Every state is different and Nevada is not one that I have delt with. Contact the Dept of Revenue and they'll be more than happy to tell you how to handel that. Also contact the gallery to find out how exactly the handle things.
Expenses things as you sell them isn't intended to force you to show a profit, although in someways it does. What it's making you do is realize the expense as it is actually happening. Inventory is different than other things that you'd buy. If pay for postage or buy some pens you're basically using them up right then and are left with nothing. With inventory you're trading money for an asset of equal value that you will sell later on. Pretty much view inventory as money sitting in your closet. Once you sell that you can deduct the expenses directly related to it.
As for the travel question, it would depend on a few factors. If this was a trip that was solely designed for you to go and take these pictures with the intention of selling them, then yes. The IRS also has rules in place for deducting part of what you spend on meals and entertainment if you travel more than 100 miles away.
BK mentioned that showing a loss is a red flag for the IRS. It is and it isn't. Yes, you are more likely to get a letter from your friendly neighborhood Internal Revenue Agent if you are showing a loss. If this is your first year, you are however expected to take a loss. On average it takes a business 3 years to become profitable (especially in this economy). Taking a loss is not a big deal (actually taking a loss is never a big deal so long as all of your expenses are legit). The real red flag is consistantly taking a loss. If you start developing a pattern then you may get some extra attenion.
Maria made two point that I also want to address. First about travel and being a big red flag. There are certain expenses that the IRS examines more closely each year. In the year of your audit it very may well have been travel, but it changes every year. 2008 it was home office expense. I'll find out what 2009 was during this coming season. Really what my point is with this, don't be afraid of your expenses. So long as it is a legitimit expense you have nothing to worry about. The IRS has a bit of a bad rep. If you ever do get audited it's really not a big deal. So long as you're cooperative and have all of your documentation it's really a somewhat painless event.
Maria also recomended using TurboTax. That program is pretty much the worst that that has ever happened to the American tax payer. Taxes are rather simple for me to do, but I say that having taken over 500 hours in tax classes. I make several thousand dollars each year fixing dozens of returns that TurboTax, Tax Act, Tax Slayer, etc, screwed up. There was a woman I worked with a couple of years ago, all she had was one W2. I stood behind her and watched her enter everything in. Unless you know what each deduction and credit is, and why you are or aren't eligable to get it, how could you possibly know if you actually did it right or not?
I mentioned earlier, I'm an accountant and my girlfriend is the photographer. You could put us both in the exact same spot with the exact same equipment and I guarntee that her images would come out better. Why? Because she has years of experience and training. After my first couple of years of doing taxes I came to the conclusion that no one should ever do their own taxes.
________________________________
From: artshow_photo@yahoogroups.com [artshow_photo@yahoogroups.com] On Behalf Of henderson [hdhobos@yahoo.com]
Sent: Tuesday, December 14, 2010 3:13 PM
To: artshow_photo@yahoogroups.com
Subject: [artshow_photo] Re: Newbie question re Federal Income Tax on startup photography business
thanks for the great info. i live in NV, which does have an income tax. However, if I sell thru a gallery, they charge and report the tax to the state. Do I still need to have a tax ID?
I have spent quite a bit on frames, mats, and prints. If I understand you correctly, these are only deductible when I sell - so if I buy 100 frames and 100 mats, but sell 10 frames photos, I can only deduct the cost of 10 frames and 10 mats (pretty much insuring that I will have a profit). Correct?
Another question - I frequently do "photo tours" to a location. These tours are educational, as well as providing an opportunity to acquire images. Usually, I have to fly, not drive. Can I deduct the airfare? Can I deduct the cost of the photo tour?
--- In artshow_photo@yahoogroups.com<mailto:artshow_photo%40yahoogroups.com>, Joseph Orabona <orabona_joseph@...> 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@...
> 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@...]
> 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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