I love photography, and it is one of my biggest passions. I live in Rawlins, Wyoming and have been paid by people here to take their pictures. I want to do that again, but I’m running into a problem. I don’t know whether I should do it as a hobby or as a business. I guess my question is, if I charge for photography services, is that considered a business or a hobby? Do I have to register with the state and the IRS? I am completely at a loss of where I need to go from here.
Wondering if I’m in Business in Wyoming
What a fantastic question! I think many of the readers of this blog probably have faced or will face this dilemma. The short answer to this question is: You get to decide yourself whether you are in business, or whether photography is your hobby. Of course, actually making that decision is a little more complicated than just picking one or the other! There are pros and cons to both options, so here is a little guidance.
Why you might want to be in business:
The main reason you would want to be in business is if you legitimately want to pursue photography in a bigger way than just accepting an occasional photo shoot. Do you want to be out shooting sessions every weekend? Do you love the thought of having clients seek you out for your services? Are you planning on establishing a website or doing other things typical of another photography business? If so, you will probably want to start as a business immediately.
There are potential tax benefits to providing photography services as a business rather than a hobby. As I mentioned in an earlier blog post, you can potentially take a loss from your photography services as a business but not as a hobby. There are additional deductions the IRS is also willing to let you use more easily as a business than as a hobby as well. It’s also better to run your business in a way that’s completely legit from its inception rather than waiting until later.
Why you might want to be a hobbyist:
The downside of forming an actual business is of course the complication and work involved in setting it up as a legal entity, establishing an accounting system, and operating a functioning business. As a hobbyist photographer, none of that would be required. You would simply occasionally accept payment for your photography services, and include it in your “other income” on your tax return. The IRS will limit your available deductions from your hobby in a way it wouldn’t limit a business’s deductions, but if you’re not looking to be in a full-time business with frequent sessions that might not be a bad thing anyway.
The main difference comes down to intent: Do you want to be in business? If so, work to get it set up and make everything legit! If not, then it’s perfectly fine to accept payments from your hobby.
One final piece of guidance: The IRS does not want people who are really hobbyists taking the extra deductions that can be claimed by a business, so the IRS has kindly provided a list of indications that you’re running a business. If you can check some or most of these, you will probably have no problem qualifying as a business if that is your choice.
- Does the time and effort put into the activity indicate an intention to make a profit?
- Does the taxpayer depend on income from the activity?
- If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
- Has the taxpayer changed methods of operation to improve profitability?
- Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
- Has the taxpayer made a profit in similar activities in the past?
- Does the activity make a profit in some years?
- Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?
I hope this information was helpful! If you have any further questions about business or accounting, please don’t hesitate to ask.
CPA of TPE
Her best adventures always happen with her handsome husband, her kindergartener who is too smart for his own good (or hers!), her brave toddler who seems to have no fear whatsoever, and her brand new baby girl. She loves photography and how it allows her to capture all her adventures, big and small, and to keep them forever. In order to fund her love of all things photography, she works part-time from home as a CPA.
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