RE: [artshow_photo] Newbie question re Federal Income Tax on startup photography business

Weither or not you need a business license/permit is all going to depend upon local laws. In NH there are certain industries where you will have to get a license, things like food service. No matter what the requirements the biggest advantage to filling out paper work with the state is being able to get around sales tax when making purchases.

As far as the IRS is concerned, you don't need a license or to register with the state. Registering does come in handy though if you do get audited. Being registered with the state should allow you to open a bank account in the name of the business. This is something that everyone should do. If you don't have a clear barrier between your money and the business' money the IRS could go into your accounts and start scrutinizing everything.

As far as hobby v business, there are two main tests that the IRS will preform to deterimine if you have a hobby or a business. They each have their own name, but I can't remember right now what they're called. The first one will look at 5 years of business and in order for you to be a business you need to show a profit in at least 3 of those. Now you may run a legit business but that still might not happen. In that case you basically need to defend yourself to the IRS, justify yourself business to the IRS. I think Maria had to go through this. If anyone has her book I believe she talks about having do this during her audit.

________________________________
From: artshow_photo@yahoogroups.com [artshow_photo@yahoogroups.com] On Behalf Of Michael Pearlman [mike.pearlman@gmail.com]
Sent: Thursday, December 16, 2010 4:18 PM
To: artshow_photo@yahoogroups.com
Subject: Re: [artshow_photo] Newbie question re Federal Income Tax on startup photography business

I would rush right out and get a business license for the city or county
where you live. Most will allow home business permits.
Next get a State Resale Permit. Most states will issue one without a
deposit. Some require that you make an estimate of your first
years income and then make a deposit forward on the projected tax that you
will collect.
In both cases you are demonstrating to the IRS that you have intent to do
business and make a profit.
A third thing might be to apply to the IRS for a business tax number.
Normally a 95_ number that you will use in place of your
social security number. It shows the IRS that you are again attempting to
do business and make a profit by having a number
so that you can hire employees.
With all of these you can then deduct expenses toward your actual income.
Normally you can only deduct expense from
business income but with intent to make a profit you can sometimes get away
with deducting more than you actually take
in in income for at least a short period of time. After that the IRS will
claim that you are working as a hobby and not really
have intent to earn profit.
Michael

On Tue, Dec 14, 2010 at 11:51 AM, Joseph Orabona <orabona_joseph@dwc.edu<mailto:orabona_joseph%40dwc.edu>>wrote:

> Save your reciepts. If you do get audited that's your proof. If you
> cannot prove it the deduction will be dissallowed and you'll have to pay it
> back plus penalities and interest.
>
>
>
> For most self employed people their biggest expense is milage. Make
> yourself a milage log and put everything in there. Driving to a art show,
> gallery opening, post office, location of a photoshoot, meeting with a
> client, walmart to buy supplies. Write it all down in your log. The IRS
> milage rate for 2010 is $0.50 per mile. It adds up quick.
>
>
>
> You mentioned not having a sales tax ID, do you live in a state that
> charges sales tax? If you do when you file your state return they may
> notice that you have sales but haven't given them their cut. email your
> state's department of revenue. They'll be able to tell you what you do and
> don't need to charge/pay sales tax on and where and how to pay. Also in
> many states having a sales tax ID allows you to not have to pay sales tax on
> purchases of supplies.
>
>
>
> As far as other individual expense. For the most part, if it's bought for
> the business, then you should be able to deduct it. So long as it is "both
> ordinary and necessary" it can be deducted. The only big exception to this
> would be things like mat board. You are technically in the field of
> manufacturing. Things that go into your finished product (mat board, ink,
> paper, bags, etc) are factored in under Costs of Goods Sold. Those things
> aren't actually taken as an expense until they are sold. So say you spend
> $500 on materials in 2010. You sell half in 2010 and the other half in
> 2011. You would recognize an expense of $300 in 2010 and $300 in 2011.
>
>
>
> I'm not a photographer, I'm an accountant whose girlfriend is a
> photographer. Let me know if you have any more specific questions.
>
>
>
> Joe Orabona
>
> Business Manager
> Osgood Photography
> Manchester NH
> Joe@OsgoodPhotography.net<mailto:Joe%40OsgoodPhotography.net>
> 631-327-7190
> OsgoodPhotography.net
> Facebook.com/OsgoodPhotography
>
> ________________________________
> From: artshow_photo@yahoogroups.com<mailto:artshow_photo%40yahoogroups.com> [artshow_photo@yahoogroups.com<mailto:artshow_photo%40yahoogroups.com>] On
> Behalf Of henderson [hdhobos@yahoo.com<mailto:hdhobos%40yahoo.com>]
> Sent: Tuesday, December 14, 2010 1:48 PM
> To: artshow_photo@yahoogroups.com<mailto:artshow_photo%40yahoogroups.com>
> Subject: [artshow_photo] Newbie question re Federal Income Tax on startup
> photography business
>
>
>
> I have just started selling my photographs, but plan to do more. I sold a
> few things at an arts & crafts fair, and have some photos on consignment in
> a gallery. I would like to focus on galleries/consignment, so I do not have
> to deal with tents, possible damage, sales tax, etc. At the moment, I do not
> have a Sales Tax ID or a Business License. I have had lots of expenses for
> printing, matting, framing, etc., as well as travel costs to acquire images.
>
> My question concerns Federal Income Tax. What can I legitimately deduct on
> my taxes this year and in future years? What do I need to do to insure that
> my deduction will be legitimate if audited?
>
>
>
>
>
>
> ------------------------------------
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--
*Michael*
ChristopherMichael.com

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