its worth the hassle this year or If I should just wait till next year.

 

[KmH]

Business or Hobby? Answer Has Implications for Deductions

. . . 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 . . .

You, or whoever does it for you, will also need to keep good accounting records of your expenses and revenue.
Did you use the accrual accounting method this year, or the cash accounting method?

If you're selling prints, you're likely required to forward Maryland sales taxes to the state.
If you bought your camera gear online from an out of state seller, Maryland likely expects you to pay use taxes.
Frequently Asked Questions About the Sales and Use Tax

 

[Stevepwns]

Business or Hobby? Answer Has Implications for Deductions

. . . 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 . . .

You, or whoever does it for you, will also need to keep good accounting records of your expenses and revenue.
Did you use the accrual accounting method this year, or the cash accounting method?

If you're selling prints, you're likely required to forward Maryland sales taxes to the state.
If you bought your camera gear online from an out of state seller, Maryland likely expects you to pay use taxes.
Frequently Asked Questions About the Sales and Use Tax

Thank you for the info

 

[bratkinson]

I, too, am not a CPA, accountant, IRS employee, or even a state Department of Revenue employee. But I have had my own corporation and learned some IRS 'rules' the hard way.

As mentioned above, your photography has to pass the 'is it really a business?' test. If photography is not your primary source of income, you already have a major strike against you. I learned that when dabbling in real estate. Next, trying to 'write off' (expense) part of your house for business purposes, that one is next to impossible to PROVE its deductability. And, unless you keep a detailed logbook for EVERY trip in your car, writing off, or even claiming mileage use of your car will likely be denied by the IRS. Lastly, trying to expense your camera gear and writing it off is also not likely to be allowed. Camera gear, like any machinery, has an expected lifetime and if depreciating it, only an appropriate percentage of the initial cost can be depreciated. Assuming a camera has a 5 year 'usability', then only 20% per year could be deducted. Lenses, I'd say 10 year lifetime. But how long the lifetime of a camera, lenses, flashes, stands, whatever is likely already determined by the IRS. I'm sure they'd deny a 2 year depreciation schedule on a camera, for instance.

As mentioned above, a REAL Certified Public Accountant (CPA) should be contacted regarding all the details of what's deductable and what's not, etc.