USA tax filing question

nobody

I'll try to keep this short and simple. I work full time at a regular job and do mostly sports photography part-time and have a pro smugmug account. I will be getting checks from smugmug, but I do not expect to earn enough in the first few years to become a taxable profit (exceeding the expense of my equipment, travel, website fees, etc.). How do I deal with this from a tax-filing standpoint? Technically, I suppose I could write off all expenses and declare a business loss against my regular income, but that would throw up a huge red flag to the IRS saying "I need an audit", especially if I tried to claim a bunch of expenses. They would probably do this years later, and tack on penalties and interest, etc. I would rather not file as a business until I'm actually making a profit. I suspect that when you've got a part-time business with closely matching revenues and expenses, it is much less likely to be challenged by the IRS than one with huge expenses and tiny revenues.

Is there a way on the IRS forms to deal with a revenue-producing hobby? If so, what would be the best things to claim as expenses first? It could be equipment, travel, etc. The point is, I might want to be able to save some claimed expenses for later years when I've accumulated more equipment. I want to claim first the expenses which can only be claimed in that year. Any suggestions?

aktse

nobody wrote:

Any suggestions?

Talk to an accountant.

They're the experts and spending a bit of time/money now will save you some headaches in the future.

And a revenue-producing hobby (over $600) is a business, and for business, you need to claim a profit three out of five years in order to deduct items (unless rules have changed) and you will most likely be filing a schedule C. Otherwise, it's just a hobby and you can't deduct expenses.

General IRS info

Angelo

Yes, talk to an accountant.

My guess is you should hold all expenses over until you have a year of hobby related income large enough to warrant the deductions against that income.

You can not take the losses against your regular salary.

nobody

Thanks to all for the info. I read up on it a little more, and thus far my conclusion is that I'll have no problem treating it as a hobby, and deducting all related expenses until I actually make a profit. The legal gray area that I do not wish to enter is that of having a business is used to write off losses against income earned from a 40 hour per week job. The core issue there is intent to make a profit, and unfortunately that's not exactly a clear-cut issue from a legal standpoint. The IRS has this list of criteria. Some I would satisfy, but others I wouldn't and they don't have a magic number of criteria that one must satisfy in order to show intent to make a profit. When I actually do make a profit, I'll file as a business owner. Until then, I'll just fill out whatever they need in order to show that my expenses equal or exceed my revenue.

prof1

prof1
the irs allows you to claim expenses exceeding profits for three years. if on the fourth year you do not indicate taxable profits they WILL declare your photography a hobby and reverse all expenses claimed in previous years from your other income. So as a former IRS agent and professional photographer claim the expenses (all of them inc travel) as a deduction on a schedule C only if you are not a corporation. BUT make sure the 4th year is a profit or be prepared to ammend the 3 years they disallow as a hobby change. Expenses may only be taken in the year they occur.

nobody wrote:

I'll try to keep this short and simple. I work full time at a regular job and do mostly sports photography part-time and have a pro smugmug account. I will be getting checks from smugmug, but I do not expect to earn enough in the first few years to become a taxable profit (exceeding the expense of my equipment, travel, website fees, etc.). How do I deal with this from a tax-filing standpoint? Technically, I suppose I could write off all expenses and declare a business loss against my regular income, but that would throw up a huge red flag to the IRS saying "I need an audit", especially if I tried to claim a bunch of expenses. They would probably do this years later, and tack on penalties and interest, etc. I would rather not file as a business until I'm actually making a profit. I suspect that when you've got a part-time business with closely matching revenues and expenses, it is much less likely to be challenged by the IRS than one with huge expenses and tiny revenues.

Is there a way on the IRS forms to deal with a revenue-producing hobby? If so, what would be the best things to claim as expenses first? It could be equipment, travel, etc. The point is, I might want to be able to save some claimed expenses for later years when I've accumulated more equipment. I want to claim first the expenses which can only be claimed in that year. Any suggestions?

prof1

sorry u r wrong Angelo
Expenses may only be deducted in the year they occur. Read my reply and dont guess! yes most definately speak to an accouuntant. it is not a hobby if u make $1.00

Angelo wrote:

Yes, talk to an accountant.

My guess is you should hold all expenses over until you have a year of hobby related income large enough to warrant the deductions against that income.

You can not take the losses against your regular salary.

nobody

prof1 wrote:

Expenses may only be deducted in the year they occur. Read my reply and dont guess! yes most definately speak to an accouuntant. it is not a hobby if u make $1.00

You do mean profits, not revenue, right?

ChatKat

My usual rant
First I will disclose that I am an accountant in private practice. My husband is a CPA. We specialize in closely held businesses.

Do you pull your own teeth? Change your Own Oil? When you want a hamburger to eat do you go to a Chinese Restaurant? Do you go to the grocery store when you want to buy clothing? Why are you asking photographers, many who are amatuers, for tax advice? Accountants don't even recommend you call the IRS for advice! You have to get opinions from them in writing! Photographers (most of them ) are not accountants. What's right for them may not be right for you. One size doesn't fit all. Your personal tax situation completely plays into what you need to do and what writeoffs are appropriate for YOU - not me, not Angelo, or Pathfinder or Nik. We're all different!

If you receive more than $600 (revenue) for services/products - regardless of profit - or expenses - in a calendar year - you need to file a tax return. You are a business if you have a motive to make money - ever.

So if you are a business by IRS Definition, you also need to consider that you might need insurance both liability and gear insurance. Your household insurance won't cover you if you have any kind of claim - someone trips over your tripod, sandbag, camera bag etc. or just as bad if your gear is stolen, lost or damaged.

Anyway, you need an accountant. Ask one!