Questions on Starting a home bus. on the side

[i2iSTUDIOS]

If there is an FAQ on this information it would be great to redirect me, thanks.
I am starting a photography business on the side, for this first year though I will be assisting several wedding photographers and shooting events/children as well. (I do not plan on doing any weddings as the primary for at least 1 year) Do I need to incorporate by business now or wait for a little bit before I do? Should I estabilsh by company as a legal entity?

Also I have made some initial purchases of fixed assets, camera and gear, website, etc. I haven't started a separate checking account or gotten a separate business credit card yet, should I?

Thanks for the thoughts.

[SuzyView]

If you are using the equipment as deductions, you should consider getting a business license. In the US, you get tax exempt status and wholesale benefits. People have asked if I have a license or TE. If you are not going to make more than what you spend, the IRS looks at that with suspicion. Just what I think.

SuzyView - Don't do photography for real money, although I have most of the equipment to. I mainly donate my work and sometimes people pay me for the disks and whatever I spent on processing. I get nice presents :) But when I do photography professionally as I did a word processing and publishing business years ago, I will do everything legally and without hesitation responsibly. I don't want the IRS in my life.

[rdenney]

If there is an FAQ on this information it would be great to redirect me, thanks.
I am starting a photography business on the side, for this first year though I will be assisting several wedding photographers and shooting events/children as well. (I do not plan on doing any weddings as the primary for at least 1 year) Do I need to incorporate by business now or wait for a little bit before I do? Should I estabilsh by company as a legal entity?

Also I have made some initial purchases of fixed assets, camera and gear, website, etc. I haven't started a separate checking account or gotten a separate business credit card yet, should I?

Thanks for the thoughts.

All this assumes you are in the U.S.

If you do business, then you have several choices of the form of that business. The easiest is the sole proprietorship. The downside is that you cannot hide your personal assets from legal actions against your business, and you cannot carry cash over from one year to the next and have to declare it as profit.

The most complicated is a "C" corporation, which requires a board of directors, an annual meeting, and incorporation under the laws of a state (it doesn't have to be your state of residence). The corporation becomes a legal entity that can save money and that can go broke without the officers going broke, but only if you follow all the rules of running the corporation.

The middle ground is an "S" corporation, which isn't as hard as a C corporation but doesn't have as many advantages.

If you are incorporated, you'll most likely have to pay franchise tax to the state where you are incorporated. It varies widely by state.

If you incorporate, you'll need a lawyer. It's very important to set your corporation up properly.

With any of these options, you can treat your business expenses like business expenses, and you can count losses (which individuals cannot do) against your personal income. If you incorporate, your corporation can pay you a salary, and it can also disburse (or not) profits, both of which are personal income. You'll fill out a Schedule C on your income tax return, which is where you write down your revenues and expenses. Generally, capital expenditures are not expenses, they are investments. Their depreciation is an expense. But you can usually expense a fairly large chunk of capital costs using Section 179. Camera equipment can fall into this category, as can computers. If your business fails before the tend of the normal lifespan of what you expense, you'll have to pay tax on the unrealized depreciation. If you sell stuff, you'll have to treat it as the sale of a business asset and count it as income if it is fully depreciated.

If you consistently lose money, the IRS will likely audit you and declare your business a hobby, and ask you to pay back the taxes you saved because of the losses.

Which path you take is a matter of what is reasonable for you to manage. It's much easier to start out as a sole proprietorship. But no matter what you do, you'll need to keep meticulous financial records. If none of these makes sense, you need an accountant's help.

All this is completely separate from what it might take where you live to offer your services to the public. Most local and/or state jurisdictions require business to obtain a business license or permit. If your business has a name, you'll need an assumed name declaration filed with your jurisdiction before a bank will let you open an account in that name (and before you can cash a check written to that name). It's easier if you use your name as your business name, at least at first. This is also separate from any licensing requirements.

Scary, huh? Many people conduct business without doing these things, and the run all sorts of risks when they do, often without realizing it. If you are really going to be in business, establish your business on a proper business footing. But if you are only going to do commercial work 1-3 times a year, then it's not worth the trouble. Income tax forms have a place for miscellaneous income, and that's where you should report what you make, but you can't deduct expenses.

And then act like you are in business. Don't do hobby photography with your commercial equipment (this is a no-no with the IRS). Don't deduct an expense for an office in your home unless it is explicitely devoted to that business use. Be careful about business use of your car--some states (including mine) have higher registration and property taxes for cars used primarily for business. I have enough cameras so that I can establish that I don't do hobby work with my commercial cameras (that's my story and I'm sticking with it). If you just have one kit, it's harder to establish that.

In summary, you have three main considerations: How you form your company, how you handle taxes, and getting licensed where you live to do business. They are all separate considerations with only some overlap.

Bookstores have whole sections on starting a small business, so go take a look. Were it me, I would start as a sole proprietorship, on a cash basis, expensing my equipment under Section 179, claiming a straight mileage deduction for use of the car, and not claiming deductions for my home office. That's about as easy at is gets.

If you need a credit card, get an American Express Corporate Card. You have to pay that sucker off every month, and it will keep you out of trouble. A separate checking account makes bookkeeping a lot easier, but it's only necessary if your business name is not your personal name.

Rick "who has done all of the above at one time or another" Denney

[tbfoto]

I found some answers to my questions at this site.
http://www.toolkit.cch.com/text/P01_0000.asp


Alot depends on where you live and exactly what you plan on doing.

Tom

[chtgrubbs]

Get this book. It is the best guide to starting a small business that I have found.
http://search.barnesandnoble.com/booksearch/isbnInquiry.asp?userid=BO2LVGrCfG&isbn=0917510224&itm=1

[IndyJeff]

There is some good/correct and bad/incorrect advice on this thread. Let me clarify a few things.
If you expect to do say a couple of thousand dollars with your photography, plan on paying taxes on it, depending on your bracket about 30%. A corporation for this little amount of business is coounter productive and the paper work will eat you alive.

If you incorporate, you don't fill out a schedule C, your corporation files a seperate return from your personal return and it also pays taxes on the profits. Plan on having an accountant do this for you or you will end up in an audit unless you really know what your doing. Medicare tax, FICA, unemployment tax, state, county, city tax, of course federal withholding tax all of this must be deducted and recorded and paid by the corporation based upon what you are paid, not what the corp takes in. Whats left over from the total income you deduct the expenses and that shows a profit/loss for the corp. That is what your tax liability will be based upon.

Just because you are a corporation or a sole proprietor doesn't mean you can automatically gain tax exempt staus on anything you buy and not pay sales tax. You can deduct legitimate expenses related to the normal course of doing business.

The easiest route is to go with the sole proprietorship. You keep track of what you spend on photograhy related materials, mileage to and fro the jobs or auto expenses, deduct the expenses from the total income paid to you as a photographer and that gives you your taxable income. Like was mentioned earlier, be sure you can show a profit 3 out of the first 5 years or the IRS may declare your business a hobby and you will lose all back tax advantages and pay taxes on it...ouch!!!!

Do not, repeat DO NOT plan on taking a home office as a deduction. Your accountant will tell you this one of the biggest red flags to the IRS. You must prove that office space is just that, office space otherwise the deduction is disallowed. It also opens you up to scrunity from the IRS and that is the last thing you wnat to do.

To get started, visit the county recorders office and get a DBA (Doing Business As) form, fill it out, have it searched and if nobody has that name, file it. Cost will vary but should be less than $20. Now that you have that piece of paper from the county, you can set up a checking account Joe Blow DBA Joe Blow Photography. Some city entities may require a business license. If you sell a tangible product directly to a consumer, then you may be liable for sales tax. To get this set up check with your state dept of revenue about a sales tax collection permit. Get ready tho, if you have any sales or not you may still be required to file a sales tax report each month. A very grey area, like what I do, is I provide a gallery where people purchase the end product. It is made and shipped from out of state so no sales tax is required to be collected by me. However, states are really starting to look at an internet sales tax.

Unless you have prior experience running a business, ask around to some local small business people and ask about a good accountant. Get with him before you do anything. He can tell you the requirements for your situation from the state, county, city. He can also help you set up an accounting system. Accountants do cost money but, if you don't have any experience they will more than pay for themselves in the long run.

I read someplace that most small businesses that fail, fail due to tax problems. Set your self up to deduct the taxes from your monthly photography income and get them paid. Once you get behind then your having to earn money to pay back taxes owed, plus the taxes on the current earnings leaving you with very little profit, if any after your expenses.

[Bass Ackwards]

I just went into business for myself, not in photography, but in construction, and went the way of the Llc. First thing I did was consult an accountant, helped me with the tax issues and decide which route to go. I would highly recommend this.

[Mike6158]

IndyJeff- Great info (excellent sig line too). I did the sole proprietor "thing" with a small farm once. It's by far the easiest but as you say, you've got to eventually show a profit or the IRS microscope may swing your way. It's important to keep good records. It takes time to operate a business. Operating a business is, in some ways, exlusive of the function of the business.

[DwightMcCann]

I have just completed my first year of running a sole proprietorship business. I have an accountant and she is worth her weight in gold. She knows the laws of my state, California, as well as Federal. I track everything I spend in spreadsheets: actually worksheets in a Excel workbooks. My income is monitored by 1099's that my clients send me. My gross this year will be about $28K. I have spent over $30K on equipment and other expenses. I will make less current this year because my clients are cutting back a bit.

I have an office and a studio in my home. Both are used exclusively for my business. I do NOT claim them for the reasons noted above ... my accountant said that if I didn't really need to then I shouldn't. Let me note that both my wife and I have good "day jobs" so I don't need a profit, but I also don't spend a nickel until I have earned it and been paid for it ... except for about $5K that I started with.

My expectation is to reinvest everything into equipment/supplies for the first two years. My third year (next year) I plan to "take a profit" of about $10K and take my family on a really nice vacation. I hope that profit will be enough to keep the IRS from declaring me a hobby.

One other thing I do to legitimize myself as a business is having three clients, two of whom pay me a fixed amount, one monthly and the other quarterly, where all three clients are themselves businesses.

I am planning on expanding into selling prints locally, but through someone else's storefront. I will probably have them as a client, too. [If this sounds screwy it is because one client is a Winery/Vineyard, but their 'tasting room' is owned by another business and I will offer prints for sale, mostly wine country related, in the 'tasting room', who will likely want work from me, too. I am very fortunate.]

And finally, I am hoping to expand into portrait/glamour work in my studio in another year or two, but a lot will depend on who I get to know!

I am laying this out as best I can both so others get to know what their peers are doing and because I, too, will take all the good advice I can get.

[toddb]

I missed this thread the first time around, great information. I've been thinking about starting to advertise and maybe pick a few jobs here and there. I'm almost for sure I'll never make more money then I do on buying gear. I'd probably spend everything I made in either paying for upgrades or establishing more gear to try to slowly transition into a more substantial place in the market. I plan to do this for at least the next five years while I try to transition from my current work to this. I'm far too in debt to hope for success in starting my own business at this point.

My question is, if I know I'm not going to be profitable 3 out of the 5 years, does it make sense to try and get a business license? The question is obviously no but at the same time, can I legally operate without one? What if I average one job a week...or perhaps one a month? I'm sure it's different for every country, state, county, city....but what is the general rule of thumb here. Where do people like me fit into the system?

[maegand]

I've been thinking about these questions, too, so this thread came at a perfect time. Thanks for such detailed and informative replies!

[DwightMcCann]

YMMV and IANAL but my accountant said that so long as I used my own name as my business that I did not need a fictitious business name process and that I likely don't need a business license. While I am a law abiding type generally, I am willing to operate without additional licenses until someone in authority says I need one. I imagine that you can read your local laws to require all sorts of things that in practice are not actively pursued.

[Converge]

YMMV and IANAL but my accountant said that so long as I used my own name as my business that I did not need a fictitious business name process and that I likely don't need a business license. While I am a law abiding type generally, I am willing to operate without additional licenses until someone in authority says I need one. I imagine that you can read your local laws to require all sorts of things that in practice are not actively pursued.

That is correct (at least here in PA as well) that if your Sole Prop business has your surname in it, that you dont NEED to register a ficticious name with the state. They recommend doing that so that incase you have any legal issues that have to come up in court, you would NEED to have a fictitous name registered then.

Ive been running my own sole prop computer business going on 3 years now. I cant recommend this enough, GET QUICKBOOKS. It made it SO EASY for me to be as close to an accountant as i can possibly get. It tells you when to pay your sales tax, it keeps records of EVERYTHING and it makes it easier to get the CORRECT info to the accountant. Any dummy can run a business with Quickbooks without messing up your records by accident.

In PA, all you have to do is go to http://www.paopen4business.state.pa.us/paofb/cwp/view.asp?a=3&Q=441248&paofbNav=|

your state may have something similar. It sets up your Sole Prop with the state, gets your registered, gets your fictitious name registered and really just gets everything you need done in one online application.

Then the state will start sending you your tax forms for your quarterly estimated income tax and youre off and running.

I just registered my sole prop photography business in November to start Jan 1 2007 so im ready to go for next year.

I really think if youre serious about making photography into a business, you should go for it. Its really not that bad to set up and you can do it on the side.

[DwightMcCann]

Converge, that's great advice. On a tangential note one of the most unexpected and difficult aspects of running my own business has been how incredibly unreliable many of my suppliers and vendors are ... I wonder how they stay in business ... in fact, one of the worst computer suppliers I used, Monarch Computers (and had stopped using) apparently just went bankrupt. Another time, when I ordered my embroidered polo shirts they were supposed to have my logo on one side and names on the other ... I was charged for both, but when they arrived the names hadn't been stitched on ... this was a $700 order and I was time constrained. It was a pain as I had to ship them back and wait another month (and won't do business with that guy again.) And vendors will bite you in the most unexpected ways! I ordered 24" mailing tubes (supposed to be 25 inches long to accommodate end caps.) The first shipment was 19" inches. I sent those back for a swap. The next batch was 24.5 inches. When I called to complain about those it was so unusual that the representative had a hard time understanding my complaint ... but they finally sent a truck with some specifically measured ones to swap for mine. That last effort impressed me enough that I will continue to deal with them but it was really a pain. I now keep many more "spares" on the shelf, order very early so I have time to correct errors by suppliers, and always have two or three backups of everything from camera bodies to image files. I'd rather spend two or three times as much on supplies than to fail one of my own clients ... it is simply a cost of doing business.

[Converge]

Converge, that's great advice. On a tangential note one of the most unexpected and difficult aspects of running my own business has been how incredibly unreliable many of my suppliers and vendors are ... I wonder how they stay in business ... in fact, one of the worst computer suppliers I used, Monarch Computers (and had stopped using) apparently just went bankrupt. Another time, when I ordered my embroidered polo shirts they were supposed to have my logo on one side and names on the other ... I was charged for both, but when they arrived the names hadn't been stitched on ... this was a $700 order and I was time constrained. It was a pain as I had to ship them back and wait another month (and won't do business with that guy again.) And vendors will bite you in the most unexpected ways! I ordered 24" mailing tubes (supposed to be 25 inches long to accommodate end caps.) The first shipment was 19" inches. I sent those back for a swap. The next batch was 24.5 inches. When I called to complain about those it was so unusual that the representative had a hard time understanding my complaint ... but they finally sent a truck with some specifically measured ones to swap for mine. That last effort impressed me enough that I will continue to deal with them but it was really a pain. I now keep many more "spares" on the shelf, order very early so I have time to correct errors by suppliers, and always have two or three backups of everything from camera bodies to image files. I'd rather spend two or three times as much on supplies than to fail one of my own clients ... it is simply a cost of doing business.

Very well noted!
With my computer business, I repair, install, and setup home users PC's and networks for home users and small businesses. I am a Dell Value Added Reseller which helps when I have clients looking for PCs. With a big company like Dell, all I have to do is call my sales rep and its all taken care of if there is a problem with something.

For PC upgrades and repairs, there is a local place that sells computers and components. I had developed a relationship with them and acutally get a lot of my parts from them below their retail price and without tax (because I add tax when I resell it during the repair) Things like harddrives, CD/DVD-Burners, network cards, modems, soundcards, cables, printers.... Anything I need for repairs they pretty much have which works out get because
1.) i dont have to keep much inventory. When I get a PC in with a bad powersupply, i just go 8 minutes down the road and buy one for inventory

2.)if i have a problem with something, i just take it back.

For my photography needs, when someone wants to purchase a print, i have a local small business guy who does color management and printing for big graphic design comanies. I give him a disk and say I need 2 8x12's and 1 11x15 on whatever paper and he prints it out on his Epson 9800 stylus pro.

Other than that, I go with B&H for my photography hardware

I try to stay as local as possible because it allows me to develop great relationships with other local small business owners in the area who will EASILY pass your name along (which both the printer and the computer place do for me) and is a great way to support local small businesses.

But like Dwight mentioned, there are MANY headaches in the name of "just doing business"

My suggestion to others trying.
1.)start small and dont get over your head
2.)have fun and enjoy doing what you love
3.)Check out a book i recently picked up that will answer MANY questions: Best Business Practices for PHOTOGRAPHERS by John Harrington. I found my copy at the local Barnes and Noble

[tim]

Get an accountant. Keep track of all your expenses, including equipment costs. Work out where your customers from and market to them. Be prepared to work like a demon for two years without any significant profit.

[John Nicholas]

If you incorporate, you don't fill out a schedule C, your corporation files a seperate return from your personal return and it also pays taxes on the profits. Plan on having an accountant do this for you or you will end up in an audit unless you really know what your doing. Medicare tax, FICA, unemployment tax, state, county, city tax, of course federal withholding tax all of this must be deducted and recorded and paid by the corporation based upon what you are paid, not what the corp takes in. Whats left over from the total income you deduct the expenses and that shows a profit/loss for the corp. That is what your tax liability will be based upon.

Wrong: The corporation is a separate entity so the corporation obviously needs to file returns. As far as Medicare tax, FICA, unemployment tax, state, county, city tax, of course federal withholding tax all of this must be deducted and recorded and paid by the corporation based upon what you are paid, is incorrect. As a shareholder of the corporation your status as an employee/contractor would be defined by your employment agreement with the corporation which can state anything. Just because you’re a shareholder doesn’t mean you have to be an employee. Do you own any stock? Are you going to show up for work there tomorrow LOL. Technically your employment agreement with the corporation can list you as a contractor which means you would simply receive a draw in which you would then be liable for filing & paying the above or as an traditional employee then obviously the corporation would then be responsible for paying the above. The corporation could actually decide to pay treat employees as subcontractors thereby omitting the additional accounting cost’s required to process payroll taxes.

If you consistently lose money, the IRS will likely audit you and declare your business a hobby, and ask you to pay back the taxes you saved because of the losses.

Wrong: Again the entity is separate from the individual, that’s the primary advantage of the corporation. There are thousands of corporations that have lost money for years or don’t plan to generate profits for years. Remember the stock market crash of 2000 & the DotCom bubble. Most companies weren’t anticipating profits for years and were valued at billions of dollars only to go bankrupt or be bought later for pennies on the dollar. As a matter of fact the ideal corporation would be a parent corporation that would control other corporation’s which would then be able to make the financial transactions necessary between the entities to minimize any tax liability and also as a method of protecting the corporations assets against lawsuits. The advantages of a corporation far outweigh any additional costs involved and offer’s personal protection business asset protection not available to sole proprietors.

I see it this way. I personally would never operate a business as a sole proprietorship. By operating a sole proprietorship you expose your personal assets such as your home your savings & everything you own, also if your state allows it your future earnings could be garnished to pay any judgments that have been entered against you. Obviously after you have lost everything you could file for bankruptcy but judgments are typically not removed in bankruptcy proceedings. Or you could very simply protect yourself & your family if you have one and incorporate your business. Cost to incorporate are similar to forming any business it depends on if you intend to incorporate in one of the corporate friendly states such as DE then list as foreign corporation in the state where your business is located or simply list in your business’s home state. Obviously as a corporation you will have to observe corporate formalities primarily holding a shareholders meeting once a year other than that it’s no more complex for the shareholders than it would be for a sole proprietor. You’ll pay your accountant more but those additional costs should be easily absorbed.

[rdenney]

My question is, if I know I'm not going to be profitable 3 out of the 5 years, does it make sense to try and get a business license? The question is obviously no but at the same time, can I legally operate without one? What if I average one job a week...or perhaps one a month? I'm sure it's different for every country, state, county, city....but what is the general rule of thumb here. Where do people like me fit into the system?

Business licensing is controlled by the state and local governments in the U.S., and they don't really care too much about your relationship with the IRS. Most states require that you obtain an assumed-name certificate unless you do business in your own name, but more importantly, you won't be able to open a bank account in the company name without it. And if you don't have a bank account in that name, you won't be able to cash checks made out to that company name by your customers. That's the main reason for registering your assumed name with whatever local government has that jurisdiction (it was at the county level when I lived in Texas).

And there really isn't a rule about being profitable three years out of five. Many business are never profitable. But you have to demonstrate to the IRS that your business is real and that you aren't just fibbing about it so you can deduct the cost of your toys. If you are profitable and pay taxes three years out of five, the IRS generally considers that evidence of a real business without further digging. But if you have a business plan, a properly constructed business structure, disciplined management, complete books, and real business activity, tools that you don't use for play (or that you document such use carefully and completely), you can demonstrate to the IRS that the business is real even if you are never profitable. But they are aggressive with those who they think are cheating, so my advice is: Don't cheat. I still do some commercial work but I don't buy camera equipment and supplies according to a defined business plan or for demonstrable commercial purpose, so I don't tempt the IRS to audit me by trying to make it seem as though I do.

And to summarize and perhaps disagree a bit with Mr. Nicholas: There are many ways to construct corporations. The main advantage to a corporation is that it acts as a separate entity, which can 1.) retain earnings from one year to the next, and 2.) be exclusively responsible for its own actions.

As a sole proprietor, any money left over by the end of the year is income and you have to declare it on your tax return. A corporation can leave it in the bank and reinvest it in capital equipment or whatever. If the corporation pays it back to the owners (which for a stock corporation would be by use of dividends, though not all corporations define ownership in terms of stocks), then those owners have to declare that as income. For a corporation owned by a single person, there are two avenues of income: One is a compensation for regular employment, and the other is distributed profit. If I form a corporation, my corporation hires me and compensates me, and that is income I declare individually. For the corporation, that is just another expense, like buying print paper, that reduces its profits. The corporation itself subtracts its expenses from its revenues and may invest some of what's left before determining what profit to declare. The corporation pays taxes on those profits, and disburses what's left to the owners, who then pay taxes again on what they get.

Most people incorporate not to get a tax break, but to protect themselves from liability. As a separate entity, the corporation is separately liable for its torts. The owners are protected, as long as the corporation behaves like a corporation, with board meetings, board accountability, and so on. A corporation that is a sham can be broken if the owner/operator commits an actionable tort--this is called "breaking through the corporate veil"--so don't do it if you aren't going to take corporate governance seriously.

There are many ways to incorporate as an individual or partnership, and get some benefits from incorporating without all the responsibilities of corporate governance, such as "S" corporations, limited-liability partnerships and corporations, and so on. Many have been added or redefined since I ran my own companies, so my knowledge of them is sketchy. I do know, however, that they lie between the extremes of sole proprietorships on the one hand and "C" corporations on the other.

Personally, I always ran my businesses as sole proprietorships if I was doing work that did not expose me to much risk, and then I carried personal liability insurance to cover that risk. The only other real reason to incorporate is if you want to retain earnings over a period of years without declaring profits, which allows you to reinvest in the growth of the company before rather than after taxes in many cases. As a photographer, I never felt like I was in the kind of business for which that would be an advantage, so I was never tempted to incorporate. As a sole proprietor, I was still able to deduct all my business expenses on a Schedule C.

Rick "who knows the difference between a real business and scamming the IRS to get a deduction for yet another expensive lens" Denney

[DwightMcCann]

You guys are GREAT! I really appreciate it. When my photography business goes full time when I retire in five years I intend to look into forming a corporation. Right now I have only three ongoing clients with whom I have had only the best of relations for three or more years and am comfortable with sole proprietorship. But when I am in the position of taking on new and unknown clients I don't want to be exposed. Thank you yet again.

[brian_jackson]

Ok, just to sum up a few things.

Business License Typically issued by the state or city where you reside. This has nothing to do with income, profitability, resale, etc. This is a "hey, we get to collect money from you, because you are a business" fee. It just says you are a business in a given location, that's all. Chalk it up to cost of doing business.

Resale certificate/permit. This is usually issued by the state sales/use tax board. This allows you to purchase things that you intend to resell to your customers and not pay sales tax on them. Prints, frames, matting, albums, etc.

Each state has different rules regarding how you collect sales/use tax. I find the California rules to be much more difficult to understand than the IRS or FTB (CA income tax). Depending on where you deliver the goods depends on what sales tax amount you collect from your customers. I have 2 resale certificates: 1 is paid annually, the other is paid quarterly.

Buying things online to avoid sales tax At least in California, if you are buying online and you are using it in your business...YOU ARE REQUIRED TO PAY USE TAX TO THE STATE. Check with your state's sales/use tax rules regarding equipment used in a business.

Profitability of a business: There is no rules that says you have to be profitable 3 out of 5 years, that's a myth. If you can prove that you are truly engaged in business with the anticipation to make money, you are fine. I played semi-pro golf for several years: NEVER made a profit, but my winnings/earnings went up every year. My goal was to make more money. There is actual IRS case studies/files on the books to back this up. They just don't want you to deduct your new Hummer every year, although you should NEVER own one of those gas guzzlers!!! Follow the rules the IRS provides and you should be fine.

DBA (Doing Business As) Typically controlled by the county where you live. Some states/counties have a provision that if your personal name is in the business name, then you DO NOT need a DBA. Brian Jackson Photo is fine, Jackson Wedding Photography needs a DBA. Now, a lot of banks need/require a DBA to setup a business account and some banks will not deposit checks written to your business name unless you have a business account. Check with your local county on the rules.

Legal Structure
Sole proprietorship: Most photographers are this type of business. Calculate your business profit/loss (IRS Schedule C) and record this number on line 12 of your 1040
LLC: Nice legal structure to have, that provides a separate legal entity for you from your company. You will need a DBA for this, and your company will now be called [name of your company], LLC. In the state of California, the state charges you a minimum $800 tax, consider it a liability separator fee. If you you owe less than $800 in taxes to the state, you've spent $800, if you owe more...you're fine. You fill out a Schedule C to determine your profit/loss, record on line 12 of your 1040. Check with your state for specific rules with LLCs
"S" Corp: Most logical step for a small business up from a LLC. You have created a separate legal entity and now pay corporate taxes. Less requirements than a "C" Corp. Personally, I would go with a LLC. Cheaper, and less paperwork involved.
"C" Corp: Unless your company is HUGE, have a lot of money to throw around, plan to go public, don't go here. Plus. you have to deal with "double taxation" if you are an employee of the company. Too much overhead for the small business owner in my opinion
NOTE: Be careful if you setup an "S" or "C" Corp and then treat yourself as a contractor. The IRS has it's guidelines, but defer to each State's rules regarding the employer/employee/contractor status of things. California's rules are A LOT more rigid than the IRS's rules are regarding contractors. A company technically can't "hire" a contractor to do work that the company normally performs. Contact your state agency regarding the rules of this relationship. Nolo Press also has a great book on the subject.

EIN: Employer Identification Number. Get one. It's free from the IRS, and provides a nice little separation from you the individual. Think of it as your SSN for your company. Call 1-800-829-4933 to get on over the phone.

Business use of the home: Well, if you own your home and you have a loss, you can't claim jack. If you have a profit, then you can claim the home office expense. It's perfectly legal to do so, and the IRS boogy man isn't going to come and get you if you follow the rules. If you rent, then there should be no problem. Heck, it doesn't even need to be an entire room, just a portion of a room, just follow the rules and you're OK.

I personally use the room percentage method to determine how much to deduct. 6 total rooms in the house (LR, Kitchen, BR's, DR, etc), 1 is used for business, so I take 1/6th of my monthly expense for business use.

Even if you own your home, have a business loss, and CANNOT claim the home office deduction...you can still claim the portion of the utilities (elec, gas, water, trash).

The IRS has a WONDERFUL collection of PDF's that describe everything you need to know to run your business from a tax perspective.

Things you can deduct: Here's a brief list.

education/training/seminars/conventions
postage
computer parts (upgrades, not whole computers; harddrive. memory, enclosure, etc)
flash cards
card readers
advertising: (ads, yellow pages, posters, banners, business cards, website hosting, shirts)
cell phone (if used for business)
rentals
repairs
Liability insurance
business fees/licenses
magazine subscriptions
memberships to professional organizations
DSL/laptop wireless plan
interest on credit cards/loans for business expenses
credit card fees (if you have a merchant account, or use an online service)
blank DVD's, CD's
travel related to business trips (plane, hotel, taxi, bus, train, etc)
meals while traveling (well 50% of meals. Use the Standard Meal Allowance the IRS says you can, then take 50% of that)
car expense (Personally, I've taken mileage for the past 10 years. Get a little mileage tracker booklet from the office supply store. Best $3 you're going to spend)
Camera equipment (bodies/lenses/strobes. not accessories) & entire computers: tricky subject. Either a Section 179 deduction, or regular 3-5 year depreciation. Most camera/computer equipment is 5 year property. If you are buying a building, the lifespan is more.


Obviously not everyone's company/situation is the same and you should consult your local tax professional :-D

Brian (certified tax preparer in 2007)

[DwightMcCann]

Brian, thank you! Wonderful summary.

[John Nicholas]

Ok, just to sum up a few things.

Camera equipment (bodies/lenses/strobes. not accessories) & entire computers: tricky subject. Either a Section 179 deduction, or regular 3-5 year depreciation. Most camera/computer equipment is 5 year property. If you are buying a building, the lifespan is more.
Obviously not everyone's company/situation is the same and you should consult your local tax professional :-D

Brian (certified tax preparer in 2007)


Great info Brian one question for you though. I.e. Owner A forms either LLC or Closed S corp Owner A has $10000 in equipment. Would I be correct in saying that it is not mandated that his equipment be listed as capitol equipment but would suggest leasing his equipment to the corporation for say $1500 per month may be wiser financially? Would I be correct in saying the expenses associated with leasing same equipment would be eligible for a full deduction yearly vs. owning and being forced to depreciate lesser amounts over 3-5 years?

[rdenney]

Great info Brian one question for you though. I.e. Owner A forms either LLC or Closed S corp Owner A has $10000 in equipment. Would I be correct in saying that it is not mandated that his equipment be listed as capitol equipment but would suggest leasing his equipment to the corporation for say $1500 per month may be wiser financially? Would I be correct in saying the expenses associated with leasing same equipment would be eligible for a full deduction yearly vs. owning and being forced to depreciate lesser amounts over 3-5 years?

In my opinion and experience, this could be audit bait if you aren't careful.

If you lease the equipment to the comparny for the normal lease rate in your area, you cannot use it for personal use without paying the company for doing so. But if the equipment was bought by you personally and you use it for corporate work exclusively, then you can lease it to the company. Just make sure you do your due diligence on the going rate, complete with documentation from local leasing agents. If the IRS audits you and discovers that your are ripping your own company off, they'll invite you to provide them with more funds. That includes paying more for a lease than a reasonable cost of ownership. Make sure your personal and corporate books are utterly and proveably separate.

As has been said, just follow the IRS rules, and don't try to work the IRS.

Rick "thinking IRS auditors have seen every trick in the book" Denney

[John Nicholas]

In my opinion and experience, this could be audit bait if you aren't careful.

If you lease the equipment to the comparny for the normal lease rate in your area, you cannot use it for personal use without paying the company for doing so. But if the equipment was bought by you personally and you use it for corporate work exclusively, then you can lease it to the company. Just make sure you do your due diligence on the going rate, complete with documentation from local leasing agents. If the IRS audits you and discovers that your are ripping your own company off, they'll invite you to provide them with more funds. That includes paying more for a lease than a reasonable cost of ownership. Make sure your personal and corporate books are utterly and proveably separate.

As has been said, just follow the IRS rules, and don't try to work the IRS.

Rick "thinking IRS auditors have seen every trick in the book" Denney


20d 450 week
20d 450 week (Need a back up right)
1.4 TC 45 week
17-40 90 Week
70-200 IS 125 week
24-70 L 90 week
580 EX 80 week

$1330 per week in rent for one of the most reputable rental companies in US $69160 for the year. $15000 seems reasonable now huh. I know it’s more than it would cost to buy new but the corporation has the right to conduct business as it best sees fit. Also I would suggest that the capitol investment of existing equipment be made in a separate entity which would in turn lease it’s equipment. I don’t see any red flags there and certainly would never suggest anything tricky. Matter of fact I’m having a hard time thinking of any company that doesn’t lease equipment.

Any way I’m glad the threads active again nice to share different ideas about the business.

[DwightMcCann]

Oh, I hope this discussion never stops! We need guys who understand business and are willing to challenge the presumptions of others in a friendly way. This is dynamite for me!

[delhi]

Can photography equipment be claimed as a declining cost like a car would be (depreciation) or a one time startup cost?

thanks for the great info.

[rdenney]

Can photography equipment be claimed as a declining cost like a car would be (depreciation) or a one time startup cost?


Photography equipment is a capital expense, so you can only deduct the depreciation as an expense, not the cost of the item. Capital equipment is what you buy that 1.) you don't use up, and 2.) that generates revenue. You can, however, deduct the entire depreciation in the first year, subject to certain restrictions and limitations, using the Section 179 Expense rules.

That compares with normal expenses for things used up to make products, such as film, paper, and so on. Those can be accounted as expenses directly.

Rick "depreciation is required knowledge for business owners" Denney

[rdenney]

[FONT=Times New Roman][SIZE=3]$1330 per week in rent for one of the most reputable rental companies in US $69160 for the year.

Note the difference between leasing equipment and renting equipment. In a lease, the objective is to pay for the consumption of the device for the time you are using it. With rental, the objective is to pay for the service of making the rental inventory available at need. Those are two different business models. If your company "rented" equipment from you at those sorts of prices, the IRS would come down on you like a ton of bricks. It's a scam and we both know it. They'll know it, too. There is no need for your company to pay you to provide rental services--what business are you in? And where would you report the proceeds from that rental service? That's taxable income, too.

Leasing is another matter. Companies lease capital assets all the time to avoid putting them on their capital floor plan. The lease should be priced to amortize the cost of the item being leased, plus a reasonable price for the minimal service required by a long-term lease. Most products that are leased are provided new and salvaged at the end of the lease, with only one customer having use of it in between. In fact, many business leasing companies never actually inventory the product, and only order it from the manufacturer or supplier when the lease agreement is in hand.

Ask it this way, do you think the IRS would be favorable to a pizza delivery company renting its delivery cars from Hertz? That would be stupid--Hertz isn't in the fleet leasing biz and their prices are way too high. But, as you say, being stupid isn't illegal. Okay, what if the owner rents his personal cars to the company at the same rates? The IRS would say, okay, that's fine, but where do you show your profits from your car-rental company. That should be on your 1040, etc.

Rick "who would rather play it straight" Denney

[John Nicholas]

Note the difference between leasing equipment and renting equipment. In a lease, the objective is to pay for the consumption of the device for the time you are using it. With rental, the objective is to pay for the service of making the rental inventory available at need. Those are two different business models. If your company "rented" equipment from you at those sorts of prices, the IRS would come down on you like a ton of bricks. It's a scam and we both know it. They'll know it, too. There is no need for your company to pay you to provide rental services--what business are you in? And where would you report the proceeds from that rental service? That's taxable income, too.

I’m talking business not hiding & running scams. And what business am I in, BUSINESS.

I not referring to renting I’m referring to leasing so I really don’t need you to explain the differences. In regards to leasing though I’d do a lease option write off the lease then take the depreciation on the buyout. Also they not 2 different model’s. I’ve never seen a business model that specified one would only rent or lease that’s absurd. Yep the IRS sure does frown upon companies doing business with themselves. I guess GM better start getting it parts from Ford there gonna be in big trouble. I was an officer of 4 corporations simultaneously and each corporation was the preferred vendor of the other, kinda like GM & Ford & Boeing and oh my God Microsoft. IT’S DONE EVERYDAY. As far as what you seem to believe is an exorbitant expense in regards to leasing equipment is actually 75% less than if I leased it from another company. Your comparison to the corner pizza joint & Hertz is the perfect example and obviously doesn’t make sense. It doesn’t make sense that they would rent their cars from hertz but leasing the vehicles would for various reasons.



Let me think for a ½ second and see if there would be any legitimate reason that a company especially a start up would decide to lease equipment. Let’s imagine Jimmy has managed to put 10K aside for his new studio. Now Jimmy has decisions to make he needs gear a minimum of $2500 a month to cover his existing financial responsibilities. Now jimmy can do 2 things he can invest $5000 in capital equipment which cuts existing capital by 50% or he can lease the same equipment now he has two choices he can lease from a well regarded nationally based company for $1330.00 per week or rent from ABC inc for $1500.00 month and cut reserves by only 15%!




Why carry the inventory I think they refer to it as Just In Time by the way.

Again with the leasing lets use your Hertz example again. How much revenue do you think each unit generates? I could look at their 10Q and tell but I would imagine it’s quite a tidy profit. You know I hope hertz never needs to rent a box truck maybe they could rent one from Budget because we all know their hiding something and it’s a scam. You now it’s unfortunate but I’m seeming to lose interest in this discussion. It seems as though I’m needing to defend proven business methodologies.


[quote=rdenney;2434445Ask it this way, do you think the IRS would be favorable to a pizza delivery company renting its delivery cars from Hertz? That would be stupid--Hertz isn't in the fleet leasing biz and their prices are way too high. But, as you say, being stupid isn't illegal. Okay, what if the owner rents his personal cars to the company at the same rates? The IRS would say, okay, that's fine, but where do you show your profits from your car-rental company. That should be on your 1040, etc.


I never said being stupid isn’t illegal in fact it’s just the opposite Ignorance of the law is no excuse. I’m talking about vertically integrating various entities.

Anyway I guess we’ll just have to agree to disagree.


Oh by the way Hertz does have a commercial division.

[delhi]

Photography equipment is a capital expense, so you can only deduct the depreciation as an expense, not the cost of the item. Capital equipment is what you buy that 1.) you don't use up, and 2.) that generates revenue. You can, however, deduct the entire depreciation in the first year, subject to certain restrictions and limitations, using the Section 179 Expense rules.

That compares with normal expenses for things used up to make products, such as film, paper, and so on. Those can be accounted as expenses directly.

Rick "depreciation is required knowledge for business owners" Denney

Thanks for the clarification Rick. So as a general rule what is the depreciation of photography equipment?

[rdenney]

Thanks for the clarification Rick. So as a general rule what is the depreciation of photography equipment?

I can't say. When I was in the business, the depreciation rates were different, and I used Section 179. My suspicion is 3 years.

Rick "hoping someone else has more recent knowledge" Denney

[rdenney]

I not referring to renting I’m referring to leasing so I really don’t need you to explain the differences.

I was responding to your reductio ad absurdum, which totted up rental charges to ridiculously high sums. I was also responding to the general reader who might happen upon this conversation. And I was responding to both in good faith, so there's no need to go into attack mode.

Rick "who'll shut up now" Denney

[Mike R]

Setting up a LLC properly will protect your personal assets, which are not protected under a sole proprietorship. But it must be set up properly along with a business checking account,properly funding the business, keeping detailed records of decisions you make, business operating plan,And as silly as it seems regular business meeting minutes even if you run it alone.Also properly insure it.All this helps to demonstrate that it is more than just a hobby,otherwise if there is a claim against you, they can still go after your personal assets. There are other things you can do. I received valuable help from an accountant and as other suggested, you should contact either an acountant,attorney or both. In CT there is a "Business Entity Tax" that I will have to pay each year just to have the pleasure of doing business in the state!
Best of luck

[Knightshade]

It should be noted that setting up a LLC won't protect you if you don't have insurance. This is based on a conversation I had with a lawyer here in San Diego. He suggested keeping whatever entity we had setup (a partnership at the time), make sure we were insured and if it warranted it, form a LLC.

While a LLC does form another layer of protection from your personal assets, w/o insurance, that layer is paper thin.

[Mike R]

It should be noted that setting up a LLC won't protect you if you don't have insurance. This is based on a conversation I had with a lawyer here in San Diego. He suggested keeping whatever entity we had setup (a partnership at the time), make sure we were insured and if it warranted it, form a LLC.

While a LLC does form another layer of protection from your personal assets, w/o insurance, that layer is paper thin.

You're right. The legal system has a term for it, "pericing the veil" Without insuance(which I mentioned) and the other things, A LLC will not protect your assets. Too many people set up an LLC without help or research and end up in trouble.

[John Nicholas]

I was responding to your reductio ad absurdum, which totted up rental charges to ridiculously high sums. I was also responding to the general reader who might happen upon this conversation. And I was responding to both in good faith, so there's no need to go into attack mode.


No Rick I’m not in attack mode although I did feel like I needed to defend my earlier posts. I assume your in agreement with the other points you raised which I’ve already responded too. I’m also trying to share my experiences with the general reader and trying to define some differences / benefits between a Simple / proprietorship and a Simple / entity. I was merely trying to point out the advantages of K.I.S.S. (keep it simple stupid) business methodology vs. a purely simple approach.

I was trying to share an approach with the forums readers which they might not be aware. You as a business owner are not required to privately provide capital equipment (your equipment) to your business. As a business owner / board member / shareholder you are entitled to run your business as you wish but if you don’t mind me correcting you being stupid IS illegal in fact Ignorance of the law is no excuse. Renting or leasing equipment is a business decision and the rate and term of such are the same. If you look at the 10Q of most corporations you will see expenditures for both rentals & leases. I can go on an on about this Rick but I really don’t believe there is a need. I also don’t mean to be argumentative just informative.

In regards to failing to insure the entity regardless of form will not in itself be sufficient in most circumstances to pierce the entities veil. The entities first defense are it’s contracts and piercing the entities veil is extremely rare difficult and expensive if the entity is vertically integrated I’d put the odds at 1 in a million and that may be generous.

Have a Happy Healthy & Prosperous New Year :) :) :)

[rdenney]

If you look at the 10Q of most corporations you will see expenditures for both rentals & leases.

Of course, and never disputed by me. But if an individual rents his personal equipment to his business, be it a sole proprietorship or a corporation, the IRS will expect to see the income from that rental activity on his personal tax forms.

As I said before, lots of companies rent and lease when it's cheaper than the cost of ownership, or when they don't want to carry it on their capital floor plan. But whoever they rent or lease from will be earning revenue on the rental or lease, and must report that revenue. So, renting something from yourself might not be an effective way to reduce your tax burden, but it probably will raise some red flags that can lead to an audit. The best way to avoid the IRS accusing you of treating your hobby as a business is to make sound business decisions--in other words--act like a business.

You are correct that there is no obligation for a business owner to donate his personal equipment to the business. In fact, it's much better if personal equipment and business equipment is kept strictly distinct. For example, I do commercial work with a pair of Pentax 645's, but have a large range of other cameras for fun. I can clearly defend the business purpose of any items that I have ever depreciated as a capital expense. That doesn't mean that it would be unreasonable to occasionally rent my other equipment to address a particular need. For example, it would be fine to rent my Cambo view camera to the business for a gig. I would have to claim the proceeds of the rental on my individual tax return. So, I would reduce my profit by the cost of the rental (since it would be an expense), and save the marginal tax on the rental, but then I would have to pay the marginal tax on the rental income as an individual. For sole proprietorships, it would be a wash. I would rather loan the equipment for free than go through that hassle.

I just don't want anyone thinking they can rent or lease their personal equipment to their company as a means of extracting profit tax-free from their business.

Rick "suspecting we agree, but trying to be clear for future readers" Denney

[DwightMcCann]

Just touching base to let you guys know that we lurkers are still here.

[Strayz]

and we are takeing notes.. Well Kinda.. I am thinking about part timeing and if I do what will I need to look in to as well. It keeps me thinking do I want to take the plunge or just keep all the images to my self and not share them for profit. :)

[Hassan2285]

great thread, its really helping a lot

thanks guys

[EOS mE]

Ok, just to sum up a few things.

Business License Typically issued by the state or city where you reside. This has nothing to do with income, profitability, resale, etc. This is a "hey, we get to collect money from you, because you are a business" fee. It just says you are a business in a given location, that's all. Chalk it up to cost of doing business.

Resale certificate/permit. This is usually issued by the state sales/use tax board. This allows you to purchase things that you intend to resell to your customers and not pay sales tax on them. Prints, frames, matting, albums, etc.

Each state has different rules regarding how you collect sales/use tax. I find the California rules to be much more difficult to understand than the IRS or FTB (CA income tax). Depending on where you deliver the goods depends on what sales tax amount you collect from your customers. I have 2 resale certificates: 1 is paid annually, the other is paid quarterly.

Buying things online to avoid sales tax At least in California, if you are buying online and you are using it in your business...YOU ARE REQUIRED TO PAY USE TAX TO THE STATE. Check with your state's sales/use tax rules regarding equipment used in a business.

Profitability of a business: There is no rules that says you have to be profitable 3 out of 5 years, that's a myth. If you can prove that you are truly engaged in business with the anticipation to make money, you are fine. I played semi-pro golf for several years: NEVER made a profit, but my winnings/earnings went up every year. My goal was to make more money. There is actual IRS case studies/files on the books to back this up. They just don't want you to deduct your new Hummer every year, although you should NEVER own one of those gas guzzlers!!! Follow the rules the IRS provides and you should be fine.

DBA (Doing Business As) Typically controlled by the county where you live. Some states/counties have a provision that if your personal name is in the business name, then you DO NOT need a DBA. Brian Jackson Photo is fine, Jackson Wedding Photography needs a DBA. Now, a lot of banks need/require a DBA to setup a business account and some banks will not deposit checks written to your business name unless you have a business account. Check with your local county on the rules.


Legal Structure Sole proprietorship: Most photographers are this type of business. Calculate your business profit/loss (IRS Schedule C) and record this number on line 12 of your 1040LLC: Nice legal structure to have, that provides a separate legal entity for you from your company. You will need a DBA for this, and your company will now be called [name of your company], LLC. In the state of California, the state charges you a minimum $800 tax, consider it a liability separator fee. If you you owe less than $800 in taxes to the state, you've spent $800, if you owe more...you're fine. You fill out a Schedule C to determine your profit/loss, record on line 12 of your 1040. Check with your state for specific rules with LLCs"S" Corp: Most logical step for a small business up from a LLC. You have created a separate legal entity and now pay corporate taxes. Less requirements than a "C" Corp. Personally, I would go with a LLC. Cheaper, and less paperwork involved."C" Corp: Unless your company is HUGE, have a lot of money to throw around, plan to go public, don't go here. Plus. you have to deal with "double taxation" if you are an employee of the company. Too much overhead for the small business owner in my opinionNOTE: Be careful if you setup an "S" or "C" Corp and then treat yourself as a contractor. The IRS has it's guidelines, but defer to each State's rules regarding the employer/employee/contractor status of things. California's rules are A LOT more rigid than the IRS's rules are regarding contractors. A company technically can't "hire" a contractor to do work that the company normally performs. Contact your state agency regarding the rules of this relationship. Nolo Press also has a great book on the subject.

EIN: Employer Identification Number. Get one. It's free from the IRS, and provides a nice little separation from you the individual. Think of it as your SSN for your company. Call 1-800-829-4933 to get on over the phone.

Business use of the home: Well, if you own your home and you have a loss, you can't claim jack. If you have a profit, then you can claim the home office expense. It's perfectly legal to do so, and the IRS boogy man isn't going to come and get you if you follow the rules. If you rent, then there should be no problem. Heck, it doesn't even need to be an entire room, just a portion of a room, just follow the rules and you're OK.

I personally use the room percentage method to determine how much to deduct. 6 total rooms in the house (LR, Kitchen, BR's, DR, etc), 1 is used for business, so I take 1/6th of my monthly expense for business use.

Even if you own your home, have a business loss, and CANNOT claim the home office deduction...you can still claim the portion of the utilities (elec, gas, water, trash).

The IRS has a WONDERFUL collection of PDF's that describe everything you need to know to run your business from a tax perspective.

Things you can deduct: Here's a brief list.

education/training/seminars/conventions
postage
computer parts (upgrades, not whole computers; harddrive. memory, enclosure, etc)
flash cards
card readers
advertising: (ads, yellow pages, posters, banners, business cards, website hosting, shirts)
cell phone (if used for business)
rentals
repairs
Liability insurance
business fees/licenses
magazine subscriptions
memberships to professional organizations
DSL/laptop wireless plan
interest on credit cards/loans for business expenses
credit card fees (if you have a merchant account, or use an online service)
blank DVD's, CD's
travel related to business trips (plane, hotel, taxi, bus, train, etc)
meals while traveling (well 50% of meals. Use the Standard Meal Allowance the IRS says you can, then take 50% of that)
car expense (Personally, I've taken mileage for the past 10 years. Get a little mileage tracker booklet from the office supply store. Best $3 you're going to spend)
Camera equipment (bodies/lenses/strobes. not accessories) & entire computers: tricky subject. Either a Section 179 deduction, or regular 3-5 year depreciation. Most camera/computer equipment is 5 year property. If you are buying a building, the lifespan is more.
Obviously not everyone's company/situation is the same and you should consult your local tax professional :-D

Brian (certified tax preparer in 2007)

Brian.. so do you also do other ppl's taxes? ;) also, which kind of bookkeeping/accting software do you recommend that are super easy and will fit perfectly for a photography business startups and for dummies like me?

[The Imagician]

Did you ever get a price list posted?

[RedHotLama]

So how do things like accessories get expensed? If they are not section 179 expensed.

[JWright]

If you are using the equipment as deductions, you should consider getting a business license. In the US, you get tax exempt status and wholesale benefits. People have asked if I have a license or TE. If you are not going to make more than what you spend, the IRS looks at that with suspicion. Just what I think.


"Tax exempt status"? No... The only organizations that get tax exempt status in the US are non-profits and churches. If you are in a legitimate money-making business you WILL be taxed. The IRS will require you to pay quarterly estimated taxes (withholding for the self-employed) and you will be required to pay your own Social Security taxes. In addition, depending on the laws in the state and locality where you reside, you may be required to pay sales taxes (also quarterly) and certainly there will business license fees.

Be very, very careful of the "home office" expense. Last time I checked, IRS rules stated that a home office had to be used exclusively for business and nothing else. If you use the office for processing your personal hobby images, for example, then the office doesn't qualify for the deduction.

My advice would be to contact a CPA, business lawyer or at least an tax preparation person who is an "Enrolled Agent" with the IRS. Do not go to the likes of H&R Block. They won't be able to give you the right answers.

How do I know all this? I had my own part-time photography business here for a time and I also helped manage my ex-wife's fine art business.

[ClickClick]

Ok, so basically if I start up my business and purchase one camera body, one lens, and one flash to use for my business (so I don't use my personal camera for commercial use and vice versa), I can't deduct the entire cost of those three purchases?

What about things like :

Domain name registration
Web Hosting fees
Blank CDs
Photoshop CS3
Invoice/ledger book
advertising postcards
Hotel stay (when away on location)
Lasik eye surgery (just kidding)
etc..

Assuming I am under a Sole Prop.

[djscrib]

My 2 cents.

Odds are you're the sole owner of this business. Look at an S-Corp over an LLC. LLC's only advantage over an S-Corp is when you have multiple shareholders. The S-Corp advantage is that you can Pay less money on Payroll Tax (skip the 15.3% fica charge on some of your revenues).

You can only take the 179 deduction if your business is actually profitable. If you show a $500 profit, you can't take $1000 in 179 expenses. You have to depreciate it.

There is a big difference between Office Equipment, and Office Supplies. Equipment gets depreciated, and in some places you get taxed on the value of the equipment you own. Office supplies (pens, paper, lens cleaner) are just expenses. No keeping track of them, write off the full amount. The question is what counts as a supply and what counts as equipment. Its a gray line and try moving as much to supplies as possible.

Domain Registration, Hosting Fees, Internet Access, these are just general expenses, call them "Web Services".

Photoshop call it Software, that's a gray area, just toss it in web services if you feel aggressive.

CDs are office supplies.

Advertising postcards are Advertising. Advertising/Promotion is the big fun gray area to toss lots of expenses.

Vacation - Well with a corporation you can have an annual meeting somewhere once a year can expense it. Or if 1/2 of your trip was spent doing business related items (practicing palm tree photography, giving business cards to hotels), it can be a business trip.

Don't forget cell phone, magazine subscriptions, books, some groceries (you entertain clients by cooking dinner right), 2nd home phone line (get a skype line as your 1st phone line, deduct your landline). Plasma TV (it's a monitor), iPod (its a personal organizer, why else do you think they put the calendar app on it), etc.etc.etc.

[bobbyz]

Another good thread.

[ClickClick]

So if I spend $2000 on camera equipment and make more than $500 the first year, I can't claim it as an expense?

Ok, look over this scenario :

I purchase $2000 in camera equipment, and spend another $6000 on supplies (marketing, advertising, gas, parking fees, web services, time devoted to creating banner ads for clients to go on website, etc..)

But I only make $5000 that year. There is a $3000 difference there. How is that handled? And if I can't write off the entire purchase of the camera equipment, how do I estimate the depreciation? How many years is allowed? $500 per year for 4 years would seem like the norm before needing to be replaced. Or how do you judge it?

[bobbyz]

ClickClick, even simple programs like TurboTax will do the depreciation thing for you.

Personally I would keep business stuff separate from personal stuff. If you deduct Plasma TV then better not watch movies on it. Don't go into business for tax right offs, do it for making money and do what tou like to do.

[djscrib]

Here's why you have to depreciate equipment (normally) instead of writing off the full expense.

If you buy a $2000 camera, after 1 year is it worthless? It's probably worth some percentage of the original purchase price. Thus why they require depreciation.

In your scenario.

Income: $5000
Expenses: $6000
Equipment Purchase Depreciation Expense: $400 (1/5 of $2000)
Net Income: -$1400

As far as the depreciation you don't estimate it. The IRS has a table that tells you EXACTLY how much to depreciate each item for each year it has been in service. You can guesstimate it as 1/5 for the hell of it, but you need to look at the actual table to find out the true amount.

I disagree with bobbyz. If you can make money as something and call it a business, why not take as many tax breaks as humanly possible? The purpose of business is making money. Saving $50 in taxes, or making $50 in income still puts $50 in my pocket either way.

[ClickClick]

Here's why you have to depreciate equipment (normally) instead of writing off the full expense.

If you buy a $2000 camera, after 1 year is it worthless? It's probably worth some percentage of the original purchase price. Thus why they require depreciation.

In your scenario.

Income: $5000
Expenses: $6000
Equipment Purchase Depreciation Expense: $400 (1/5 of $2000)
Net Income: -$1400

As far as the depreciation you don't estimate it. The IRS has a table that tells you EXACTLY how much to depreciate each item for each year it has been in service. You can guesstimate it as 1/5 for the hell of it, but you need to look at the actual table to find out the true amount.

I disagree with bobbyz. If you can make money as something and call it a business, why not take as many tax breaks as humanly possible? The purpose of business is making money. Saving $50 in taxes, or making $50 in income still puts $50 in my pocket either way.


Would that table that the IRS depreciates equipment at/rate be available online?

[djscrib]

At some point you need to start googling away at stuff.

[bobbyz]

Guys - Hope you don't mind if I ask another stupid question.

If I have a sole prop thing, can my wife still help me? Would I have to hire her and do all the paper work for taxes etc.

[EOS mE]

turbotax does that? so, if i'm using quicken home and business software, i could just export my data into turbotax and it will automatically depreciate my camera gears? would i have to setup the category like how djscrib said in quicken home and business?

"ClickClick, even simple programs like TurboTax will do the depreciation thing for you.

Personally I would keep business stuff separate from personal stuff. If you deduct Plasma TV then better not watch movies on it. Don't go into business for tax right offs, do it for making money and do what tou like to do.


"Domain Registration, Hosting Fees, Internet Access, these are just general expenses, call them "Web Services".

Photoshop call it Software, that's a gray area, just toss it in web services if you feel aggressive.

CDs are office supplies.

Advertising postcards are Advertising. Advertising/Promotion is the big fun gray area to toss lots of expenses."

[EOS mE]

Would that table that the IRS depreciates equipment at/rate be available online?

yeah i couldn't find that table on IRS site either... :(

[djscrib]

http://taxguide.completetax.com/tools/download/deptablesa1.rtf

[EOS mE]

Thanks.