When Is It Considered A Taxable Business?

Hello All:
I've decided to start some sports photography again and was wondering if anyone knew how much I could actually shoot without it being considered a business. I once did this as a full time business and of course paid the necessary taxes. I won't be doing it too often and it will only amount to a fraction of what I make in my current job.

I just want to make a little extra money to get some camera goodies. This photography is definitely in the "hobby" classification but I'm not crazy about going through the whole tax thing when I'll probably only be working 3-4 months a year.

Any suggestions?

I believe the amount is $600. That said, if you have expenses you can and want to write off, you should report your income and expenses on a Schedule C.

If you just want to keep your photography at the "hobby" level, then all you need to do is keep your photo income below the $600 mark.

-P

Thanks Preston. I've done a Schedule C in the past. Doing taxes here in Florida is a real pain [with photography] and my wife prefers I don't do it again. I need to talk to someone who can give some advice on the easiest way to do taxes for photography without losing my sanity, while at the same time have fun at what I'm doing.

Schedule C isn't hard if you use even a checkbook package like Quicken to track income and expenses. And I believe the threshold is $300. Any accountant should be able to tell you.

If the $600 amount I quoted is not correct, please let me know.

"...and my wife prefers I don't do it again."

Now we know the real reason!

-P

I've only recently made my photography a business, but it's only ever going to be a side job. I will have to clarify it with my accountant when I do my taxes this year, but there is alot you can claim as expenses, including camera purchases, camera gear, computer and software expenses, any equipment you use that has anything to do with the shoot, gas and milelage, etc. If your expenses exceed your income, you won't have to pay taxes. I have made a few thousand this year from photography, but I keep meticulous account of every single expense, and because it exceeds the income, I won't have to worry about taxes this year (hopefully it won't be like this next year!). Just keep very good records.

The IRS differentiates between a business and a hobby. If you are not trying to show a profit the IRS believes you are indulging in a hobby. If photography is a hobby you can offset your expenses with revenue to show break even but you can't show a loss year after year. My accountant advises no more than three years of losses to avoid IRS scrutiny. I'm guessing that even that could be challenged. One way to avoid a red flag is to make a profit -- something I seem incapable of!

Don't forget state and local regulation. If you are working under a business name, i.e. Ace Sports Photography, you may be required to register a DBA (doing business as). There is also the question of state and local sales tax. You really need to talk to an accountant.

It sounds as though Florida is one of the complications. Can't help you there. As for dealing with the IRS and determining hobby versus business, either call them on their help line or talk to an accountant you trust and want sitting beside you if the dodge blows up in your face in an audit. Answers in online forums like this will be a poor defense with the IRS.

Until you have a chance to visit your tax accountant, check out IRS.gov and search for articles on Hobby vs Business. Don't let the tax issues get in way of making money.

Bill Brennan

Steve - I am a CPA with a tax practice in Florida. The main issue any photographer who earns money from his photos has is whether or not this income is derived from a "hobby" or a "business". (There is no dollar limit by the way.) If your income is from a "hobby" there are much greater restrictions on the ability to deduct your photography expenses. Your hobby income would be reported on page 1 of your tax return and hobby expenses would be deducted on Schedule A (Itemized Deductions). If your income is from a "business", your photography income and expenses are reported on Schedule C as mentioned above. The Schedule C method will end up with a much better tax result. You really must talk to a tax professional in your area to make this determination. Here is an IRS article which discusses the hobby versus business issue. http://www.irs.gov/newsroom/article/0,,id=169490,00.html

That squares with what we've heard from our CPA for other states too, Carol. We have a number of enterprises in addition to our photo business, and in starting each one, AVOIDING hobby designation was a component of our planning and management.

It's not difficult to create a corporate entity in the state of Florida and then to get a federal tax ID number. You can pay a lawyer several hundred dollars to do it for you or you can do it yourself. There is a small fee to pay, between $100-$200 if memory serves. You also have to file an annual corporate report for which there is a fee.

Go to the Florida Division of Corporations web site www.sunbiz.org There are instructions and forms there that will guide you through the process. You can set up a Corporation, an LLC, a partnership, or any of several other entities. You also can get your federal tax ID number by filling out forms available on the IRS website. The way you handle your federal income taxes depends on how you set it with the feds (S corporation, C corporation, etc.)

Fortunately, Florida has no income tax, but watch out - you may be subject to state sales tax.
You may also have to get a local business license and there may be zoning issues if you operate your business out of your home - depends on your city or county regulations. We used to have to renew our city and county business licenses every year. They've recently added a little truthiness - they now call it a 'business tax' instead of a 'license fee' so we pay a tax instead of renewing a license.

Thanks very much everyone for your input. Like before, I will be traveling and taking the shots where my subjects play, have a party, or are doing a reunion. Since I just moved to the area, I wasn't sure how I'd be doing; so I was just batting things around since not a lot of time will be spent marketing since my first job keeps me on the road a lot.

Some really darn good advice; thanks again.

"(There is no dollar limit by the way.) "

Thanks for the clarification, Carol.

-P

Hmnn. Buck's post strikes a chord with me. I am a business and estate planning attorney, so call it sour grapes if you want.

However, DIY is a dangerous way to go. There is VERY MUCH MORE to setting up an entity than filing forms on line with the state government. You are not paying the lawyer $100's just to file forms. At least I hope not (I'll be the first to concede that my profession is not the most well-liked. Where else can you find multiple volumes of joke books written about a profession. But if we are doing what we are supposed to be doing, the filing of forms is a minor part of the job!).

I understand that it is a cost to do so, but IF you are going to start a legitimate business, in the long-run, it will benefit you to hire a competent CPA and a competent business lawyer -- preferably ones who will work together and not let their ego's get in the way to good counseling for the client. I spend nearly 50% of my time as a business lawyer, "fixing" things that were done incorrectly and trying to "undo" things people have done that they really should not have. In a new business "intake" we spend a lot of time finding out about the clients plans, goals, and particular circumstances BEFORE making any decision about whether to incorporate or set up as an LLC. There are many reasons, tax-driven, state law driven, and client goal driven, to structure a business in a particular manner.

As Carol, and the IRS publication notes, the issue you are grappling with is whether your activity is a "hobby" or a "business" (this is not unique to activities which lend themselves to hobbies, by the way. I have counseled farmers who are arguing with the IRS about whether they have a business or a hobby). In short, if your business is a hobby, your tax deductions are limited much more than if you are a business. If you do not make a profit, the IRS will take the position that your activity is a hobby and attempt to limit your deductions. There are presumptions, but there is no $600 rule.

A month or so back, somebody suggested that a Tax/legal/business forum might be useful here. Don't know if that ever went anywhere.

"I understand that it is a cost to do so, but IF you are going to start a legitimate business, in the long-run, it will benefit you to hire a competent CPA and a competent business lawyer -- preferably ones who will work together and not let their ego's get in the way to good counseling for the client."

Here, here!

I'll add that it's best by far to search out those who have experience with your particular variety of business. One of our enterprises is ranching in a western state. If we hadn't used a CPA familiar with state, local and fed agriculture taxes, we'd be toast. Same applies for the ones we use for our photo business. There are nooks and crannies in taxes, laws and management unique to most businesses. Priceless.

Thanks ladies and gentlemen; I'll go to the county, probably this week, to see what my options are. I definitely get a rush shooting sports.