A Hobby That Makes Money...Need Advice

I recently had my hours and salary cut by 10% at my job. I have been contemplating using my hobby of photography to make a little cash for a while now. Heretofore the desire was just to make enough to buy equipment. I never started because equipment upgrades were never enough justification. Now however, I am looking to use these tools and skills as a way to keep food on the table for my family while I wait out the work situation. Needless to say, justification and motivation are no longer an issue.

First, please don't blast we with the usual condescending tone I've read frequently in the business section of this community. That being said, I'm an adult and I have the spinal and/or intestinal fortitude to accept any form of advice so please give it to me straight.

My question is about asset protection and tax liability. I Hope to complete a session or two per week, mainly for friends, family, and acquaintances thereof to begin with. Possibly a few corporate head shots and environmental portraits for local businesses. I do not have a home studio and won't be using my home to do anything but post. I am concerned with limiting personal and tax liability. Where should I begin? How do you choose a good attorney or tax accountant to help figure out best structure and insurance provisions? What constitutes a hobby according to IRS? Anything else I am missing?

Let's not turn this into a debate of whether I should or should not, or can or cannot, do this. I see an opportunity in my market to make some extra money and I hope to capitalize. What I really need advice about is how to cover my @$$ so to speak so that if and when anything happens, broken equipment, injury, broken client possession, etc, I have no worries, or at least limited worries. Thanks in advance.

I think the best person for you to speak to would be an insurance broker.

Start saving receipts. Pretty much anything you buy, gas, pens, going out to dinner occasionally, gear, can be written off to offset your other taxes. Any decent accountant can guide you through the tax issues.

For insurance I recommend the insurance through Photo.net.

http://www.photo.net …photo_insurance​_specs.pdf

It gives you liability and replacement cost insurance, not cash value. its by far the cheapest out there and gives you best coverage.

Good luck!

glumpy wrote in post #15442715
I think the best person for you to speak to would be an insurance broker.

Thank you. I have a meeting scheduled today with mine. Will he want to know business entity structure? Is a sole proprietorship with adequate liability coverage acceptable, in your opinion?

I don't think you will get the negative replies because the nature of your questions means you do see the business aspects involved... at least some of them.

You can go to any insurance company and get commercial liability insurance, as well as equipment coverage. My advice is to call a few companies and get quotes. Before you do that, you will need to establish yourself as a business... either via as sole proprietorship or LLC. You'll need a business checking account also. You don't have to do it, but I recommend getting a business credit card also. You won't have business credit at this point, so you'll need it to be personal, but designated for business use. The process for setting up the business structure varies by location, so you'll need to check your local laws. You can do it yourself or hire an attorney. I did my LLC without an attorney, but did go though a company that helps with setup.

You should talk to a CPA about IRS rules on business vs hobby. My experience is that you don't have to make a profit, but there you have to be operating in a manner than can eventually turn a profit. My advice is keep it simple and try to go slowly so you don't go way in debt or something. You need to also understand other taxes such as sales tax.

The other thing you didn't mention was selling and marketing. When I was actively running my business, I found that the business was much more about sales than photography and I don't really like doing direct sales. Make sure you understand the nature of the work. It can quickly become a lot less fun.

Kronie wrote in post #15442725
Start saving receipts. Pretty much anything you buy, gas, pens, going out to dinner occasionally, gear, can be written off to offset your other taxes. Any decent accountant can guide you through the tax issues.

For insurance I recommend the insurance through Photo.net.

http://www.photo.net …photo_insurance​_specs.pdf

It gives you liability and replacement cost insurance, not cash value. its by far the cheapest out there and gives you best coverage.

Good luck!

Thank you. I'll check that out today.

convergent wrote in post #15442734
I don't think you will get the negative replies because the nature of your questions means you do see the business aspects involved... at least some of them.

You can go to any insurance company and get commercial liability insurance, as well as equipment coverage. My advice is to call a few companies and get quotes. Before you do that, you will need to establish yourself as a business... either via as sole proprietorship or LLC. You'll need a business checking account also. You don't have to do it, but I recommend getting a business credit card also. You won't have business credit at this point, so you'll need it to be personal, but designated for business use. The process for setting up the business structure varies by location, so you'll need to check your local laws. You can do it yourself or hire an attorney. I did my LLC without an attorney, but did go though a company that helps with setup.

You should talk to a CPA about IRS rules on business vs hobby. My experience is that you don't have to make a profit, but there you have to be operating in a manner than can eventually turn a profit. My advice is keep it simple and try to go slowly so you don't go way in debt or something. You need to also understand other taxes such as sales tax.

The other thing you didn't mention was selling and marketing. When I was actively running my business, I found that the business was much more about sales than photography and I don't really like doing direct sales. Make sure you understand the nature of the work. It can quickly become a lot less fun.

I appreciate your thoughts. I know enough to know I don't know enough. I plan to go very slowly, following much of your advice. Thanks again.

bmaxphoto wrote in post #15442728
Thank you. I have a meeting scheduled today with mine. Will he want to know business entity structure? Is a sole proprietorship with adequate liability coverage acceptable, in your opinion?

I don't know, I'm not from the states. That's basically what I got here but my impression of the US is that everyone is hell bent on suing one another for what ever stupid excuse they can come up with. Here a lot of people follow that lead and like to jump up and down and threaten to sue whenever they have a problem without knowing that its one thing to say it and a starting price of $5-10K to actually give it a basic shot.

I just called up my insurance broker, gave him an outline of what I was doing, he asked about certain specifics which I told him and then he advised what I would need and what would be " Nice" to have if I could afford it, which was mainly disability insurance if I got hurt or sick.

A broker in your area should be able to give you all the low down on what applies to your work and in your area/ state and organise it for you.
That's what mine does and I pretty much just answer his questions and send him a cheque and I'm covered.

bmaxphoto wrote in post #15442728
Thank you. I have a meeting scheduled today with mine. Will he want to know business entity structure? Is a sole proprietorship with adequate liability coverage acceptable, in your opinion?

I am sole proprietor with 1 million in liability for my photography. It really depends on how comfortable you are with the risk. If your talking smaller jobs then I think that a sole proprietorship is fine. Otherwise you can create an LLC. Your state laws might decide for you what type of business structure you end up creating.

I started out as multimember LLC because I started with a business partner. Partner since left so now I am a single member LLC. If I started by myself in the beginning, I would just go the Sole P route and get the insurance. The LLC paperwork aspect is really becoming a pain in the arse especially when county and city offices have no idea what a SMLLC is.

I highly suggest applying for a EIN as well once you decide what entity you would like to be. Even if you are a Sole P, get an EIN so your SS number isnt floating around everywhere.

If you plan to move in the future, especially out of state, a LLC will be a headache as well since it is a state entity. I say start as a Sole P then if needed, convert up to a LLC or S corp.

For asset protection, starting out in business you almost have to mix personal and business funds to fund the business. This, by nature of the LLC, doesn't allow you the protection a LLC is supposed to supply with assets and limited liability. So honestly I wouldn't worry too much about it until you are fully established.

1. Legally establish business with the state at the minimum level necessary. This is going to be a sole proprietorship (since you didn't mention having any partners at the outset). You may end up incorporating or establishing yourself as an LLC, but that can come later. My lawyer told me: If you are really a one-man show, form of business is will only protect you from tax liability; you need insurance is to protect your assets from personal liability. This can be different in other states, but in my state the court will "pierce the veil" in a heartbeat if a one-man show is sued for personal injury damages regardless of business format. Therefore, at least in my state, the issue of business format is not a necessary consideration for a one-man show until it becomes advantageous for tax purposes.

2. Liability coverage, however, is necessary from the very first day of contact with clients. Let's say I'm posing a client in her own living room. I say, "Please lean back a bit," she does so and falls over the arm of the sofa, injuring her neck. I might be held liable for that. Or I'm posing a high school senior and I say, "Step back a bit," and she falls over the curb and breaks her pretty nose. I might be held liable for that. I'm covered for up to a million dollars.

3. There are certain tricky federal business income tax areas to be aware of--home offices, for instance. But since you're starting small, just keep very close records of your purely business expenses and income. Use a an accountant if that make you feel comfortable, but while things are simple a computer or online tax program will suffice. Don't be afraid of filing Schedule C that way, especially if you're not claiming a home office.

4. Do not play around with the state sales tax, if your state charges it. Be extremely careful to obey those laws to the letter. You must file a return even if you don't have any sales, because otherwise the state will presume you did have sales and figure out for itself what you owe...then charge and penalize you accordingly.

There are a lot of business resources in the PPA: PPA now including equipment insurance

Thanks everyone. Really appreciate the feedback.

Depending on your area, contact your local chamber of commerce and ask about Small Business Incubator programs. While they may or may not be able to help you get your business off the ground they should at least be able to refer you to a good CPA locally.

You can learn a lot about federal tax law for businesses at irs.gov instead of paying an accountant to tell you.