TAX INFO? [Archive] - PopPhoto Forums

View Full Version : TAX INFO?

CBC66

02-09-2006, 06:17 AM

Hello. I am not new to taking photos, but am new to trying to make money at it. Still trying to take in all I can about photography, and reading your forums is a great place to start. Recently subscribed to the magazine. What constitutes a "business"? What do I need to do to be able to get tax deductions, like milage, materials, etc...? Can you get credit for membership fees to "stock" websites? 
I hope someone can understand what I am getting at. Not sure I stated it very well. Thanks for any help. 
 
CBC66

ronk

02-09-2006, 09:01 AM

A decent place to start is the IRS web site where you can get booklets on tax deductions and what you have to do to get them.

graphics12

02-09-2006, 11:07 AM

Posted by CBC66 
"What constitutes a "business"? What do I need to do to be able to get tax deductions, like milage, materials, etc...? Can you get credit for membership fees to "stock" websites? " 
I can not give you specific answers because the laws are different for each city, state etc. There are some basics that I can pass on, they are not answers but they are places you can start looking to find the answers that apply to you, your location and your business. 
 
To start a business the first thing you will need is a business license or business permit from your city or county government. Call your city or county government general information line or checking your phone book is a good place to start here. 
 
The IRS will require a business license before you can get a federal tax ID number, as a general statement you must have a federal tax ID number to be able to deduct some business expenses from your federal income taxes. 
 
The next thing you will need is a state tax ID number. Most states require these before you can be considered tax exempt. 
 
Then check with your city and county some of these governments require you to have tax ID number from them as well. 
 
Once you have all of these then you can start to look at what is deductable and what may be tax free. 
 
So now you have the only basic answers I can give you. Now for some specifics so you can see how different the laws can be. 
 
In the state my business is located in you must pay taxes on everything that does not go to the customer when the work is done. Just for reference I am still a film based photographer and at the end of every job I give the negatives to my customers as such I pay taxes on all of the processing but not the film and prints themselves. I pay taxes on all of my office supplies, business cards etc and on all of my photo equipment purchases. 
 
In contrast to that a photographer friend of mine in a nearbye state has an entirely different set of requirements. For him the business cards etc, photo equipment purchases, film and processing are all considered "requirements" for the business and as such they are not taxable. 
 
 
So the bottom line answer here is tht you must check with your local governments to find out what the laws are and how they will be applied to your photo business.

JeffA

02-09-2006, 12:30 PM

Welcome to tthe PopPhoto BBS, CBC! 
 
A great site for those who need this type of information is the United States Small Business Adminiistration. You can find them at <A HREF=http://www.sba.gov TARGET='_blank'>www.sba.gov</A> . They also offer informational seminars in many areas, and most of the programs they offer are free or at a vary low cost. 
 
Beyond that, I would strongly recommend that if you want to make a serious go of selling your photographs, you visit with a local CPA to get your bookkeeping set up properly, so you will have all the information you will need when it comes time to give an extra quart or two of your blood to the Infernal Revenue (dis)Service. 
 
Jeff

EricW

02-09-2006, 03:45 PM

"The IRS will require a business license before you can get a federal tax ID number, as a general statement you must have a federal tax ID number to be able to deduct some business expenses from your federal income taxes." 
 
Actually, this is not true. The IRS could care less whether you have a "business license" or not and they do NOT require one in order to get a federal tax ID number. 
 
Second - one does NOT need a federal tax ID # to deduct business expenses. Your social security number is all you need UNLESS you have employees. If you have employees (and no, you are not your employee) then you indeed need to get the ID # which takes 5 minutes online. 
 
The profit and loss from your photo business is reported on Form 1040 Schedule C and all you need to do is put your social security # on the form.

tabbyday

02-09-2006, 06:12 PM

I agree the IRS site is the place to start, I use it daily at work, for forms etc. Here's a link to small business info: 
 
<A HREF=http://www.irs.gov/businesses/small/index.html TARGET='_blank'>http://www.irs.gov/businesses/small/index.html</A><A HREF=http://www.irs.gov/businesses/small/index.html TARGET='_blank'></A>

CBC66

02-09-2006, 08:25 PM

Hello, again. Thanks for the great tips! Looks like I have alot of homework to do. You guys rock! 
 
cbc66

pixeldawg

02-09-2006, 11:12 PM

One thing that my wife and I have learned in our business dealings is that there are two essentials to think about: A good lawyer and a good accountant. 
 
We had been using a guy who, after leaving him we have found out, wasn't good at all. in fact, to the point that we may have gotten into some serious trouble over how our returns were filed. Fortunetly, our new accounting team has taken the ball and ran with it and everything is good now. What a difference its'made. We are also saving enough money to almost pay all of their serivces for the year- first time we've ever gotten money back. 
 
Owning a business is great, but there are a lot of additional expenses and taxes that you don't consider until you're rowing that boat.

Barefoot

02-10-2006, 01:15 AM

This is why we strongly encourage aspiring photographers to take business classes! There is so much you need to know that I can't even imagine starting a business without the knowledge, so please take everyone's advice and consult with some knowledgeable people and get ready to do some research/studying. As Jeff recommended, the SBA is a great resource. And there's just no substitute for a good CPA. 
 
The first thing you need to do is decide on what form of business - sole proprietorship or corporation (and C corp or S corp) or LLC - Limited Liability Company, by researching the advantages/disadvantages of each and how they are taxed. No matter what business entity you choose to go with, Eric's information about requiring a number if you employ people is partially right and refers to an EIN - Employer Identification Number. You need an EIN if you are a sole proprietor who employs people, but a corporation or partnership needs an EIN even if it doesn't employ people. You also need an EIN if you have a qualified retirement plan or will be filing a return for excise taxes. If you are a sole proprietor with no employees, you can file under your SSN. 
 
You need to decide on an accounting method - cash or accrual basis. Most sole proprietorships opt for cash basis. You need to learn some basic accounting or hire someone to keep your books. You need to learn about when you are required to make quarterly tax payments, even if you are a sole proprietor filing a 1040. 
 
 
I'd recommend IRS publications 583 - Starting a business and keeping records, 535 - Business Expenses, and 334 - Tax Guide for Small Business as a good way to start to get a feel for everything. 
 
 
If you're not incorporating and want to use a fictitious name, you'll probably need to register it. Where, I believe, depends on your state. In California registration of a fictitious name is done at the county level. 
 
And as everyone has pointed out, there may be permits and licenses, etc. you need to comply with at the state, county and city level as well. Your state government's website should be a good starting point for finding out most of what you need to know. California's is fantastic - by entering your city and type of business, the site tells you every permit you need at the state, county and city level. 
 
Those are just some of things to think about before even starting your business...once the "doors" are open...well I could go on and on (and on...). Ummm...I think I already have! 
 
Good luck!

graphics12

02-10-2006, 10:59 AM

Posted by EricW 
"Actually, this is not true. The IRS could care less whether you have a "business license" or not and they do NOT require one in order to get a federal tax ID number. 
 
Second - one does NOT need a federal tax ID # to deduct business expenses. Your social security number is all you need UNLESS you have employees. If you have employees (and no, you are not your employee) then you indeed need to get the ID # which takes 5 minutes online. 
 
The profit and loss from your photo business is reported on Form 1040 Schedule C and all you need to do is put your social security # on the form." 
Back to the books for you. What you state here generally but not always true of a business that is not incorporated. If you incorporate then the rules change radically and a tax ID number becomes for all practical purposes a requirtement. Once incorporated you DO become your own employee and you need the tax ID number to properly fle and pay all of your taxes with the feds. On top of that many states require a federal tax ID number for you to recieve a state tax ID number so you can avoid paying sales taxes on qualifiying purcahses for you business. Bottomline here is that you need to do your homework and check the rules in your local area. 
 
Some may ask why incorporate my photo business when I am the only person that works at it. This is a good question and incorporation may not be right for every person and in every situation but the primary benefits to incorporation is the protection of your personal net worth. In a business that is not incorporated everything you as a person owns belongs to your business as well. If your business is sued and you do not have enough insurance to cover it then you loose your house, property, belongings etc. A creditor can also place liens on and even confiscate your personal property to repay your business debts. 
If you properly incorporate your bsuiness and if you follow all of the rules governing an incorporated business then your personal net wealth items such as you home, savings accounts etc can not be taken from you to pay your business debt. 
 
A note of caution, incorporation of a business is a complex matter as are the rules you must follow once the business is incorporated so this is a matter you will need to seek a competent attorney to help set up and a good attorney and CPA to help you keep the straight and narrow path.

pixeldawg

02-14-2006, 02:25 PM

Excellent post, Graphic12. 
 
Deciding between an Inc., LLC or other form of incorporation isn't simply a tax issue, in some cases, it can be a legal one as well. In my business dealings, we have several different incorporations- my wife has one as a business owner for our spa, then I have one as the land lord of the salon/spa (We rent space to people) and I have another for my photo and imaging business. All of which was decided on mostly by our lawyer and accountant, who work together on our issues and ensure that what we are doing is not only legal, but makes good business sense as well. 
 
Another great resource that we also use regularly is here at the University of aAlabama's Small Business Development office. They are a constant source of guidance and information for us and quite honestly, in many areas we'd be lost without their guidance. My most recent project with them is bidding on government imaging projects as a small business. Unknown to me, the government sets aside business specifically for people like me. how cool. 
 
So, what I'm trying to say here is that make this decision very carefully and with the guidance of an accountant and lawyer in your area who are in tune with corporate law and taxes.