Here is a tax question about personal businesses.?

Question

Can I write off all expenses for my photography business that I am trying to get started? When is it seen as a business and not as a hobby? Do I need to do anything special?
Thanks!

Answer 1

You have to show a profit for two years out of five. If you don't then the IRS will consider your business as a hobby.

Answer 2

Startup costs are those expenses incurred prior to being in business. You can deduct up to $5K of startup costs your first year, with the remainder being amortized over 180 months.

A business leaves the startup phase when it opens its doors for business. If you start soliciting for business on 12-1-07 you are in business on 12-1-07, even if you do not receive any income until 2008. Once you start in business you can deduct the costs occuring as of that date.

For a practical example of how the hobby issue is looked at, take a look at the court case referenced below. It deals with a gambler, but it shows all the considerations involved in the hobby vs. business decision.

Answer 3

Well, the best thing to do in order for your business to be recognized as such and not a hobby, is to apply for a FEIN. In other words, fill out an ss-4. You get do this over the internet at irs.gov. In addition, if you are serious about this business, register with your home state. After that, report your income and expenses on a Schedule C and you'll be alright

Answer 4

Have you actually had any revenue yet? All expenses before you are in business are categorized as startup costs.

I would look at the IRS publication 535 for the IRS criteria of for-profit business vs. a hobby. This is a facts and circumstances thing, but perpetual losses can easily be construed as a hobby.

Answer 5

you need to apply for a State Tax Number for starters. The form you fill out actually recognizes you as a business. Also, if it applies, you need a State Sales Tax Number. Once you are recognized, then all expenses of your business can be listed on your tax return.