# When is it a hobby vs business??



## quickphotography78 (Jan 20, 2011)

Does anyone know at what point the government considers a hobby turning into a business?

I have been taking snapshots since I was a kid but finally got a better camera which I love.  I have just started taking photos for friends and family which they are pleased.  I am looking to make some extra cash but I know I am not ready for a business for awhile or maybe ever.


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## robb01 (Jan 20, 2011)

When you make over $600 you are required to report it


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## ls6firebird (Jan 20, 2011)

robb01 said:


> When you make over $600 you are required to report it


 
a year? really?


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## vtf (Jan 20, 2011)

Which branch? Federal, State, County, City? 
Varies between all of them


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## robb01 (Jan 20, 2011)

Actually that was bad info, and I just looked it up to make sure. Apparently the IRS wants you to report ALL income to them, here is a link with more info:

Reporting Miscellaneous Income


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## ls6firebird (Jan 20, 2011)

whoops     :banghead:


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## vtf (Jan 20, 2011)

The requirements and expectations vary by your location but I'll guarantee you someone will think its a business the moment you start making any amount of money. Whether its sales tax, use tax, income tax, property tax, local building codes and regulations. Your neighbors or competing photographers. My recommendation is speak to an accountant who will know your situation.


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## robdavis305 (Jan 20, 2011)

Dont report anything. Its your money and you earned it. What they dont know wont kill them.


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## robb01 (Jan 20, 2011)

robdavis305 said:


> Dont report anything. Its your money and you earned it. What they dont know wont kill them.



tax fraud never hurt no one :lmao:


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## djacobox372 (Jan 20, 2011)

I'm no tax expert, maybe someone else can answer this.

If u spend 2000 on camera gear, but had an income of $1500 from using it, is that actually income? Since you're still in the hole $500


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## sierramister (Jan 20, 2011)

djacobox372 said:


> I'm no tax expert, maybe someone else can answer this.
> 
> If u spend 2000 on camera gear, but had an income of $1500 from using it, is that actually income? Since you're still in the hole $500



No, you usually cannot write off business expenses for camera gear until you've really started making money from it.  As a hobbyist, I've heard it is around 3 years of profit before you can write anything off.

No writing off business expenses, but they sure do expect you to write ON any business profits for taxing!

Do NOT write off your camera until you've talked to an accountant, I am no expert!


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## quickphotography78 (Jan 20, 2011)

Well I am planning on registering a business name in my state and I am trying to figure out what to do from there.  I feel clueless at this point about what the government expects or wants. To bad nothing is ever easy or maybe I am just thinking about it too much


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## Josh66 (Jan 20, 2011)

djacobox372 said:


> I'm no tax expert, maybe someone else can answer this.
> 
> If u spend 2000 on camera gear, but had an income of $1500 from using it, is that actually income? Since you're still in the hole $500



That would only work if you itemized.  For only 2k spent on gear, itemizing wouldn't be worth it.

The standard deduction for a single person (the lowest one, married is higher) is $5700 for 2010.  You would have to spend more than that on your 'business' to make itemizing worthwhile.

And you would have to be able to prove all of those expenses too...
(Hope you saved all of your receipts...)


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## usayit (Jan 20, 2011)

You are also suppose to report any online purchases that were not subject to sales tax at the time of purchase....

:-/


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## quickphotography78 (Jan 20, 2011)

I only have my camera right now and some stuff I bought to take newborn photos but I have kept my receipts on those.  I have everything filed I try and stay organized, that is what having children has taught me. If I don't stay organized everything goes downhill from there.


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## Josh66 (Jan 20, 2011)

quickphotography78 said:


> I only have my camera right now and some stuff I bought to take newborn photos but I have kept my receipts on those.  I have everything filed I try and stay organized, that is what having children has taught me. If I don't stay organized everything goes downhill from there.


Find out what the standard deduction is for which ever way you're going to file (single, married joint file, head of household).  If your expenses are not higher than that, there's no point claiming it.


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## sierramister (Jan 20, 2011)

O|||||||O said:


> quickphotography78 said:
> 
> 
> > I only have my camera right now and some stuff I bought to take newborn photos but I have kept my receipts on those.  I have everything filed I try and stay organized, that is what having children has taught me. If I don't stay organized everything goes downhill from there.
> ...



From my discussion with my accountant, you better have a strong business before you write off any business expenses from photography, if it isn't your day job.

Consider that I pressure wash a few houses in my neighborhood with my pressure washer, and I make $500 a year.  You could bet your butt the IRS will be knocking at my door if I try to write off my pressure washer and water bill as business expenses.

The bottom line is that the IRS is going to see your camera as a hobby, and you're going to pay a penalty.

You have to register with the state to collect sales tax.  You have to be making a lot of money from photography before you deduct any camera expenses.  Be wary of the advice on here and talk to an accountant.


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## Josh66 (Jan 20, 2011)

Oh - I wasn't trying to say that he should claim it as an expense - I was just pointing out that even if he could, it wouldn't be worth it because it didn't sound like he would have had anywhere near enough to make skipping the standard deduction worth it.

I've only had to itemize once ... ever.  A couple moves, a new toolbox, and a bunch of tools...  Added up to quite a bit.

There are lots of things you _can claim_, but if they don't add up - there's no point doing it.


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## Bitter Jeweler (Jan 20, 2011)

sierramister said:


> djacobox372 said:
> 
> 
> > I'm no tax expert, maybe someone else can answer this.
> ...


 
Wrong.

You can write off expenses any time. You have to form a company first.
A hobbyist cannot write off anything. If you are going to claim the income, it's best you organize as a business. The government gives you 3 years of claiming losses, before they start giving you the evil eye. You have to start showing profit after three years.


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## JeffieLove (Jan 20, 2011)

Or you can be like me and since I'm a photography student, all of my photography gear gets written off as student expenses. I haven't made a profit if you add up the amount that I have made from photo sessions with friends and family vs. what I've spent on gear.


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## Starman Photo (Jan 20, 2011)

I can't believe I'm surrounded by tax evaders. We're all going to jail


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## BuS_RiDeR (Jan 20, 2011)

robb01 said:


> robdavis305 said:
> 
> 
> > Dont report anything. Its your money and you earned it. What they dont know wont kill them.
> ...



 

I needed a good laugh.  Thank you. :thumbup:

I am in Canada...  I think the tax laws are a bit different here. But then again I have no clue where Vickery is. And I'm too lazy too look it up right now...


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## usayit (Jan 20, 2011)

Bitter Jeweler said:


> You have to form a company first.



More specifically.. you might be asked to prove you are an independent formed entity.

As a contractor with a formed company using another company's resources (computers, office, management chain.. etc), the IRS might still consider me an "employee" of said company and thus not privy to writing off certain expenses.  

As a contractor that uses my own resources to complete deliverables to another company complete with paper work (contract, statement of work, etc), I would have satisfied (hopefully) their requirements and avoid unwanted attention.

The difference is subtle and many people still get away under the radar... but you are still liable.  In the old days, people were writing of a lot of stuff simply by forming a LLC.   Those days have expired many years ago.


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## quickphotography78 (Jan 21, 2011)

Now since I am filing a business/trade name will I have to turn it into a business at some point?? Or will I be able to keep it as a hobby??  Oh yeah vickery you don't want to know middle of no where.  But near Sandusky/Cedar Point


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## vtf (Jan 21, 2011)

Keep records, I believe as long as you spend more than you take in then it will stay a hobby. The IRS gives you 3 years to show a profit with your business or it will declassify it to a hobby and you lose the tax filing status.
Worst place to get financial advice-forum, best place-certified accountant.
Good Luck :thumbup:


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## Geaux (Jan 21, 2011)

What if you do the shoots for free and they tip you


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## NikonNewbie (Jan 21, 2011)

Well...I had a business but it was not photography...and even though I didnt ever really "get a paycheck" from my business because what came in, went back out in inventory replacement...you still have to claim it.
Here in crap-0-la D.E. once you register your business name you get your little tax report book and every 3 months you have to send in the slip saying how much you made. If it was under 20,000.00 you didnt owe the state anything....if it was over you were to include a check with the slip.
I never made that kind of money .
So, it's best to look into the laws of your state, so you dont end up with a nice audit at tax time.

Also...yes if you start a photography business you certainly can claim your camera...the battery...the cables...the paper you buy for letterhead...you can claim the room in your house you use as a studio, you can also claim a portion of your electric bill etc...
get a good tax person, and you will see that an at home business has tons of dedcutions...however-if you dont' make enough money to even offset the taxes its not worth it. KWIM?


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## NikonNewbie (Jan 21, 2011)

Bitter Jeweler said:


> sierramister said:
> 
> 
> > djacobox372 said:
> ...


 
what he says is true...


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## NikonNewbie (Jan 21, 2011)

I must correct myself here...no it was not when I filed my business name that I started getting correspondence from Uncle Sam...it was when I filed for my business License that it all started. Also, at this time I had to hire an accountant...and I paid more for her e-mails and telephone ?'s then I ever made in my business!
j/k...but really it's gets expensive, so do yourself a favor and learn how to manage your own money...my accountant charged me $90.00 for answering an email that she sent to me...asking if I was ready to file!!!!
grrrr.:x


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## KmH (Jan 21, 2011)

quickphotography78 said:


> Well I am planning on registering a business name in my state and I am trying to figure out what to do from there. I feel clueless at this point about what the government expects or wants. To bad nothing is ever easy or maybe I am just thinking about it too much


Start locally. Your first concern is to make sure you don't run afoul the local authorities.

What country/state is vickery in?

State requirements will be stated online.

As soon as you accept money for your service, you are in business.


usayit said:


> You are also suppose to report any online purchases that were not subject to sales tax at the time of purchase....


Usually only in states that have a use tax.


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## SlickSalmon (Jan 21, 2011)

KmH is correct - start locally.  State and local governments are far more of a problem for small businesses than the Feds.  State sales tax collectors are a particular pain, and they don't give up.  If you want the tax benefits of operating as a business, you'll want to form an LLC to make yourself 'official'.  That will take a tax ID# and a trade name.  Cost and procedures for those varies by state.  Since you'll need an accountant to get the tax forms correct (Schedule C), you'll want to figure whether the tax benefits of having a business exceed the cost of tax preparation.  In general, if you plan on working by word-of-mouth and not competing too hard with the local pros, you can get by with a lot.  The minute you put a shingle out and publicly advertise, you'd better get legit.  Personally, having done this before in another field, I'd want to see an income of a couple grand a year before forming a business.


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## wannabephotog (Jan 21, 2011)

Bitter Jeweler said:


> You can write off expenses any time. You have to form a company first.
> A hobbyist cannot write off anything. If you are going to claim the income, it's best you organize as a business. The government gives you 3 years of claiming losses, before they start giving you the evil eye. You have to start showing profit after three years.


 
This is correct.
It is scary how much erroneous advice is in this thread.
Even after you organize as a business (register locally, state level and federal level) if you are not showing a profit after 3 yrs the IRS will deem your business a hobby. You may write off expenses the 1st year even if you did not make a profit. The IRS website (irs.gov) has tons of free pamphlets with all the ugly details. There are also a ton of good books available. Accountants charge an arm and a leg, but their initial consultations are usually free.


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## KmH (Jan 21, 2011)

JeffieLove said:


> Or you can be like me and since I'm a photography student, all of my photography gear gets written off as student expenses. I haven't made a profit if you add up the amount that I have made from photo sessions with friends and family vs. what I've spent on gear.


I recommend you check with a qualified accountant if you're using the camera gear to make money as a business while you are in school.

And to clarify an earlier statement. There are deductions that can be taken for a hobby.

If your business does not make a profit in at least 3 of the first 5 years it exists, the IRS will re-classify your business as a hobby.

If you claimed any business deductions during that 5 year period, the IRS will disallow those previous deductions when they reclassify it as a hobby and will expect you to pay taxes on the total amount of the deductions taken in that 5 year period.

See http://www.irs.gov/newsroom/article/0,,id=169490,00.html


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## wannabephotog (Jan 21, 2011)

SlickSalmon said:


> If you want the tax benefits of operating as a business, you'll want to form an LLC to make yourself 'official'. That will take a tax ID# and a trade name. Cost and procedures for those varies by state. Since you'll need an accountant to get the tax forms correct (Schedule C), you'll want to figure whether the tax benefits of having a business exceed the cost of tax preparation.


 
There is no need to jump on the LLC bandwagon. Most people erroneously believe that incorporating a small business will protect your personal assets and offer more tax benefits. Not necessarily true. Depending on the nature of your business, if you deal with vendors, landlords, credit card companies, banks, etc., they will require you to sign a personal gaurantee that renders the LLC protection null. 

Sole proprietors still get great tax benefits and you don't have the headache and expense of incorporating. You won't need an FEIN, you can file with your social security number.

You don't need to pay an accountant for a Schedule C IRS form. The IRS website (irs.gov) has all the free forms and instruction booklets you would need to file as a business.


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## SlickSalmon (Jan 21, 2011)

wannabephotog said:


> SlickSalmon said:
> 
> 
> > If you want the tax benefits of operating as a business, you'll want to form an LLC to make yourself 'official'. That will take a tax ID# and a trade name. Cost and procedures for those varies by state. Since you'll need an accountant to get the tax forms correct (Schedule C), you'll want to figure whether the tax benefits of having a business exceed the cost of tax preparation.
> ...



I was relaying advice that had come from my accountant.  He wanted the business set up as an LLC (which costs very little) in order to distinguish it from a hobby in the eyes of the IRS.  The LLC wasn't necessary, just desirable in his opinion, particularly since I was likely to be reporting losses in the early years.  The 'protections' of the LLC were incidental and, as you noted, probably easily superseded.

In my state, the act of forming the LLC required a trade name which, in turn, required an FEIN.  It was a case of multiple dependency arising from the original decision to form the LLC.  I discovered all this in sequence, so setting up the LLC took more time than it should have.  

Of course you don't need an accountant for a Schedule C (or any other IRS form, for that matter); I just found one extremely helpful and, hence, costly.


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## John Mc (Jan 21, 2011)

You guys from the states have a confusing Tax system.
I know i can earn up to £14k a year without having to report anything aslong as i have another job and im making a contribution to tax ect. But they'll no doubt be a loop hole ive missed where they'll abuse me if i dont report it :/


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## KmH (Jan 21, 2011)

Our tax statues are written by the wealthy, for the wealthy.


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## NikonNewbie (Jan 21, 2011)

I kept hearing from everyone that I should LLC, to protect myself from bankrupcy, but the accountant did tell me that you had to make a certain amount to qualify for an LLC, there were stipluations...and I did not meet them, I simply used my SS number as a sole proprietr (sp)...
Just really reseach your state laws, etc, it helps to know what is going to be expected of you.
Also, here in DE if you have a busniess that will involve other people besides your self...customers..employees, etc, they REQUIRE you to carry insurance. I almost paid for this until it was later explained that it was only if people were working for me, or if I had ...lets say a place of business where people would get hurt...since I was vending and had an online business I did not need this special insurance.
It's probably different for every state...so as everyone keeps saying...check it all out.
Also, you must have a business plan if you are going to seek a business loan.


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## Olympus E300 (Jan 21, 2011)

robb01 said:


> tax fraud never hurt no one :lmao:


 

If he were still around, I think Al Capone would be a fantastic fellow to discuss that with. Tax evasion Baby.....Tax evasion!!

Personally, I just got off the phone with my government no less than an hour ago. I had just finished registering a small photography business. Honestly, I am NOT ready for another business (certainly not a photography business) but I had a potential business name "pop" into my head a few months back and I thought that I would like to reserve that name in the event I opted to start a business in the future. I should clarify that I am up in the great white north (Winnipeg, Manitoba, Canada) and after paying $50 to reserve my "potential" name with the government, I was told that then name would only be held for 90 days. At the end of the 90 days, I chose to register a corporation. This way for as long as I maintain the business licence, my chosen name will remain mine. I have no intentions of making any money with this business at this time, nor do I even intend to work with "clients". At best, I MAY sell a print or two online and trickle those funds into the corporation but other than that I have absolutely no plans to pursue work nor income. Furthermore, I do not intend to "write off" any room in my home or any of the many thousands of dollars I have invested in photography equipment.

So...In closing, I've probably confused a million people in that I registered a small photography business just so that I could reserve the name for future use.

1. Will this cost me money?
- Surely!

2. Will I get any kick backs from this business?
- Nope!

3. Why did I register a business?
- More money than brains I suppose...Which isn't alot!!


Just my experience and my $0.02.

Cheers!
- Daniel


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## MCPorche (Jan 21, 2011)

quickphotography78 said:


> Does anyone know at what point the government considers a hobby turning into a business?


 
While I'm no CPA, I'd say that the simplest answer would be...."When the money you take in exceeds the money you put out."


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## SlickSalmon (Jan 21, 2011)

MCPorche said:


> quickphotography78 said:
> 
> 
> > Does anyone know at what point the government considers a hobby turning into a business?
> ...



Unfortunately, this is definitely not true.  All income is tax reportable, and the only way you have to offset that income is to deduct it as a business expense.  The only way it can be a business expense is if you've got a business.  Your hobby becomes a business when you declare it to be so.  That declaration brings with it some opportunities and some responsibilities.


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## Tbini87 (Jan 21, 2011)

KmH said:


> Our tax statues are written by the wealthy, for the wealthy.


 
In complicated jargon than is difficult for an average Joe to understand or comprehend.


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## KmH (Jan 21, 2011)

LLC statutes are state law, so there are 50 different versions.

The only advice you should listen to is the advice you get from a qualified attorney.


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## vtf (Jan 21, 2011)

wannabephotog said:


> SlickSalmon said:
> 
> 
> > If you want the tax benefits of operating as a business, you'll want to form an LLC to make yourself 'official'. That will take a tax ID# and a trade name. Cost and procedures for those varies by state. Since you'll need an accountant to get the tax forms correct (Schedule C), you'll want to figure whether the tax benefits of having a business exceed the cost of tax preparation.
> ...


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