questions about business write off and tax stuff

[izatt82]

okay i am new to business in general, i am not for sure if this applies to just Illinois (thats where i live) either way you can help out.

what amount can be justified as a legitimate profit?

now what i mean by that is when can you start writing off expenses of a business? talking about small business

then on top of that what can you generally write off? such as equipment, fuel, food, and anything else? and what percentages? if you guys know

this really applies to any small business and i have no idea.

help please

[amccomis]

I'm not a cpa or lawyer, but generally:

-Mileage is deductable, but fuel is not. Unless you rent a truck and pay for it by the mile and have to refuel the tank. Then fuel is.

-Equipment used in business is usually depreciated over 2 or 3 years depending on the expected life of said equipment.

-Your meals while on location yes. Meals otherwise, no. Buy a perspective client dinner, see the "entertaining clients" rules -- deductable at 50% I think.

- Internet domain name, web hosting: yes. I put mine under advertising. Same for your broadband internet connection. goes under utilities.

- Magazine subscriptions, WPJA dues, etc.: yes, there's a bucket for dues & subscriptions.

- Cell phone, if listed on your business card, or can otherwise be proven for use in the business: yes.

- Business cards, shipping, all that - I put under supplies. As well as actual office supplies such as tape, staples, postage, pens, sharpies, blank cds, etc.

- Computer eqp. -- see above for depreciation, but there are some exceptions that allow you to take it all at once and not spread it over two/three years. An example: an additional external HDD.

- I do not recommend the deduction for home office... the rules for that are so strict, it's not really worth the audit risk.

- Legitimate profit. The idea is to show "incentive to earn profit" in x out of y years. (I think x=2 and y=5. Someone please correct me if I'm wrong!). You can take a loss in any given year, but if your loss is less than the previous year, and if your x out of y years in the black work out, you are in good shape. Don't claim a loss every year though. The IRS will tell you to change professions! :-)

Also, don't make yourself an audit target. If your wages were (let's say) $100K/yr doing full time work on a W2 job, and then you quit and do photography full time as your primary income, but manage to take a loss for the year owing no taxes, that's what you call a "red flag" -- I don't recommend it. But, if you do manage to take in let's say $60K revenue in year 1, with, say $20K in writeoff, that's $40K taxable. That's not a red flag.

But then there's always the fact that if you owe more than $1,000 in taxes, they will penalize you and ask you to pay your taxes on an estimated bases at least quarterly the next year.

Then, the best advice of all: find a CPA that you know and trust. Take all the guesswork out of it.

Was any of this useful?

[Mike R]

I met last week with my CPA for my taxes.
He said there's a way to capitalize my equipment purchases so that it can all be deducted in this first year. He also told me that I must pay a state USE tax on equipment purchased from B&H since I didn't pay sales tax and that I cannot deduct my home office, since I'll already be showing a loss and a home office cannot be deducted to show a loss.

[izatt82]

yeah that helped a lot, i think there might be a small business claim so you can take the write off all at the same time??? anybody know

thanks a lot yeah heres the deal i am a college student W-2 I make less than 20,000 a year. I am not looking to make it big with this more or less I would like to be able to show some profit whatever is enough to keep the IRS happy and be able to write off some of my costs that before i just had to eat. if i can write off a little bit of my mileage that would be great, write off some gear and internet, website and other little things even if they don't give me 100% anything is better than nothing. Of course i have to work on that profit thing, but it is looking like i can keep my costs low which will help.

[izatt82]

I met last week with my CPA for my taxes.
He said there's a way to capitalize my equipment purchases so that it can all be deducted in this first year. He also told me that I must pay a state USE tax on equipment purchased from B&H since I didn't pay sales tax and that I cannot deduct my home office, since I'll already be showing a loss and a home office cannot be deducted to show a loss.


great i think contacting a CPA sounds like a great idea, what are the costs of CPAs for you guys? just looking for a general number

thanks a lot by

[JWright]

If a CPA turns out to be too expensive, you might consider contacting an Enrolled Agent (http://www.naea.org/MemberPortal/). An EA is licensed by the Treasury Department to represent the taxpayer before the IRS and is regularly tested on tax law and regulations.

[izatt82]

thank you for that

[Mike R]

great i think contacting a CPA sounds like a great idea, what are the costs of CPAs for you guys? just looking for a general number

thanks a lot by

I don't have a clue how much. When I first met with him a year ago to set up the busniess he didn't chagre me and I didn't ask how much to prep my taxes.
He's a friend of my parents, and sold his firm but continues to work at it. I guess he would rater work than retire. Still works 7 days a week at this time of year.

[izatt82]

huh alright, some more things to look into for sure

[Zonieart]

You should always face writing off business expenses as an invitation to the IRS or your state tax board to perform an audit. If you want to write off business expenses, any potential audit from the IRS will go much smoother if you are actually operating as a Business. Do you have a business name? Are you operating as a sole owner, partnership or corporation? Will you be filing a schedule "C"? You should get the proper business and tax licenses for your city and state. Did you get a federal Employee Identification Number? If you keep your business books separate from your personal finances, it will be much easier to keep track. If you have a business website, phone number and other "business" related activities that are not used for personal business, you'll face down that eventual audit with confidence.

[izatt82]

You should always face writing off business expenses as an invitation to the IRS or your state tax board to perform an audit. If you want to write off business expenses, any potential audit from the IRS will go much smoother if you are actually operating as a Business. Do you have a business name? Are you operating as a sole owner, partnership or corporation? Will you be filing a schedule "C"? You should get the proper business and tax licenses for your city and state. Did you get a federal Employee Identification Number? If you keep your business books separate from your personal finances, it will be much easier to keep track. If you have a business website, phone number and other "business" related activities that are not used for personal business, you'll face down that eventual audit with confidence.


this is good stuff, thanks sole owner, yes i want to keep it seperate. i will have a website. i do plan to run it as a business, but i think profit will be small of course the money i will put into it will be very small. thank for this

[Mike R]

this is good stuff, thanks sole owner, yes i want to keep it seperate. i will have a website. i do plan to run it as a business, but i think profit will be small of course the money i will put into it will be very small. thank for this

Depends on your definition of "small" As we all know, Gear isn't cheap It sure adds up. I spent over $7K since August of 07 Safe to say that I showed a loss for my first year. :lol:

[izatt82]

right yeah i think it will be hard not to show a loss the first year. gear it just expensive. even the little stuff can add up over the years

[Mike R]

Keep receipts for everything, even if it's for a pen or anythng that may be cosidered an offfice supply and don't forget computer and printer supplies. Keep a mileage log, it's also a deduction. You can get an inexpesive mileage log to kep in the car. The miles and the deduction add up throughout the year. I had over 1k miles in 3 months and there were some that I forgot to write down.

[izatt82]

cool yeah i am not for sure what i am going to do now because the group i was going to target already has a photog, but i think i might go put some stuff up in some batting cages and i think i am going to make some trips to St Louis i found a group down there that holds open shoots so you can build your portfolio. i think doing that could really help me out and get some good experiance and contacts. oh and in two weeks i am going to chicago and get to tour sun times sit in on there morning meeting and get to do some workshops with my schools newspaper should be a good time and i hope to get some good photos around the city.

[Gatorboy]

Get TurboTax or TaxCut. It will ask you the right questions and help you file properly.

[noxcuses1]

CPA (a good one) usually runs 100-150 average.

From what I've heard, businesses are "allowed" losses the first few years. But I think no more than 5 years or so, or else the IRS may question it.

[izatt82]

yeah i would think so, but yeah they are only going to let you do it for so long then come put the hammer down