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Thread started 28 Jan 2015 (Wednesday) 08:42
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Taxes...

 
Sparrow19
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Jan 28, 2015 08:42 |  #1

I was looking for a little insight from those who have gone through this.

This past year I wanted to try my hand at starting a photography business. I still work a normal mon-fri job, and I didn't know how well or not this would take off.

Over the year I think I did pretty good, made decent money for it being part time. I also quickly learned that if this was something I wanted to really expand, I needed new and better equipment. I bought some new things with a credit card, and pretty much any money I made, I used to pay that off.

Now I'm left with how I need to do my taxes with profits and deductions. Through purchasing new equipment, I definitely spent more than I made over the year. This is just an example, but lets say I spent $9,000 on new equipment and I made $5,000 over the year. As a hobby, I could write off my equipment, up to the $5,000, right? Can I use the other $4,000 of my expenses for next year, or is it just gone? OR, could I amortize my expenses, lets say over 3 years. So I can use $3,000 in expenses this year, after making $5,000, I'd pay taxes on the difference, the $2,000. Then next year, I can use another $3,000 of my initial expenses and another $3,000 the third year.

Am I completely off in this thinking, or is it about right? I have no idea what to do and want to make sure I do it right. I've been trying to do research online, and am in search of a CPA to help as well. I just wanted to get some input here from those who started out this way.

Thanks for your time, and I'm sorry about the long post. I appreciate any info you can offer. -Wes


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Trvlr323
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Jan 28, 2015 09:04 |  #2

Can't say for sure in your neck of the woods but usually expenses can only be claimed in the year that they are made. You can however claim the depreciation on that gear in future taxation years. In any case I would suggest that you consult a tax professional. They know the tricks of the trade and they'll likely save you much more than they charge. I would also advise that as you are just starting of your business you look closely at your insurance policies. This may not apply to you but where I am from the minute you start using gear for professional purposes it is no longer covered under your home insurance policy. Again, consulting a professional would be the thing to do.


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groundloop
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Jan 28, 2015 10:01 |  #3

It's been quite awhile since I had a home based business on the side so I might not remember all the details and some of the laws may have changed.

As a hobby, I could write off my equipment, up to the $5,000, right?

You can't write off anything for a hobby, only for a business which is run for the intention of making a profit. As I recall a business must show a profit in 3 out of 5 years, so you could possibly show a small profit one year and a large loss the next. And as stated, in general you must claim expenses in the year that you incurred them.

And the best thing you can possibly do is to find an accountant or tax professional to advise you on this. You absolutely don't want to get into legal trouble because you don't understand the law.




  
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Sparrow19
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Jan 28, 2015 10:15 |  #4

I am in the process of finding a professional. I'm just looking for insight here.

I am claiming expenses for which I incurred them, 2014, on my 2014 taxes. I just thought you could spread out your expenses on the items that are good for longer then that year. For example, buying a new camera that I will use for years to come.

I understand in year one that you are probably not going to make a lot of money and probably show loss. Like spending 9K and only earning 5k. But now that the 9K is spent, this next year I figure to make a lot more profit.


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Narwhal
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Jan 28, 2015 10:44 as a reply to  @ Sparrow19's post |  #5

You definitely need to consult a professional if you plan to continue and expand your business.

But first you you have to understand what is really an expense and what is an investment. Expenses are costs like gasoline, material that you use immediately as well and small expenditures on minor equipment like a filter, etc. These expenses can be deducted from income in the year that the occur.

The cost of more expensive equipment like a new camera is an investment. The cost of equipment that has a substantial value and has a useful life beyond a year MUST be capitalized and the cost deducted from income in future years. The accounting term for this is depreciation. There are accounting and tax rules for doing this.

In general the simple personal income tax forms do not provide the flexibility to do this. You will, at some point have to create a small business.


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OhLook
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Jan 28, 2015 10:47 |  #6

Sparrow19 wrote in post #17404094 (external link)
I am claiming expenses for which I incurred them, 2014, on my 2014 taxes. I just thought you could spread out your expenses on the items that are good for longer then that year. For example, buying a new camera that I will use for years to come.

You spread out your expenses by deducting an amount for depreciation each year over the expected useful life of the item. Expected lives for each kind of equipment and the percentage to deduct in each year are specified in the tax code. These rules may differ between state and federal. Depreciation can be complex. You can look for instructions at irs.gov to start with.


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seanlockephotography
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Feb 04, 2015 15:28 |  #7

Narwhal wrote in post #17404122 (external link)
The cost of more expensive equipment like a new camera is an investment. The cost of equipment that has a substantial value and has a useful life beyond a year MUST be capitalized and the cost deducted from income in future years. The accounting term for this is depreciation. There are accounting and tax rules for doing this.

This is incorrect. See: http://www.irs.gov/pub​lications/p946/ch02.ht​ml (external link)




  
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njstacker22
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Feb 06, 2015 22:44 |  #8

Oh boy... I can see this thread getting real sticky real soon. If I were you, I would talk to an accountant and he should be able to answer all of your questions.


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Sparrow19
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Feb 07, 2015 15:49 |  #9

I've hired a CPA to take care of my taxes and show me what I need to do. Thanks for all the info from everyone!


http://www.wesatkinson​photography.com (external link)
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JeffreyG
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Feb 08, 2015 09:12 |  #10

groundloop wrote in post #17404080 (external link)
You can't write off anything for a hobby, only for a business which is run for the intention of making a profit.

I just want to point out, this is not correct. If you pursue photography as a hobby, but happen to make some money at it, you can offset the hobby income up to the amount earned with expenses.

Where a hobby differs from a business is that you cannot claim a loss. You cannot have $5000 in hobby income (for instance) and then claim a $10000 expense and wind up with a net loss. All hobby expenses can be claimed up to the amount earned, and then no more.

Also, hobby expenses are claimed on Schedule A, in the section limited to the 2% requirement, meaning that if you have a large income from a regular job and then a small income from a hobby, your hobby expenses may not be big enough to be claimed.


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