Business Expenses on Tax Returns?

I have done very little business in the past (selling some nature prints) so I've never worried about claiming income or expenses on tax returns.

Now I'm trying to get into portrait stuff and have bought some speedlites, softboxes, studio stuff and would like to claim those expenses on my take return. But I'm still not generating any/very little income to warrant any significant change in the way I do my taxes.

Can I do it simply as a miscellaneous income on my personal tax return?

Nic

You tread on dangerous ground.

1. If you try to deduct any portion of your home as a studio and/or photography services office, you will have the burden of showing that it is 100% for that purpose.
   
2. Unless you can PROVE intention via figures, that you will MAKE PROFIT in two of the first 5 years of operation, you may be judged simply to have a HOBBY that generates income, and you can ONLY OFFSET income, with hobby expenses to nullify your 'photography income' to zero; you cannot 'take a loss' of hobby expense against your ordinary (NON-PHOTOGRAPHIC) income.
   

Business income for a self-employed person is supposed to be reported on federal Schedule C or C-EZ even if the amount is small. It isn't miscellaneous income. To deduct expenses such as the cost of equipment, you typically claim depreciation. If you claim depreciation, you have to use Sch. C (the long form).

I don't know the rules for Illinois state tax.

I highly suggest you consult a tax professional. The amount you spend on their advice and skill will far outweigh any potential fines or problems you could have down the road if you DON'T.

I am not a tax professional, but in general, you should treat expenses related to photography only when there is income involved. There are some rules / guidelines that the government uses to audit people who are trying to reduce their taxable income without actually operating a business that generates correlating income. I don't know what those rules or guidelines are, but have heard something similar to what was previously stated about only showing a loss for 2 or 3 years before you have to show a profit or fold the business.

This is the part of the business that isn't "fun" for most photographers, and can lead to a good photographer closing their business. Your books are the single most important thing from a government perspective. You MUST pay very close attention to them, and separate your business / hobby income from the rest of your funds if you want to be taken seriously.

I'm a retired cpa. My advice is if you are going to make a go of this, do it the right way from the start. As mentioned above, sitting down for an hour with a cpa is going to cost you an hour of a cpa's billing rate, but it will be a worthwhile investment (and it's a deductible expense) to learn what you need to be doing as far as record keeping and staying in compliance with local, state, and federal laws. If you make a profit, your profit is taxable and if you have a loss, some of your loss may be taxable too (e.g. sales tax, gross receipts tax, licenses, etc.). However, if this is going to be a hobby and perhaps you get paid here and there, I would suggest pocketing the money or if you are going to feel bad about it if you don't declare it, report it as you suggested as miscellaneous income. Rarely, rarely, rarely will the IRS ding you for reporting your income on the wrong form or the wrong place if there is no change in your tax liability from reporting it in the right place. However, if you go this route, remember that the income is subject to self employment tax at 13.3% in addition to ordinary income. Where you get into trouble is if you get a Form 1099 Misc from a client and the IRS can't find the income on your return. The IRS is very efficient at matching 1099s. If there is no Form 1099, the IRS is severely limited in how they can trace income to you.

Seamus69 wrote in post #18209584
I'm a retired cpa. My advice is if you are going to make a go of this, do it the right way from the start. As mentioned above, sitting down for an hour with a cpa is going to cost you an hour of a cpa's billing rate, but it will be a worthwhile investment (and it's a deductible expense) to learn what you need to be doing as far as record keeping and staying in compliance with local, state, and federal laws. If you make a profit, your profit is taxable and if you have a loss, some of your loss may be taxable too (e.g. sales tax, gross receipts tax, licenses, etc.). However, if this is going to be a hobby and perhaps you get paid here and there, I would suggest pocketing the money or if you are going to feel bad about it if you don't declare it, report it as you suggested as miscellaneous income. Rarely, rarely, rarely will the IRS ding you for reporting your income on the wrong form or the wrong place if there is no change in your tax liability from reporting it in the right place. However, if you go this route, remember that the income is subject to self employment tax at 13.3% in addition to ordinary income. Where you get into trouble is if you get a Form 1099 Misc from a client and the IRS can't find the income on your return. The IRS is very efficient at matching 1099s. If there is no Form 1099, the IRS is severely limited in how they can trace income to you.

As a current CPA, this information is accurate. If you have another job that provides your main source of income, the IRS may see this as a hobby and losses are not deductible. I opened my shop because I was starting to make money from sales and had two other partners who were shooting as well. We formed a company and individually keep track of time spent on our photography work to ensure we are active enough in the photography side (hours during the year). We also act like a business, we have a website, shoot multiple events, advertise, have insurance, and spend enough hours in the business to make a profit. So just be aware, and talk to your CPA to determine what you need to keep track of to defend an IRS audit.