Use profit to purchase camera or pay for vacation... (Tax ??)

[jcskeeter]

Ugh, this is probably a really dumb question but I'm still green on a number of tax related things. Be gentle please.

I've got a FT gig doing photo/video with a corp. I've got a side biz to do jobs here and there. It's Self Propriater (I know, I know it should be LLC but it's low-key jobs still.) I've got a bank account for it so I can keep things separate and organized. The main purpose right now for the side biz is to do projects I enjoy for some extra income.

For the sake of example and using even numbers let's say I will be getting paid $4,000 for a recent job. My plan was to pay myself after subtracting a tax amount let's just say $3,500. Bam, vacation money, done. Daiquiris for everyone! Or....

Is there someway to work this around when it comes to taxes? Totally not trying to be shady or do anything illegal. Just wondering if there are any loopholes or strategies that could be applied here.

So is it possible to instead use the "profit" to purchase a camera and have the right-off of the purchase be applied at tax time. Would I then be getting money back in some way that I could then use for the vacay??

Apologies if this is really dumb and not even how any of this works. Blame my brain for having the crazy idea. It's prob not possible to "have my cake and eat it too"... or is it?? TIA!

(For those who are wondering, I'm currently renting gear for shoots and basically having the client pay for it without them knowing. Nothing new but just throwing that out there.)

 

[pixmedic]

if you have a legitimate business, then business related purchases can be written off at the end of the year...but only a portion of it which comes off of your taxable income from the business. it doesn't negate you paying taxes on that income, or make it some sort of "rebate" where you basically get the gear for free.
you should probably look up how business taxes work before you get yourself in a tax mess, or better yet, go in and talk with a business tax professional and find out exactly what you can/should-cant/should not be doing.

 

[jcskeeter]

Yes, it's a business. It's still young yet but it's there. Totally agree on all of your suggestions. I absolutely err on the side of figure it out first. Figured I could start here if there was something "standard" when it came to this. And totally understand the "gear isn't free" part.

I wish there was like a calculator or something for this type of thing. I'm a huge learn by doing/seeing person and it's hard for me to wrap my head around a word explanation. (Dang creative brain! lol) I know there's general tax calcs but is there something more specific for this kind of situation or maybe white paper that walks through it a little more visually/step by step? thx!

 

[tirediron]

If you're buying new gear, that's not profit, that's money that should have already been ear-marked for gear upgrades/replacement.

 

[pixmedic]

If you're buying new gear, that's not profit, that's money that should have already been ear-marked for gear upgrades/replacement.

especially if your using rental gear as your primary gear to do jobs!

 

[Designer]

Technically, you can use your own money for anything you deem worthy. You can even blow it up your nose, if that is what you wish to do. I don't advocate doing that, however.

So yes, you can spend it on a vacation if that is what you want to do.

As long as you claim the income and pay taxes on it, you can buy bubblegum for everyone in town if that is what you want to do.

If you don't know for sure how much tax is due, you can probably just call up the local office of your IRS or State taxing authority, and ask. Of course, they might not be able to completely estimate your taxes because they won't know what all is going to go into your tax return.

Then there are probably tax calculators you can use, by plugging in your city and state, but there again, it is going to be sketchy at best until you actually fill out your tax return.

Now I've got some questions: Why do you think it has to be an LLC? Why do you think you need two separate bank accounts? Neither of these is a requirement, IMO.

You asked:
"Is there someway to work this around when it comes to taxes? Totally not trying to be shady or do anything illegal. Just wondering if there are any loopholes or strategies that could be applied here.

So is it possible to instead use the "profit" to purchase a camera and have the right-off of the purchase be applied at tax time. Would I then be getting money back in some way that I could then use for the vacay??"

I'm not sure what you're getting at when you say "work this around". When you file your taxes, you will find that there is an advantage, tax-wise, in re-investing the money in your business. If you simply spend it, you will not realize any particular advantage on your taxes. And "getting money back" really only depends on how much you have paid in taxes over the year. A small business should be at least aware of the requirement for quarterly estimated tax payments, and your local Dept. of Revenue or IRS office can help with that. Or a tax accountant.

Now whether you can "write off" the full purchase price in one tax year will depend on the rules that are in effect at the time. So maybe. Maybe you can deduct the entire purchase in one year, or you might be better off spreading it out over a period of years. Talk to your tax accountant if you need help.

 

[Designer]

.. is there something more specific for this kind of situation or maybe white paper that walks through it a little more visually/step by step? thx!

I don't know, but I'll bet that Mr. Google will have some possibilities. Or Mr. YouTube. Or Wikipedia.

 

[KmH]

You have 3 tax systems that you need to be familiar with - Local, Minnesota, and Federal.
Are you using the cash method of accounting, or the accrual method of accounting?
Minnesota - Withholding Tax Calculator

Are you collecting and forwarding sales taxes to the state of Minnesota?
Minnesota, like most states, has Use taxes.
If you buy gear from an out of state vendor you will probably owe Minnesota Use taxes on that gear.
Sales and Use Tax

The $4000 is business revenue. Some portion of that revenue is used to cover your cost-of-doing-business (CODB). Part of your CODB is whatever salary you pay yourself.
Income & FICA taxes are likely due on the income portion of the $4000, and business taxes may also apply.

Be careful with deductions on federal taxes.
Is It a Business or a Hobby? | The U.S. Small Business Administration | SBA.gov
When the IRS Classifies Your Business as a Hobby - TurboTax Tax Tips & Videos

Preventing your business from being classified as a hobby
Running a hobby as a business could very possibly trigger an IRS audit. If your business is legitimate, keeping accurate and extensive records could help prevent the classification of your business as a hobby.

In addition to demonstrating your professional approach to your business, records and receipts can help document your profit motive. A written business plan is often a prerequisite for indicating an intent for profit, and it can also show ways in which you are modifying your business to cope with losses.

 

[astroNikon]

Think of this another way.

Let's say you own a house. And you have monthly mortgage payments. And you have semi annual City Property Taxes which may be say $750 for Summer and $4,000 for winter.

Do you (a) not save up for the taxes or do you (b) save up for the taxes

or a more likely scenario (a) do you not save up then have problems coming up with the capital whilst the tax man is knocking ... or (b) your free cash flow is high enough where it's not a problem what-so-ever.

Of course the bank may require you to pay extra each month by having an Escrow account because people CAN'T save money properly.

For most people it's easy to spend money, and hard to save. And revenue/taxes can seem linear so it's hard no matter how much you make. So saving based on revenue is the best method to make sure all is paid later on.

I recommend You have a separate savings account to put away, say 30% of your earnings for potential tax payments. At the end of the year after you calculate your taxes you can then spend the surplus if you wish.

Now since you rent your gear you may go into tax software and create estimations of what your future tax may be based upon your Expenses / Revenue model. Of course if you own gear you can depreciate it over 3-5 years. But I would consult a business tax accountant at least for the first couple years to get everything right and for you to understand how to prepare the taxes.

Now if that didn't make any sense let's say you borrowed money from Guido who's 7'2" and 350lbs and uses a bat as a cash register ... in the end it's all up to you how you handle your money but Guido uses a different type of "lein" with interest than the gov't but I'm not sure which one is the biggest Gorilla in the room.

 

[jcskeeter]

Thanks everyone.

Annnnd now I feel like an idiot.

(no further responses needed.)

 

[Designer]

Thanks everyone.

Annnnd now I feel like an idiot.

(no further responses needed.)

You're welcome! We're glad to help, and that is why you asked.

No need to feel like an idiot, however. You asked a legitimate question, and received several posts that attempted to answer it. Nobody automatically knows EVERYTHING, so that is why we ask questions.

This response was needed.

 

[mckownphotography]

My vacations are business expenses ... I'm a photographer ... travel photos are a business asset whether I sell a shot to a magazine or not. It's an expense that gets lumped into the overall business. Go on a roadtrip .. rack up 5000 miles on your car ... that's over 2 grand in deductions. Don't forget local stuff too ... I do a lot of location scouting.

 

[OGsPhotography]

You are not an idiot.

Most people dont even think near this much about money.

You were more right in your first post than you realize. You want to show a net loss or break even ar best

You pay tax on your income after eligible expenses ( profit) . Dont forget to claim your cpu and Adobe CC and the heat in the room that houses it etc etc.

Trump doesnt even pay taxes after write offs. Makes him smart he said.