Arithmetic in grammar school and algebra in high school never appealed to me. But when I discovered later on in life that I could save hundreds of dollars every year, I soon became fascinated by mathematics.
Once a year we have to get serious about taxes. Most stock photographers have the same comment. "Taxes...Oh! I leave that subject to my tax accountant."
Irs Tax Form 1040
It turns out the tax accountant is ordinarily Uncle Harry down the street, or man picked out from the local Yellow Pages. In other words non-experts, who are costing the photographer mucho dollars.
Before you close the doors and slam the windows and refuse to let me talk to you, let me make two points: 1) you are missing an opening to save everywhere from 0 to ,000 a year (or more) on your taxes if you are a salaried man and attempting to get your stock photography side enterprise off the ground, and 2) what I'm going to say has nothing to do with evading taxes -- that's illegal. You will avoid taxes -- that's your legal right.
The Irs Rules Encourage You
The Irs encourages you to avoid taxes. Sound odd? It's correct.
The speculate the Irs doesn't want you to pay so much in taxes is that our free enterprise ideas recognizes that it takes courage to start up a business, thus, the Irs wants to en-courage you. They know that if you succeed, you could very well help stimulate the cheaper by hiring more workers, who in turn will pay more taxes.
Perhaps you view "write-offs" were only for the big boys, and that it costs big dollars to ask questions about tax advantages. Not so. The Irs provides you with all the data I'm about to reveal to you, in their free and informative, "Taxpayer's enterprise Kit." (Phone them at 1 800 829-1040).
But if you're like most of us, you'll take one look at that two pounds of data and put it away in a drawer for "later."
A costly mistake. Here's what you'll survey when you sift out the data as it applies to you. The government will give you five years to stop calling your execution a hobby and start calling it a business. Within those five years,* you should show a profit ( is a profit), at least two of those years. That means you could go two years without even selling a photograph or showing a profit and still reap the tax benefits (more later). This applies to man who has a salaried position and is beginning a stock photo enterprise on the side. If you are self-employed, with your stock enterprise as your only enterprise, you don't have to make a profit in any of those years, to qualify as a full-fledged business.
You don't have to "get a license" (unless your local city or township requires it). You only have to show intent to be a business, rather than a hobby.
Intent translates into "putting up a shingle." In other words, get a blog or a website, get some stationery printed, and open a isolate bank (business) account. At earnings tax time, fill out program C, a form that lets the Irs know whether you made a profit or a loss on your photo illustration operation.
Now here's where your savings come in.
Much of your business-related expenses (photo, travel, home office, computer, software, scanner, vehicle, darkroom if you have one) are no longer your personal expenses, they are enterprise expenses, because you need them to be able to yield your product: stock photos. Therefore these costs become "deductions" -- in other words, expenses to your business. Even though you don't make a profit, you are still entitled to this write-off right up to the amount of earnings you brought in.
"And how 'bout that ,000 savings?" you ask.
It depends how much in taxes was taken out of your day-job paycheck. Say your yearly wages is ,000 (the national median). Withholding taxes were taken out on this amount. Now let's say that in your first year of your stock photography operation, you bought a new lens, a scanner, paper, office supplies, fixed up your home-office plus took a trip to Vermont for some Autumn pictures for your stock file. Your total expenses for the year were 35.
Say you sold two dozen pictures for ,036 your first year. You have a dollar profit and in effect, a ,035 loss on your enterprise your first year. [This will be no surprise to the Irs, nor to the Sba (Small enterprise Administration), who both outline it takes everywhere from three to five years to start making a real profit on any business.]
Since taxes were taken out on your ,000 salary, not ,000 (remember, you had a ,000 loss...), the government owes you a rebate. This will amount from 0 to ,000 -- or more, depending on your deductions, exemptions, and of course, your tax bracket.
Start retention a daily log to report your stock photography execution expenses. Save your receipts.
A Key Player
Who is your accountant? Now that you are operating in the area of "intellectual properties," you will need man who is up to speed in this area, not Uncle Harry or a friend at work who is "good at figures."
Just as you would turn to a expert in medicine or a expert in law, it's best to seek out an accountant who is knowledgeable in intellectual properties.
Here's how to find one. Seek out the victorious creative people in your city or community: the artist, song writer, movie producer, the painter, the musician, and ask them, 'Who do you use as a tax advisor?' The same name will probably come up. This is the man who you should be working with.
This tax advisor will be aware of tax revisions and changes in the Irs code as it applies to you, the creative person.
To try to get your gift accountant to cooperate with you and study the tax law in this area of intellectual properties, would be tantamount to opening your check book to him or her to educate them. Say adios to your gift accountant and go with a man already schooled in the area of intellectual properties. His/her fee may be higher, but he/she will be a expert in recovery you many dollars in the time to come as you get your stock photography enterprise on firm footing with a plane cash flow. Now is the time to begin mental about next year's taxes.
With your first ,000 of tax savings, buy yourself a new camera, and write it off next year as a enterprise expense.
Our tax laws were wisely designed to encourage the small businessperson get started by allowing tax breaks for him or her.
If you don't make a profit your first consolidate of years, you're in good company. If whatever should be an expert on this subject, it should be the chief of the accounting branch at Money magazine. The magazine was founded in 1972 -- and did not report a profit until 1981. Money must know something that Sba consultants and accounting teachers don't: Sometimes it is profitable not to make a profit.
You have shown your creativity by becoming a stock photographer. Show the same creativity in your coming to taxes, and you will join the many victorious photo illustrators who do.
* Tax laws convert from time to time. Not greatly, but they change, go back to old rules, a new supervision comes along and adjusts the tax laws, etc. Your tax advisor will fill in you when these changes come about.
he has a good point Goodbye Taxes
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