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by Primus on Tue May 27, 2014 9:10 am
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I am sure this too has been discussed before, but it is rather difficult to do a search here (sorry admins, but that's true).

I have never made any money from photography and I don't have any intentions of becoming a 'pro' in that sense. I know it is extremely difficult to establish oneself and make a decent living from photography if that is your only vocation, even if you are really good at it (I know I am not). Just like in my own profession, it is not your ability but  other factors that determine how successful you are.

Having said that, lately people at work have been asking me for my images to hang at home and many friends and of course family have done that for a while. More importantly, somebody suggested that even if I don't do this full time or make a profit at the end of the day, I should set up a business plan to at least offset some of the costs associated with it.

I have been thinking of doing a small presentation at the local hospital to raise some money for the charitable fund, even if it is a few hundred dollars. Co-workers have usually offered to pay me for my prints that I give them but I have always declined. Maybe now I can charge them a small amount or have them donate it to the local hospital charity.

My question to the pros here is: How much do you need to earn from this business before you can write off expenses  as a tax deduction. Is there a limit, is it only in the first year or two that you can show a loss, can I deduct not just equipment but travel expenses for a workshop if the images from it will be used to sell prints on my website or elsewhere?

My accountant told me once that it was not possible, but I think accountants and lawyers are 'risk-averse' in general and would say 'no' to anything. If however, I do present him with a concrete plan and do my own diligence it may be possible.

Any advice would be much appreciated. My goal is not to make a living out of this but perhaps to offset costs through tax-savings. I know, in the end that would indeed translate as 'profiting from photography' but there is nothing inherently wrong in that either, IMHO.

Pradeep
 

by Carolyn E. Wright on Tue May 27, 2014 9:30 am
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We have lots of great articles on business issue for photographers: http://www.naturescapes.net/articles/category/business/

Check this fantastic article on tax issues for photographers: http://www.naturescapes.net/articles/business/tax-time-for-photographers/

It may be helpful to find an accountant who is familiar with the issues that photographers face. Here are some options: http://www.photoattorney.com/?s=accountants&x=0&y=0
Carolyn E. Wright, Esq.
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Photo Attorney® at www.photoattorney.com
 

by Royce Howland on Tue May 27, 2014 9:39 am
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Business related expenses (equipment, travel, etc.) are non-refundable credits. In other words, they are deductions subtracted from the income generated by the business. Many business expenses are not subtracted dollar-for-dollar from income generated in the same year. For example, meal expenses often can only be subtracted 50%. Equipment is actually not treated as an "expense" but as "capital", and typically must be depreciated on a sliding scale over several years, often 5 years. So you don't get the full benefit of reducing business income from an equipment purchase until the 6th year when you record the terminal depreciation. Etc.

If you have no income at all, there is nothing from which to deduct any form of business expenses, so the whole issue is a moot point. If you have much less income than expenses, then the fact that you are "deducting your business expenses" is still not magic. While you can reduce or even perhaps zero-out your business income, the expenses don't mean the government is going to give you any money back. :) It just means you won't pay taxes on the income that was generated. But this is exactly why the government pays attention to the matter of business expenses, and why accountants or lawyers are risk averse. The government wants their income tax, and trying to avoid paying it normally needs to be justifiable in case you are audited.

You can stack up operating losses and carry them forward for a number of years. (There is a limit, you can't carry losses forward forever.) But eventually you need to generate enough income to more than outweigh your expenses, or else there is not much point setting up the business. You still will have spent all the money on equipment, materials, travel, etc. Plus you will have had to set up the business, create separate bank accounts for it, pay the accountant to do the books, file the annual returns for the business, etc., all of which also costs money and time.

You need to decide first if your intention is to generate more revenue than expenses from photography related activity, and do so in a reasonable amount of time. If the answer is yes, then perhaps setting up a photo business is a good move. If the answer is no, then I would personally suggest, don't bother. It will create more overhead, generate additional costs you wouldn't normally have to deal with, and produce no or minimal benefit. Plus, if you ever got audited and a case could be made that there never really was an intention to generate profit from the business, that might be a bad thing. Running a business and being able to deduct expenses is not intended as a tax dodge just to buy equipment that you otherwise would have bought for personal use with no intention to actually generate income from it.

If you're seriously thinking about this, you might want to invest in some books and/or courses on small businesses, accounting, business tax, and so on. This will give you a clearer understanding of what it means to operate a business, and help you have more effective discussions when you talk to accountants and lawyer. Yes, they are generally risk averse. It doesn't just come from their training or from not wanting to tangle with the government, but from watching person after person get in over their head. As you said, you need to have your own plan and diligence to know what makes sense to do.
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by Primus on Tue May 27, 2014 10:14 am
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Thank you very much Carolyn. Royce, that is a great response and just what I was looking for. Much appreciated.

Now I have a much better understanding. I do run two businesses both of which deal with the government directly and are quite complicated. We have a full time accountant and a law firm on retainer and they  often give conflicting advice, what's more, different accountants will tell you different things, such is the complex nature of the IRS code.

I guess the key point is that expenses are deducted from profits which is a bit hard to accept. So if I have three 'stores', and from one  I earn $100 but have $500 in expenses, then the  $500 cannot be deducted from my overall income which would include that from  other stores. . One of my current businesses is an 'S corporation' and we have not made a profit in the past 8 months, however, our expenses ARE deductible against the money that comes in. If I had to pay taxes on all the revenue generated I would have to fold up. 

It would seem that professional photographers have a very difficult time of it if they are not able to generate enough revenues to overcome the cost of the equipment and other expenses. 

In the end I would probably not bother I suppose, there is just not enough time for me to set it up, perhaps a few years down the road when I retire maybe. 

There are already way too many amateurs like me killing the business for those who earn their living from photography. 

Thanks again for a very useful discussion.

Pradeep
 

by Primus on Tue May 27, 2014 10:41 am
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I read the article linked by Carolyn and it pretty much sums up everything neatly.

The biggest factor in all is line 3 of the IRS guidelines that separate a business from a hobby, which states:

"You depend on the income from the activity for your livelihood"

All the others are open to interpretation and can vary, but this alone rules out most of us who may wish to dabble in the business of photography. And yet, there are so many people I meet on photo workshops that are selling stuff through art galleries or their own websites and are not professionals in the strict sense defined above.
 

by Royce Howland on Tue May 27, 2014 12:11 pm
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Just to clarify terms -- expenses are not deducted from profits, they are deducted from revenues. Profit is what's left over after you deduct expenses from revenues. If your expenses are always greater than your revenues, you will never have profits. That's not really the definition of a business... a business is not intentionally created to constantly spend more than it makes, it is created to make more than it spends. I.e. to have profit. If you never intend to have profit, then by the IRS (and most tax departments) definition, your activity is not really a business.

There are circumstances that can block you from making profit in a given year, or even for multiple years. But that's very different than going into a situation with the stated intention that you will not make a profit, or don't care if you ever make a profit. That's not a business; the IRS would probably call it a hobby if they're being polite, and a tax dodge if they're being a bit more edgy. :)

And yes, expenses need to be deducted from revenues within a single business. In other words, the expenses need to be directly related to the costs of the activities which produced the revenues. If you have a car dealership, for example, as well as a nature photography business, you have to be careful not to try to blend expenses or revenues between the two in a way that isn't justifiable. You can't buy a ton of expensive camera equipment and go on photo workshops and shooting trips around the world, and try to write all of those expenses off against your car dealership revenues because you have no income in the photo business. All that photo related stuff has nothing to do with the revenue generated by selling cars; you can't normally transfer expenses between unrelated lines of business.

Now maybe you do use the camera equipment to take photos of cars to post online on your car dealership web site and to other auto trading sites. In that case you could allocate the portion of use of the cameras that was for the car business, and the portion that was for nature photography, and write off the appropriate percentages of the equipment depreciation in each business. I'm simplifying of course, there's a lot more complicated stuff than this, for example if one business is owned by another. But that's the concept -- expenses written off against revenues normally must be related to the generation of those revenues.

As for that phrase from the IRS, "You depend on the income from the activity for your livelihood", I don't believe it's a smoking gun criterion all by itself. If the IRS audited you and made a determination that your photography was or was not a business, it most likely would be based on a combination of factors, not just a single one. There are plenty of people who have legitimate photography businesses but also have some other business, so they are not depending on just one of them for their livelihood. I'm in that boat myself. (Though I'm in Canada, not the USA; tax law up here is different in some specifics but very similar in general.)
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by SantaFeJoe on Tue May 27, 2014 2:38 pm
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Primus wrote:
I have never made any money from photography and I don't have any intentions of becoming a 'pro' in that sense. I know it is extremely difficult to establish oneself and make a decent living from photography if that is your only vocation, even if you are really good at it (I know I am not). Just like in my own profession, it is not your ability but  other factors that determine how successful you are.

I have been thinking of doing a small presentation at the local hospital to raise some money for the charitable fund, even if it is a few hundred dollars. Co-workers have usually offered to pay me for my prints that I give them but I have always declined. Maybe now I can charge them a small amount or have them donate it to the local hospital charity.

Any advice would be much appreciated. My goal is not to make a living out of this but perhaps to offset costs through tax-savings. I know, in the end that would indeed translate as 'profiting from photography' but there is nothing inherently wrong in that either, IMHO.

Pradeep

Why not just charge for the photography that is not donated to charity and get a donation receipt for the ones you give to registered charities? If you charge enough, you can recoup some of your expenses (not by writing off expenses, but rather through sales income) and pay taxes on your sales as hobby income. The donations can be claimed on your taxes as a deduction. There are way too many people who are adverse to paying taxes even though they are making money. That's how the government pays its' bills! From the highlighted quotes, you show no intentions of doing photography professionally, so it's definitely a hobby.

Joe
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by Primus on Tue May 27, 2014 4:44 pm
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Joe, you are absolutely correct, at present my work would be legally classified as a hobby and on my website I clearly state ' I am not a professional and the images here are just for friends and family'. However, as my images have improved over the past few years people have begun asking me to have a 'show' or to sell for charity or just sell them to whoever wishes to buy them.

Intent can change with time. A nephew of mine started putting ads on a friend's website for a lark. He soon quit his regular job and took up internet ads as his main line of work. Today he runs a multi-million dollar business and owns his company.

In an ideal world I would love to give up my daytime job and become a full-time nature photographer, earning whatever I could that way. However, I know for a fact that I am not as good as I would like to be and that financially it is not a viable option at this time. However, in say five years I would be that much closer to retirement and could certainly think of doing it.

Would it be wrong for me to plan a few years ahead in anticipation of an early retirement and making photography my only vocation?

A larger question that is often ignored is why photography? My answer is because it satisfies the creative need within me. What could be better than somebody else appreciating my creation and then paying me for it?

Pradeep


Last edited by Primus on Tue May 27, 2014 5:31 pm, edited 1 time in total.
 

by Primus on Tue May 27, 2014 5:29 pm
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Royce Howland wrote:
Just to clarify terms -- expenses are not deducted from profits, they are deducted from revenues. Profit is what's left over after you deduct expenses from revenues. If your expenses are always greater than your revenues, you will never have profits. That's not really the definition of a business... a business is not intentionally created to constantly spend more than it makes, it is created to make more than it spends. I.e. to have profit. If you never intend to have profit, then by the IRS (and most tax departments) definition, your activity is not really a business.




Quote:
There are circumstances that can block you from making profit in a given year, or even for multiple years. But that's very different than going into a situation with the stated intention that you will not make a profit, or don't care if you ever make a profit. That's not a business; the IRS would probably call it a hobby if they're being polite, and a tax dodge if they're being a bit more edgy. :)

Royce, I do understand the concept. A few years ago my wife had a business that was making less money than the expenses, thanks to certain circumstances. It went on for about three years and sure enough we got audited by the IRS. The govt. accountant gave a different interpretation of certain laws from what our own accountant had told us (and what I read from the rules myself). Short of contesting in court we had no choice but to pay a penalty although the man agreed our expenses were legit.


Quote:
And yes, expenses need to be deducted from revenues within a single business. In other words, the expenses need to be directly related to the costs of the activities which produced the revenues. If you have a car dealership, for example, as well as a nature photography business, you have to be careful not to try to blend expenses or revenues between the two in a way that isn't justifiable. You can't buy a ton of expensive camera equipment and go on photo workshops and shooting trips around the world, and try to write all of those expenses off against your car dealership revenues because you have no income in the photo business. All that photo related stuff has nothing to do with the revenue generated by selling cars; you can't normally transfer expenses between unrelated lines of business.

 Got that too. However, the initial cost of setting up a car dealership is huge, tens of millions in the building alone. It takes a while to recoup the investment during which time the annual expenses of the mortgage/rent/inventory/staff/advertising etc are written off against the earnings. It is quite likely that there may not be a profit for several years. The IRS would allow this because the intent is clear from day one.



Quote:
As for that phrase from the IRS, "You depend on the income from the activity for your livelihood", I don't believe it's a smoking gun criterion all by itself. If the IRS audited you and made a determination that your photography was or was not a business, it most likely would be based on a combination of factors, not just a single one. There are plenty of people who have legitimate photography businesses but also have some other business, so they are not depending on just one of them for their livelihood. I'm in that boat myself. (Though I'm in Canada, not the USA; tax law up here is different in some specifics but very similar in general.)

So the intent needs to be established up front that the photos are taken with the idea of selling them. How does it matter then if I use a P&S or a medium format camera? A business can be a loser as far as the annual sales are concerned. If I have three businesses, two can be profitable while the third is not, I continue with it because that gives me a certain sense of satisfaction (the creative urge as above). Would the IRS then say no, I can only run a business that is profitable? My other two businesses earn enough so I do not have to worry about livelihood.

A close friend of mine is a great cook and loves to invite people over to his home. He  also has a full time job. Suppose he starts a restaurant so he can indulge his passion and make some money at the same time. Because he cannot devote enough time or for whatever other factors, the restaurant loses money. Would the IRS say then that it is his hobby to cook and therefore he cannot deduct expenses?

I am just trying to understand how this works, not being argumentative, and I do very much appreciate the time taken by everyone to respond.

Pradeep
 

by Royce Howland on Tue May 27, 2014 9:35 pm
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Only the IRS can say for sure what the IRS would decide. And maybe not even them. :) But yes I think it is possible that they would re-classify a business that had multiple years running without ever turning a profit, as something other than a business. Or at least they may reclassify a number of activities that had been previously written off as expenses, and retroactively claim income tax on the resulting amounts. But as I said above, it likely would depend on multiple factors, such as the 9 listed in the article Carolyn linked.

What matters is not the level of expense you go to, or what kind of camera you bought. Ultimately, if audited, you would have to make a case that the IRS would buy into. The more factors you had in your favour, the more likely you could make the case. The more factors that looked dodgy, the more likely the audit would come back unfavourably. Profitability would weigh heavily in the evaluation, but wouldn't necessarily be the only consideration.

The IRS is not going to stop everybody from running a money-losing business; at the end of the day they don't really care if we fail to make a profit. But they do care about collecting income tax they believe is rightfully owed. They will stop somebody from avoiding taxation through running something that they call a business, if the IRS believes it actually isn't a business due to factors like those 9. Lack of profitability would be the initial trigger to cause them to start digging and looking at those factors.
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by signgrap on Wed May 28, 2014 10:30 am
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One thing to bear in mind is that the IRS looks very hard at "photography as a business". They ask all sorts of questions about whether you use the camera for personal use and if so what percentage is personal and what is business related. The same goes for computer equipment and software used in photography. If you have a full time job other than photography this raises a flag to them. If you run a business at a loss and never show a profit over the years they start looking to see if you're trying to make a hobby a business just to write off the hobby's expense. If you don't think you'd ever be able to show a profit at some point down the road, I'd think long and hard about the potential risks involved in trying to use photography as a tax shelter. "Photography as a business" (when you have a different full time job) and the "home office" (when you work in an office) are the two biggest Red Flag issues the IRS looks at when reviewing your taxes. 
Dick Ludwig
 

by Primus on Thu May 29, 2014 5:38 pm
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signgrap wrote:
......................"Photography as a business" (when you have a different full time job) and the "home office" (when you work in an office) are the two biggest Red Flag issues the IRS looks at when reviewing your taxes. 


Thank you Royce and Dick. It seems that running a photography business as a side line is not going to work even if you are serious about it, unless you can devote an enormous amount of time to it, which then defeats the purpose of it being a secondary means of livelihood.

The IRS may determine what they will and the key seems to be in order to succeed in qualifying as a legitimate business, photography has to be pretty much your only or main source of earnings and that you have to be able to demonstrate a significant effort at marketing it so that you don't incur a loss year after year. 

I will have to wait until I retire from active work before I can do anything like that, so will continue to enjoy it as a passionate pastime for now. 

Thanks again to this wonderful forum for all that you provide.

Pradeep
 

by photosbyrick on Sun Jun 01, 2014 7:50 pm
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Folks - I am new to this site, so I am a bit reluctant to weigh in so negatively on this topic, but there is so much incorrect information being offered in this thread that I have to mention a few of them.

Why not just charge for the photography that is not donated to charity and get a donation receipt for the ones you give to registered charities? If you charge enough, you can recoup some of your expenses (not by writing off expenses, but rather through sales income) and pay taxes on your sales as hobby income. The donations can be claimed on your taxes as a deduction. 

First - the concept of "donating" your photos to charity and claiming a deduction will not work.  No way may a taxpayer take a charitible dedcution for his/her own work.  If Ansel Adams "donated" an autographed print of Moonrise - Hernandez" to the United Way, his charitible deduction would equal the cost of the sheet of photo paper and the chemicals he used to make the print.  The fact that this photo might sell for $10,000 at retail, his charitable deduction would have been about $5.  Same concept if Leonardo DaVinci painted a second copy of the Mona Lisa and donated it to the Museum of Art.  His deduction would be limited to the cost of the paint and the blank canvas.

Moving on - 

"It seems that running a photography business as a side line is not going to work even if you are serious about it, unless you can devote an enormous amount of time to it, which then defeats the purpose of it being a secondary means of livelihood." and "You depend on the income from the activity for your livelihood" and  "But that's very different than going into a situation with the stated intention that you will not make a profit, or don't care if you ever make a profit"

Sorry, but these comments are absolutely incorrect and nicely summarize why this entire discussion is very dangerous to rely on.  The fact is that the topic of losses arising from  "second jobs" and "hobby's" is extremely complex and no one should structure his tax posture based upon income tax advice gleaned from a photography website.   The problem is that non-accountants quote (or more accuratley misquote) answers they received from their attorneys or accountants or simply misshape a concept overheard at a cocktail party or read in a book - sort of like the old game of "telephone" where each person repeats a story to the one next to him and by the time the story is told by the last guy in line, it bears no resemblance to the original tale.

For the record, if you want to look into photography as a sideline, the first concept you need to grasp is that ALL income (defined as revenues less expenses) is taxed whether you work at it full time or not.  The second concept is that it is neither the business nor the profit that is the problem.  The problem is the measure of and the treatment of expenses, especially when they result is a "loss".

Easy example.  If Mark Zuckerberg, while visiting Scotland to promote Facebook, happens to snap a photo of the Loch Ness Monster with his iphone and subsequently sells that photo to the National Inquirer for $1mil, no one would argue that he devoted anything more than a few seconds to taking the snapshot and he certainly did not plan in advance to go into the photo business.  Nevertheless, according to the Internal Revenue Code, he earned a $1mil profit from the sale of that photo and that $1mil is subject to income tax.

"One thing to bear in mind is that the IRS looks very hard at "photography as a business" Actually, no it does not.  It looks into any business which shows a loss year after year.  That is what is missing from this entire conversation.  IRS doesn't give a rat's tail what the business is.  It cares only that a taxpayer attempts to deduct losses annually; it does indeed make the assumption that a "business" that shows a loss every year is really a hobby and it will indeed frequently audit such a venture.  In that case it is true that you would have to demonstrate that there was a legitimate attempt by the taxpayer to run the business for profit which is admittedly often hard to do - but not impossible by the way.

"If you have much less income than expenses, then the fact that you are "deducting your business expenses" is still not magic. While you can reduce or even perhaps zero-out your business income, the expenses don't mean the government is going to give you any money back. It just means you won't pay taxes on the income that was generated"

Sorry, but not entirely correct.  You have the right idea, but you are ignoring the rules that apply if the business is NOT a hobby.  If I open a new photography studio and dot my "i's" and cross my "t's" and end up with more expenses than income, there is most assuredly magic.  I can absolutely deduct the loss from my photo business against the income from my wife's salary and our investment interest if we are filing a joint return.   The photo loss is not deducted directly agains her salary, but when one totals up the lines on page one of the tax return, my loss will reduce the bottom line number and produce a tax savings.  

"Business related expenses (equipment, travel, etc.) are non-refundable credits". While I understand your intent, you are saying it wrong.  Business expenses are not non-refundable credits.  Credits reduce taxes while expenses reduce income. These are most assuredly not the same concept.   In fact in your very next statement (In other words, they are deductions subtracted from the income generated by the business) is totally correct and actually contradicts the first statement.  A non refundable credit is one that will reduce income tax dollar for dollar, but not below -0-.  That differs from an expense which may indeed reduce your taxable income below -0-.   See the paragraph above where I explain that a loss from a business may indeed reduce overall taxes.

I feel badly for pouncing on this topic so hard, but while the intentions of all who have posted are clearly good ones offered in the spirit of helping the original poster, the misinterpretations of the facts can do more harm than good.  I fear that all of the negative comments about the "business" of photography will leave the OP and others with the idea that beginning a sideline photo business is unwise.  The fact is that beginning the business is never the problem.  The problem is whether or not the business nature of the  expenses in operating the business can be justified and whether any resulting loss can be deducted if the net falls below zero. 

To the OP and those who are in similar situations, I suggest that there is absolutely no substitute for discussing your situation with a qualified tax professional. Sure accountants and lawyers are often negative on claiming photography expenses and losses, but that is because in many cases, the case is hopeless.  But there are many, many instances where a part time photography business may legitimately claim them.

I should probably mention that in the real world, I am a CPA and I have operated a small (VERY SMALL) photography business on the side for the past 25 years and deducted my expenses religiously each year against my income with no blowback.  The trick is to understand the rules.

I hope no one was offended by my strong comments; I would hate to be a pariah after my first post to this site.  


Rick
 

by SantaFeJoe on Wed Jun 04, 2014 11:44 pm
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photosbyrick wrote:
Folks - I am new to this site, so I am a bit reluctant to weigh in so negatively on this topic, but there is so much incorrect information being offered in this thread that I have to mention a few of them.

Why not just charge for the photography that is not donated to charity and get a donation receipt for the ones you give to registered charities? If you charge enough, you can recoup some of your expenses (not by writing off expenses, but rather through sales income) and pay taxes on your sales as hobby income. The donations can be claimed on your taxes as a deduction. 

First - the concept of "donating" your photos to charity and claiming a deduction will not work.  No way may a taxpayer take a charitible dedcution for his/her own work.  If Ansel Adams "donated" an autographed print of Moonrise - Hernandez" to the United Way, his charitible deduction would equal the cost of the sheet of photo paper and the chemicals he used to make the print.  The fact that this photo might sell for $10,000 at retail, his charitable deduction would have been about $5.  Same concept if Leonardo DaVinci painted a second copy of the Mona Lisa and donated it to the Museum of Art.  His deduction would be limited to the cost of the paint and the blank canvas.


I should probably mention that in the real world, I am a CPA and I have operated a small (VERY SMALL) photography business on the side for the past 25 years and deducted my expenses religiously each year against my income with no blowback.  The trick is to understand the rules.

I hope no one was offended by my strong comments; I would hate to be a pariah after my first post to this site.  


Rick

I'm sure I speak for others on this site in that we welcome your input! There is nothing like the voice of knowledge!

Regarding the quote above in red (it is mine), I am in no way suggesting a deduction in an amount above the cost of printing, matting and framing. Many people do not do this work themselves and the amount should be deducted from taxable income, if itemizing deductions. If a retail amount could be arbitrarily placed on a donation, many peoples work would be donated at exorbitant values! When you have photographers like Peter Lik whose works may bring $1,000,000, it would be an easy deduction to donate several works and bring down taxable income to"0", even though the sales may be several million and the donated items only cost a few thousands to produce. I know that here, when you donate a vehicle to charity, you are only allowed to claim the amount of money that the charity actually sold the vehicle for, not the amount you would like to claim when it is donated. Many people used to donate vehicles and claim an enormous charitable contribution before this change was made. One thing for sures, it is wise to get professional opinions based on written tax laws and not depend on spoken word! The changes to tax laws are hard for even professionals, and the IRS, to keep up with.

Joe
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by photosbyrick on Thu Jun 05, 2014 12:55 am
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SantaFeJoe wrote:
photosbyrick wrote:
Folks - I am new to this site, so I am a bit reluctant to weigh in so negatively on this topic, but there is so much incorrect information being offered in this thread that I have to mention a few of them.

Why not just charge for the photography that is not donated to charity and get a donation receipt for the ones you give to registered charities? If you charge enough, you can recoup some of your expenses (not by writing off expenses, but rather through sales income) and pay taxes on your sales as hobby income. The donations can be claimed on your taxes as a deduction. 

First - the concept of "donating" your photos to charity and claiming a deduction will not work.  No way may a taxpayer take a charitible dedcution for his/her own work.  If Ansel Adams "donated" an autographed print of Moonrise - Hernandez" to the United Way, his charitible deduction would equal the cost of the sheet of photo paper and the chemicals he used to make the print.  The fact that this photo might sell for $10,000 at retail, his charitable deduction would have been about $5.  Same concept if Leonardo DaVinci painted a second copy of the Mona Lisa and donated it to the Museum of Art.  His deduction would be limited to the cost of the paint and the blank canvas.


I should probably mention that in the real world, I am a CPA and I have operated a small (VERY SMALL) photography business on the side for the past 25 years and deducted my expenses religiously each year against my income with no blowback.  The trick is to understand the rules.

I hope no one was offended by my strong comments; I would hate to be a pariah after my first post to this site.  


Rick

I'm sure I speak for others on this site in that we welcome your input! There is nothing like the voice of knowledge!

Regarding the quote above in red (it is mine), I am in no way suggesting a deduction in an amount above the cost of printing, matting and framing. Many people do not do this work themselves and the amount should be deducted from taxable income, if itemizing deductions. If a retail amount could be arbitrarily placed on a donation, many peoples work would be donated at exorbitant values! When you have photographers like Peter Lik whose works may bring $1,000,000, it would be an easy deduction to donate several works and bring down taxable income to"0", even though the sales may be several million and the donated items only cost a few thousands to produce. I know that here, when you donate a vehicle to charity, you are only allowed to claim the amount of money that the charity actually sold the vehicle for, not the amount you would like to claim when it is donated. Many people used to donate vehicles and claim an enormous charitable contribution before this change was made. One thing for sures, it is wise to get professional opinions based on written tax laws and not depend on spoken word! The changes to tax laws are hard for even professionals, and the IRS, to keep up with.

Joe
 

by SantaFeJoe on Thu Jun 05, 2014 8:44 am
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Hey Rick, it looks like you may be trying to reply with a quote from an iPad. It doesn't work for many of us on this site, for some reason. Your response doesn't show.

Joe
Learn the rules like a pro, so you can break them like an artist.  -Pablo Picasso
 

by photosbyrick on Thu Jun 05, 2014 12:00 pm
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Aah - that explains it. I was just expanding one additional point on the comment pasted below.

"Many people do not do this work themselves and the amount should be deducted from taxable income, if itemizing deductions."

Expenses from this hypothetical photo business are indeed deducted from taxable income, but the "itemized" deductions have nothing to do with the method. Itemized deductions are totaled on Schedule A of a tax return and reduce taxable income. But if a photographer is self employed, he is reporting his income and expenses on Schedule C where he/she reports gross income and applicable expenses. It is entirely plausible that a taxpayer with a photo business would have no itemized deductions at all and choose instead to use the Standard Deduction instead of itemized. The lack of itemized deductions has no bearing whatsoever on whether deductions from a photo business are deductible since they are reported on different schedules in a Form 1040.

By the way - just a quick other point that has not been mentioned. If the photo business reports a profit (100% of which is taxable) if the net profit from the business is >$400, the taxpayer would owe an additional self-employment tax (FICA) on the profit and this SE tax may be significant depending on the level of SE profit and the nature of other income in the return earned from employment. It is not uncommon to see a tax return which shows -0- taxable income and -0- regular income tax still have a FICA balance due as a result of a profit in a SE business.

Once again I urge those who are considering opening a business (small, sideline or otherwise) to consult with a competent tax advisor to familiarize yourself with the tax implications. It is a very complex and very vexing subject. One does not need to engage a ridiculously overpriced CPA for advice; there are other options like Enrolled Agents or Public Accountants who are quite capable and bill at far lower rates. Just check the credentials.

Hope this is useful.
 

by SantaFeJoe on Thu Jun 05, 2014 2:06 pm
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Hey Rick, to clarify my quote, I am including it in it's entirety:

Why not just charge for the photography that is not donated to charity and get a donation receipt for the ones you give to registered charities? If you charge enough, you can recoup some of your expenses (not by writing off expenses, but rather through sales income) and pay taxes on your sales as hobby income. The donations can be claimed on your taxes as a deduction. There are way too many people who are adverse to paying taxes even though they are making money. That's how the government pays its' bills! From the highlighted quotes, you show no intentions of doing photography professionally, so it's definitely a hobby.


Joe


What I said was to claim the income derived from sales as "Hobby Income" on his personal income taxes (as opposed to filing as a business) and deduct the donations on his personal income tax return (if filing itemized deductions). If it is not at the point of being a business yet, that can be done (up to a certain level). Also, I failed to mention that, at least in my state, you have to have a tax ID number and pay sales tax on your sales if you don't get a non-taxable certificate from your customer. That means you have to add sales tax to the price of the sale or else pay it out of the amount of your sale anyway.

Joe
Learn the rules like a pro, so you can break them like an artist.  -Pablo Picasso
 

by Jim Zipp on Sat Jun 07, 2014 1:04 pm
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Another thing I don't hear many people mention is that if you write off equipment for the business, there can be tax liability if and when you sell it. When I've mentioned that to some people they look at me like I had a third eye and say they never do that. I'm no accountant so I rely on a good one that keeps me squeaky clean on my businesses.
 

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