Learning about photography can be completely engrossing and intoxicating. You can easily get swept up practicing until you nail exposure every time, your compositions are compelling, and your technical skills are finely honed. Then one day after all that practice something magical often happens:
You have a friend, or acquaintance, or even a stranger approach and ask if you would take some pictures for them.
They’ve noticed you take beautiful photographs, and they’re even willing to pay you.
Have you ever experienced the thrill those words can give? Maybe you’ve just booked your first session, or maybe you are busy shooting every single weekend. But regardless of your experience, once you start receiving payments for your photography services you need to ask yourself one major question:
Is photography your hobby, or do you have a business?
At first glance it might not seem like this is actually a big issue. However, whether or not you’re operating a business will make a dramatic difference in how you are allowed to input information in your tax forms for the IRS. Because of that, it will also make a big difference in how much taxes you have to pay on the money you make from photography. Suddenly, this might feel a little more important.
Since a major difference between business income and hobby income is how the IRS will treat your profits, let’s go over a few quick definitions:
- Income is the amount of money you have received for your photography services.
- Ordinary expenses are amounts that you have spent in order to support your photography services that are common in this trade. In order words, if most photographers pay for similar things you will probably be allowed to deduct those expenses.
- Necessary expenses are just what it sounds like: something your business needs to have in order to function well.
Basically, when you are operating a business the IRS allows you deduct all ordinary and necessary expenses. These might be things like purchasing prints to resell to clients, or paying the hosting fee for your website. Even if your business ends up losing money for the year, you will still be allowed to deduct all those ordinary and necessary expenses and it will offset other income on your tax return (like employee wages).
In contrast, when you are accepting payments for photography as your hobby the IRS will allow you to deduct expenses only to offset the income from your hobby. You will be allowed to reduce your hobby income to zero, but you will never be able to show a loss from a hobby on your tax return.
Here’s a simple example. Let’s say Harper received $1,000 in payment for her photography services during 2014, but actually spent $1,200 in order to earn it. If she is running a business, Harper will be able to deduct all of her ordinary and necessary expenses, and will have a $200 loss from her business in 2014. This loss will offset the other income on her tax return, like amounts she received as employee wages. Her business loss will reduce her total tax bill.
On the other hand, if Harper is receiving payments for her photography services as her hobby, Harper will only be able to deduct only the amount of ordinary and necessary expenses that reduces her income to zero. Instead of deducting all of the $1,200 in expenses, her deductions will be limited to $1,000. She will never be able to recognize a loss from her hobby, and those amounts will never reduce other income like her employee wages on her tax return.
Since we’re in the full swing of tax season, if you received payments for photography services in 2014, now is the perfect time to ask: is photography your hobby, or do you have a business? As you can see, the answer could have a big impact on your taxes!
Have other tax questions? Post them below, and I’ll be in touch with more tax-friendly blog posts to get you sorted out!
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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