Photography as a Hobby

vs. a Business

This presentation is in NO way intended to promote defrauding the government of rightful taxes owed. But, there are certain tax advantages to declaring your “business” as a business and not just a hobby.

Generally, if you make over $~600, you must declare the income.

What is a hobby?• Fishing, Gardening, Golf, Sewing, Woodworking,

Horsemanship, Scrap Booking, Stamp and Coin Collecting or running a farm. Millions of Americans participate in activities for pleasure that can also result in a profit.

• The IRS isn’t trying to spoil your fun but if your favorite activity makes a profit every year or so, there may be tax implications that surprise you. For one thing, you must report and pay tax on income from almost all sources, including hobbies.

http://www.ipowerweb.com/iboost/manage/business/your_business/40004.htm

IRS DefinitionsThe following factors, although not all inclusive, may help you to

determine whether your activity is an activity engaged in for profit or a hobby:

• Does the time and effort put into the activity indicate an intention to make a profit?

• Do you depend on income from the activity?• If there are losses, are they due to circumstances beyond your

control or did they occur in the start-up phase of the business?• Have you changed methods of operation to improve profitability?• Do you have the knowledge needed to carry on the activity as a

successful business?• Have you made a profit in similar activities in the past?• Does the activity make a profit in some years?• Do you expect to make a profit in the future from the appreciation

of assets used in the activity?

http://www.irs.gov/irs/article/0,,id=186056,00.html

Turbo Tax Help Guide

Why consider photography as a business (or any self employed business)?

• Because taxes will drain you– .23 Income– .04 Property– .03 Sales– .04 Other (Gas)– .34 Total

http://www.babeled.com/2009/04/22/how-much-do-you-really-pay-in-taxes/

Tax Brackets• The more you make, the more you pay.• Brackets work on a sliding scale. Your first $8,500 is taxed at only 10

(2011). But the next $26,000 is taxed at 15%. Eventually, you are paying 35% of your income to Uncle Sam.– IOW, you MAKE $379k, but $102 of it goes to pay for somebody buying food with food

stamps because they don’t want to work.

• Not much of a reward for earning more, huh? Kind of makes you understand why some people would rather just live off of the government.

Why consider photography as a business (or any self employed business)?

• Because owning your own business is the “American Dream”

• In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business or for the production of income. – This means:

• Camera equipment, other business equipment, car expenses (mileage or other car expenses), business travel

• Office expenses such as rent, cell phone fees, internet fees, advertising.

• Insurance premiums, dinner with business colleagues and employees

http://www.ipowerweb.com/iboost/manage/business/your_business/40004c.htm

What does a deduction look like.

• Normal job– $50k Income– $8,600 (17.2%) Taxes– $41,400 Net income– $5,000 in hobby

expenses– $36,400 Total Income

• Normal job– $50k Income– $5,000 in business

expenses– $45,000 Taxable

income– $7,375 (14.7%) Taxes– $37,625 Total Income

And it just gets worse…the more you make, the more you pay. And get this…it used to be worse, before the Bush Era Tax cuts of 2002. In 2001, the top tax was 39.1 starting 297k, and everybody paid 15%, then 27% for the first two tiers.

Income Goal• 1 yr Pharmacy Tech $13/hr or $26k/yr• 2 yr Respiratory Tech - $25/hr or $50• Goal - $100k combined income.• Wife and I make around $80k, with 5 sources

of income, and it is just barely enough. And I don’t have any kids!– $45k from teaching– $25k from wife's income– $5k from rent house– $5k in Financial Sales– $5k in Weddings