Photography as a business

[reggie]

Hi:

This is the only forum where this seems even remotely appropriate.....

I am considering turning my 'hobby' of 30+ years into a business. I would love to be able to write off a lot of the expenditures I make, trips I take, darkroom space, vehicle usage, etc. I am sure I can generate income from print sales and show a profit, but not necessarily every year. Certainly the first few years would be profitless.

Has anyone done this? (silly question, I know). How many years must I show a profit before the IRS thinks I'm just trying to bilk them?

I have pursused the SBA and IRS sites.

Are you incorporated or are you a sole proprieter, LLC, etc? Do you have a professional accountatn do your bookeeping and tax filing or do you do it yourself? I have a BBA in accounting wo that end doesn't worry me, but I am not up on the tax laws. I have looked thru Schedule C and it looks simple enough.

Can anyrcommend a good book on starting up a small business like this. I would have no employees.

Thanks.

-R

 

[jeffneedham]

check out:

The Photographer's Market Guide to Building your Photography Business.

by Vik Orenstein

 

[removed account4]

hi reggie

i have had a sole propriotorship ( is that how you say it ? ) since 1988.
i file a schedule c with my taxes, and have never hired an accountant. i use a tax program (turbotax &C ).

go to your public library to see if there is any information on "score" they are retired professionals who usually were in the business you are interested in starting and they can give you insights. the world of "wet" photography hasn't changed in a long time, maybe they can help answer some of your questions.

good luck!

john

 

[rbarker]

You might check the archives here, Reggie. I seem to remember at least one similar discussion that might prove helpful.

Your profile doesn't indicate your location, but I'm assuming that you're in the U.S. from the SBA and IRS comments. If so, you may want to consider how the IRS views photography "businesses" - the subtle aspects of how the related tax provisions reflect that view. I think you'll find that the tax regs are aimed at an assumption that the average photography business is a tax fraud - that is, a hobbyist trying to write off hobby expenses. As such, you'll likely be under more IRS scrutiny than the average small business. (With the possible exception of massage parlors. ) You'll also want to think about the long depreciation periods assigned to photographic equipment, and what happens to you, tax-wise, if you decide to discontinue the business before the end of those depreciation periods. The key word here is "recapture". Then there are the issues of mixed-use of equipment. (What is used for the business versus what is used for personal/hobby purposes.) Lots of little "gotchas" like that to consider.

 

[waynecrider]

Having been in more then one business as a Sub S corp or sole proprieter my advice beyond Rob's above which was right on the point btw, would be to try and do it on the side and get a customer base and make contacts; No kidding. I've been borderline now for about 2 years to go full blown licensed business. I could see it if I was a wedding photographer or did alot of parties, but I'm not. I think it will depend on your service and what you are offering. As a landscape photographer trying to sell fine art I would say go sole proprieter just to appear as a legitimate, to say stock agencies. Beyond that it's a toss. It's a very personal decision and the services or products that your offering will have alot to do with the right decidion.

 

[bill schwab]

As someone who has been on his own for nearly 20 years, I say go for it. Not if you want to make money though!

Bill

 

[Early Riser]

The IRS is very serious about the abuses by "hobby" businesses. As a sole proprietor you are more likely to be examined and be challenged by the IRS versus being a type S corporation. If you are considering this just as a way to write off your hobby's expenses then you might want to reconsider. You might want to start selling prints first and see how that goes. If you sell enough prints at a reasonable profit and elicit a serious positive response from people familiar with the photography market, then it might be justifiable to consider becoming a type S and opening up shop officially.

I have earned my living solely through photography for 30 years, I switched my area of interest and market about 4 years ago from advertising photography to fine art type landscape. What I have learned is that making a living through the sales of prints is not easy. It is extremely competitive, very expensive to do right and volatile. So far I have been very fortunate but I have encountered many people to whom it has been a frustrating struggle.

A side bar that illustrates a common belief, or misconception about making a living as a photographer, I think Bill Schwab can really relate to this: I was shooting in Nevada last week, (I'm in the middle of a 6 week trip out west, 6 weeks out of the 22 weeks that I will be traveling/shooting this year), it's a few minutes after sunrise and I have already been up for about 3 hours. A truck driver comes to me and starts asking me about photography while I'm setting up a shot, he's clearly indifferent to the fact that I'm busy working. He asks the obvious, what am I doing? I tell him I'm setting up to shoot a photo. He asks me if that's my job, I tell him it is. He then asks who I work for, i tell him for myself. He then asks how i make money taking pictures of Salt Flats, I tell him that my prints get sold. He then asks how do they get sold, I then tell him by galleries. He then asks what my prints sell for, so I tell him. His reaction is, "Gee I used to do some photography in High School, I should dig out my camera and start selling some photos too! I can not tell you how often this exact line of questions and entire situation happens, I should probably print a FAQ hand out to give people and save myself some time.

Anyway, the point of the story is that it is an all too common belief that making a living through the sale of one's photos is easy. It is not. If you sell prints at a low price you need to sell a huge amount of prints, and a huge amount of prints is expensive and very time consuming to produce. If you sell prints at a high price you had better have prints that are worthy of that high price or you won't sell any. My advice keep it as a hobby. If your prints start getting a serious demand, and you start making some good money from them, then consider going full time as a business.

 

[Allen Friday]

Just to make something clear regarding types of corporations: If you decide to incorporate, you will need to look at your state law and see what types are available. Generally, you can incorporate your business as a C corp, which is what most people think of when incorporating. You need a board of directors, annual minutes, etc. Or, your can incorporate as a LLC, a limited liability corporation, most of the benefits of a C corp, but with relaxed requirements. It's run more like a sole proprietorship, but you still have the limited liability of a corporation.

Once you have chosen which form of entity to create, then you have to turn to the tax issues. A "Sub-S" corporation has nothing to do with the structure of the business--it only affects how it is taxed. The designation "Sub-S" is an IRS designation only. If you do not elect Sub-S status, your corporation will be taxed as a totally seperate entity. You get no deduction from your personal taxes. You will have to file a seperate return. If you elect Sub-S status, the corporation is taxed like a sole proprietorship. All business transactions will eventually show up on your taxes. You will have to file a schedule with the IRS with your personal taxes, but not a seperate return.

I agree with the post above regarding S.C.O.R.E. It is the Service Core of Retired Exceutives, an organization through the SBA. Can be an invaluable service.

 

[roteague]

All very good advice. I've treated my photography as a business for years, although I have only started using it for tax purposes - this will be my second year. I file as a sole proprietor. I haven't made any money yet, but I say go for it. Also, I would recommend reading "The Success Factor" by Jack Canfield.

 

[Jim Chinn]

Been down this road with my camera business.

If you are near a location with a Borders or Barnes and Nobel bookstore just sit down with a few of the "starting a small business" books and get a brief overview of what is requried by the IRS.

For tax purposes you need to be able to demonstrate to the IRS that your "business" is truly one operated to make a profit and not just a hobby. The IRS lists certain standards you must meet. Do you dedicate a minimum amount of time to the business (500 hrs minimum). Do you keep proper books and use accepted acounting methods? Do you maintain seperate business acounts from your personal accounts? Do you seek help from experts to improve your business? Do you persue strategies to increase income year to year? Do you advertise? Do you maintain an inventory? Etc, etc.

The main thing is you need to show a profit somewhere in the first 5 years. I think the rule used to be 3 out of 5 years. I am not sure if that is true now. Of course you could go longer if you can demonstrate continued efforts to make a profit while incuring debt in that pursuit. You will also have to deal with state laws regarding collecting and reporting of local and state sales taxes if applicable. And if you go as a sole-proprietor and make a profit of more then $400 you have to pay FICA/Medicare taxes for yourself.

If you can meet the IRS guidelines, it is a great strategy to offset regular income from another job or a spouses income with the expenses of your profession. Want a new lens? Write off against earnings. Whole new darkroom? Write off against earnings. Just remember, eventually you have to show a profit and demonstrate a profit motive (something to be taxed) to the IRS.


This year and next I will be doing business as a sole-proprietor. (87% of all small businessses are sole-proprietorships). Then I will probably reorganize as an LLC. I could have filed in 04 and showed a loss, but felt it more prudent to only have one year of losses where I could one time expense out some gear and tools I require.

 

[bill schwab]

Or, your can incorporate as a LLC, a limited liability corporation, most of the benefits of a C corp, but with relaxed requirements. It's run more like a sole proprietorship, but you still have the limited liability of a corporation.

This is the way I went. As a single member LLC, your filings are the same as with a Sole Proprietorship... Schedule C and all that. As long as you are showing profit, I wouldn't worry about too much IRS scrutiny. As long as you follow the rules, there is nothing to worry about. I highly discourage anyone from doing this as a "hobby" business. If you're doing it to simply write-off film and expenses without showing a profit, you'll get red-flagged pretty fast no matter how small the numbers. Like others have said, unless you are making a significant amount of your income from your work, keep it a hobby.

Bill

 

[bill schwab]

I think Bill Schwab can really relate to this..

I have had a lot of similar experiences, but you're much crazier than I Brian!! I used to put that kind of time in on the road, but have to admit being more successful staying close to home. Granted, I still travel a fair amount, but I am more excited by the things I do around my own environment these days. Those images seem to sell more anyway. I simply can't afford to spend that kind of time on the road and it is much more economically sound for me to eek out a living shooting in my haunts closer to home with a trip or 2 to places like Scotland or Iceland per year.

I commend you for garnering the type of print sales you must realise to cover your expenses and make a living in only 4 years! That's a lot of prints! Well deserved. For most successful photographers in the fine art field that I know, including the big names, it is hard to make a living without commercial work and royalties. Myself, I do fine and consider myself very lucky. However, even with steady sales through my galleries that hover around the 100 print mark per year (no small task by the way), it is no way to provide for a family in this day and age. I would have to say that perhaps my most fortunate blessing is frugal living and having a wife who works full-time and supports me in my need to work! (As long as I bring in my share of the pie!)

Bill

 

[waynecrider]

I think that the mention above of expenses and writeoffs is the point of determination which may or may not be the decision point for your interest in a full blown incorporated business. There are expenses, and requirements, both front end and back end to an incorporated business, that may or may not overide your percieved value in writeoff's. An accountant should be able to clue you in here. Certainly a true C corp has it pluses (writeoff's) and minuses both in required paperwork as well as a double taxation. LLC's and Sub S's have their own pluses and minuses. The other important point is sales taxes, and believe me that this can put the screws to you pretty fast if you do not keep up with it. I bought a book from Barnes and Noble on the different forms of corporations and requirements, and would not now incorporate unless absoutely necessary; I just don't want all the extra bs that goes with it. Make sure you read your State's online information concerning corporations and talk to a good accountant. My mention of perhaps a sole proprietership was not in respect to taking writeoffs, but just in appearing legitimate. But if you have a good accountant, and he or she knows their business, I would not worry about audits. That's what acountants are for. The most that could happen is that some writeoff's will not be allowed and, if your account doesn't know, you know what, a fine.

 

[Jim Chinn]

One of the primary advantages to a corporation is it basically isolates your personal wealth and assets from the business. If someone sues you relating to your business, product or business practices, only the business assets are at risk. (unless there is something more criminal involved in which case civil suits could go after all a persons assets.)

In the case of selling prints or art work, there is little or no risk to your non-business assets. The other big advantage is a corporate structure allows more flexibility in how profit is treated with regards to compensation. Part of any profit can be returned as operating capital, put into an R&D account etc. In some cases you can work it out so as not to make a salary and thus avoid paying employee taxes on yourself. With a sole-proprietorship all net profit (over $400) is subject to self-employment taxes.

As far as sales tax goes, a lot depends on where you live and how you sell your goods. Most small businesses that sell to customers out of state and over the internet do not collect sales tax on those transactions. That is one of the single biggest advantages to internet sales. (although congress and state governments are looking at ways to compel web merchants to collect and return sales taxes). The only thing that worries me about this is that the laws could be changed in the future and the state revenue department come back and require you to pay all the back sales tax that you never collected.

 

[rbarker]

Isolation of personal assets was, indeed, one of the benefits of incorporating. My understanding, however, is that in recent years it has become fairly easy to "pierce the corporate veil" if all of the the stock is held by one or a small number of related people. But, I'm not a lawyer, and don't play one on the Internet. So, if that's an issue, it may be helpful to consult your attorney.

 

[Jim Chinn]

A lot of the issues concerning how far a planitff can go in seeking damages has to do with proving the intent of the coroporation and its officers to willfully defraud or do harm to stockholders, clients or customers. When company officials conspire to cheat any of the above it moves from areas such as product liability (damages limited to assets of the corp) to crimes involving fraud and embezzelment ala Enron, World Com, Tyco etc. When you get into this area state and federal law determine fines and jail time. After that plantiffs can go after personal assets through various civil suit avenues.

In the much smaller realm of selling fine art photographs I don't know what one could be liable for other then replacing a print that may have not been properly finished to archival standards. Most of those types of issues would be covered in purchase agreements with the work.

Untill the amount of income you make would reach the threshold that incorporating makes sense, sole-proprietorship is the simpler and less expensive option.