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Thread started 07 Mar 2013 (Thursday) 08:05
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Income Tax Question

 
ncognet0
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Mar 07, 2013 08:05 |  #1

KInd of a wierd question about taxes and props. If a commercial stock photographer buys props like food for photos, dishes, and other items like guns, tools and other things that you buy to use in advertising images. Are they considered write offs?




  
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mike_311
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Mar 07, 2013 08:47 |  #2

if you claim the income, you can claim any expenses you have in order to produce that income.

but you better have made money or the IRS will either consider your photography a hobby or worse, may audit you.

if you don't know what you are doing i'd suggest an accountant.


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Kronie
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Mar 07, 2013 08:51 |  #3

Here in the states, you could write that off. It depends on your ethics and how comfortable you are if your audited.

If you use your "props" outside of the studio for personal use then you would write off the percentage that its used for the business.




  
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ncognet0
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Mar 07, 2013 08:52 |  #4

mike_311 wrote in post #15687153 (external link)
if you claim the income, you can claim any expenses you have in order to produce that income.

but you better have made money or the IRS will either consider your photography a hobby or worse, may audit you.

if you don't know what you are doing i'd suggest an accountant.

Thank you mike, thats the answer i was hoping for, its definitly a money maker so thats a good think.




  
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Kronie
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Mar 07, 2013 09:06 |  #5

mike_311 wrote in post #15687153 (external link)
but you better have made money or the IRS will either consider your photography a hobby or worse, may audit you.

Actually according to my accountant. You can lose money on a business forever. As long as its a real business. If you have a presence, advertise and try, you can keep losing.

But your likelihood of being audited is pretty good....




  
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mike_311
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Mar 07, 2013 09:09 |  #6

Kronie wrote in post #15687217 (external link)
Actually according to my accountant. You can lose money on a business forever. As long as its a real business. If you have a presence, advertise and try, you can keep losing.

But your likelihood of being audited is pretty good....

lol, true but at what point do they step in and advise you to quit.

so long as you are making money and paying taxes they generally leave you alone, its when they think you may be trying pull one over on them they get suspicious.


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Mar 07, 2013 12:46 as a reply to  @ mike_311's post |  #7

I think it's a little more complicated than simply writing off the cost of props, in the USA that is. Once a business has purchased items for use in business, an accounting must be made of the eventual disposition of these items. Say, for instance, you purchase a new widget for $500 and use it as a prop. Probably you cannot expense the whole $500 at once, unless you make a Section 179 election. Instead, you need to depreciate the item over its service life of perhaps 3-7 years, depending on what it is. When you eventually dispose of the item, perhaps by selling it for $200 as a used widget, you need to recapture the depreciation, and also recognize the $200 income for the sale. It's pretty complicated, and you can get into tax trouble quickly unless you have a firm grasp of the principles. Or a good tax adviser.


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lehmanncpa
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Mar 07, 2013 12:58 |  #8

Typically, if it is an item that will give you less than a year of useful life, you may simply write it off. However, for items that may last several years, my recommendation to the OP is to choose a reasonable threshold dollar amount for expensing certain items, especially if they last longer than a year, but will likely never be used again. For small businesses, anywhere between $250 and $500 is considered reasonable. However, once you pick an amount, try to stick to it and set it as policy for your company. Consistency is important to establish an argument if challenged by a taxing authority.

These are called fixed asset capitalization rules. There are plenty of examples on a Google search.

PM me if you any specific questions.


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lehmanncpa
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Mar 07, 2013 13:07 |  #9

Kronie wrote in post #15687217 (external link)
Actually according to my accountant. You can lose money on a business forever. As long as its a real business. If you have a presence, advertise and try, you can keep losing.

But your likelihood of being audited is pretty good....

mike_311 wrote in post #15687229 (external link)
lol, true but at what point do they step in and advise you to quit.

so long as you are making money and paying taxes they generally leave you alone, its when they think you may be trying pull one over on them they get suspicious.

The IRS has 9 rules that they use to help determine if your business is a real business or just a casual hobby - these are not all-inclusive or exclusive, but they serve as a general guide. They are generally referred to as the hobby loss rules:

1. Does the time and effort put into the activity indicate an intention to make a profit?
2. Do you depend on income from the activity?
3. If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
4. Have you changed methods of operation to improve profitability?
5. Do you have the knowledge needed to carry on the activity as a successful business?
6. Have you made a profit in similar activities in the past?
7. Does the activity make a profit in some years?
8. Do you expect to make a profit in the future from the appreciation of assets used in the activity?
9. Has the activity made a profit in at least three of the last five tax years, including the current year. If so, the activity is presumed to be a trade or business.

My recommendation is if your business is showing a cash loss (not including depreciation or amortization) and you have other sources of income, speak to an accountant or CPA.


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J ­ Michael
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Mar 07, 2013 13:36 |  #10

You want to establish whether you are dealing with fixed assets or expenses. Fixed assets are things that you use in your business that are not consumed, have a reasonably long life, and cost at least some amount you establish for such items like $100, like a lens. Expenses may be deducted the year incurred and your fixed assets are depreciated over an appropriate schedule (including possible accelerated depreciation).

NB: Never take tax advice from folks on the Internet. I pay someone to figure this stuff out for me. Talk it over with your tax professional. The consequences from a mistake can be significant.




  
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Income Tax Question
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