# Tax advantages/disadvantages of starting a business



## Kstorm (Jul 12, 2011)

Hello all I am fairly new to this forum, but have a simple question. For those who have started a photog business, what are the tax advantages and disadvantages? Also how was the process of starting your business? Thanks for any info!


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## Big Mike (Jul 12, 2011)

Your best bet would be to talk to an expert *in your area*.  Maybe talk to an accountant, maybe talk to someone at your local city office etc.


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## Kstorm (Jul 12, 2011)

Thanks Mike! I'll talk to a friend who knows a couple of accountants in the area.


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## Bitter Jeweler (Jul 12, 2011)

Starting a business is far too easy. Keeping that business going, and profitable, is another ballgame alltogether.

There is also more to it than Tax advantages and disadvantages.


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## NikonME (Jul 12, 2011)

Make sure you understand all of your states sales tax laws. A common mistake I see new photographers in Maine make is not charging sales tax correctly. Typically you tax any tangible personal property that is sold, but if you charge a sitting fee, that could be taxable.

The way it works in Maine is that if I charge you a sitting fee for taking photographs and you do not order any prints, than the sitting is a 'service' and not taxable. If I charge you a sitting fee for taking photographs and you do order prints, the sitting becomes part of the tangible 'product' that I am selling you, so I need to charge you sales tax on the sitting fee as well as the print price.


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## tirediron (Jul 12, 2011)

NikonME said:


> ...The way it works in Maine is that if I charge you a sitting fee for taking photographs and you do not order any prints, than the sitting is a 'service' and not taxable. If I charge you a sitting fee for taking photographs and you do order prints, the sitting becomes part of the tangible 'product' that I am selling you, so I need to charge you sales tax on the sitting fee as well as the print price.


Not to hijack the thread, but... Wow!  That's just stupid!


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## NikonME (Jul 12, 2011)

I agree.


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## Christie Photo (Jul 12, 2011)

NikonME said:


> The way it works in Maine is that if I charge you a sitting fee for taking photographs and you do not order any prints, than the sitting is a 'service' and not taxable. If I charge you a sitting fee for taking photographs and you do order prints, the sitting becomes part of the tangible 'product' that I am selling you, so I need to charge you sales tax on the sitting fee as well as the print price.



It's goofy here in Illinois as well.  We have a choice here:  We can call out the cost of the processing (and other merchandise like albums, frames and such) separately and collect tax on just that portion of the bill, OR we collect tax on 10% of the total bill.

I do the latter.

-Pete


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## Kstorm (Jul 12, 2011)

Thanks guys! Looks like I will be looking up SC tax laws over the next day or two.


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## KmH (Jul 12, 2011)

Worry about the feds too. Starting a Business

If you claim federal business tax deductions, but do not make a profit in 3 of the first 5 years you are in business, the IRS can redefine your 'business' as a hobby and apply different rules to those 'business' tax deductions you previously took.

Business or Hobby? Answer Has Implications for Deductions


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## orljustin (Jul 13, 2011)

Kstorm said:


> Hello all I am fairly new to this forum, but have a simple question. For those who have started a photog business, what are the tax advantages and disadvantages? Also how was the process of starting your business? Thanks for any info!



The advantages are, you can write off expenses.  The disadvantages are that you might make more money and have to pay more taxes.

"Starting the business" was not a one day thing.  It evolved into being after a while.


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## behanana (Jul 13, 2011)

If you are looking at starting a business check out your local chamber of commerce and they will most likely be able to set you up with a local mentor, typically some one in the local business community, that will be able to help you through the process of writing a business plan and getting started. Remember that a big key to any business is a strong, well thought out business plan that sets forth where you see your business going in the future. The tax liablity part of the business is only a small fraction of what you need to think about. Good luck with it though.


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## bentcountershaft (Jul 13, 2011)

I'm not sure if this is true in the OP's case, but I think a lot of people that have little to no business experience misunderstand how writing off equipment expenses really works.  A lot of people think that if they buy $10k in lenses then they have a $10k write off for the year and that isn't the case.


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## Diddy2theJJ (Jul 13, 2011)

Christie Photo said:


> NikonME said:
> 
> 
> > The way it works in Maine is that if I charge you a sitting fee for taking photographs and you do not order any prints, than the sitting is a 'service' and not taxable. If I charge you a sitting fee for taking photographs and you do order prints, the sitting becomes part of the tangible 'product' that I am selling you, so I need to charge you sales tax on the sitting fee as well as the print price.
> ...



Sitting fees aren't taxable by themselves here in ND, but if you include a disc or prints in with the package you have to tax a portion of the whole bill. It's easier for tax reasons to not have packages that include that sort of thing and to sell it separately and tax that alone, but everyone likes things that are included.


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## Diddy2theJJ (Jul 13, 2011)

bentcountershaft said:


> I'm not sure if this is true in the OP's case, but I think a lot of people that have little to no business experience misunderstand how writing off equipment expenses really works.  A lot of people think that if they buy $10k in lenses then they have a $10k write off for the year and that isn't the case.



Nope...I learned that as well. It's a portion of it that's figured out according to a 5 year depreciation. I'm just glad I have my accountant to figure those things out for me. Although I do admit that I have made some mistakes along the way with not charging sales tax for sometime...but I did end up having to pay a penalty for that as well as the original sales tax my first year. Good thing I didn't make much the first year lol.

I definitely underestimated what goes into a business, but the things I have learned I surely won't forget!


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## KmH (Jul 13, 2011)

Don't forget that your deductions and taxes will vary depending on the accounting method (cash or accrual) you choose to use.

Your best bet is to seek the counsel of a qualified accountant, preferrable a CPA.

To answer your original question:  There are no advantages to taxes, only disadvantages.


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## usayit (Jul 13, 2011)

Self employment tax.. 

Many loopholes have been closed since the 80s.. when people really took advantage of this.


Another snafu.... it can impact unemployment benefits if you work another job and loose it.


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## orljustin (Jul 14, 2011)

bentcountershaft said:


> I'm not sure if this is true in the OP's case, but I think a lot of people that have little to no business experience misunderstand how writing off equipment expenses really works.  A lot of people think that if they buy $10k in lenses then they have a $10k write off for the year and that isn't the case.



Sure it is.

This tax tip outlines Section 179 expensing that allows a business to fully deduct the cost of property in the year it is purchased rather than depreciating the business assets over years.


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## bentcountershaft (Jul 15, 2011)

orljustin said:


> bentcountershaft said:
> 
> 
> > I'm not sure if this is true in the OP's case, but I think a lot of people that have little to no business experience misunderstand how writing off equipment expenses really works. A lot of people think that if they buy $10k in lenses then they have a $10k write off for the year and that isn't the case.
> ...



That's true, but not applicable in a start up, which is the situation I was referring to because your depreciation claims can't exceed your previous year's net profit.  That's why you wouldn't want to "start a photography business" just to try to reap some tax benefits.


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## orljustin (Jul 15, 2011)

I don't see why it isn't applicable.  You spend 2 grand on a new camera.  You make 2 grand in profit shooting.  You write it off as a wash.


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## bentcountershaft (Jul 16, 2011)

I had to look it up and you're right, the guidlines have been changed on that in the last few years that not only would allow for what you said, but I could theoretically start a business on December 31st of this year and spend the equivalent of my regular job's taxable salary on qualifying equipment and be good to go.


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## sandersjessica (Dec 19, 2011)

In addition to an accountant, I would also recommend talking to a business attorney. It's important to understand all the legal issues that come along with starting a business.


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