I want to start a photography business one day. Right now, I am building a portfolio & practicing. I'm a full time mom and can't invest tons of time into being a "business". I offer my services for free but do charge for prints if the subject wants them. I charge $1-$3 over cost of prints to help pay for the prints I need for my portfolio. I would consider myself as a hobbyist but I don't want to be wrong. I don't see making a profit since I've already invested about $1500 into gear this year and have had no purchases. Also, would it make a difference if I didn't offer prints, just my free services?
I don't feel I'm ready for "business" yet, but if I'm going to be treated as one, I have some decisions to make.
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I highly suggest that you hire a good CPA before April 15 of this year. You may find, as I have, that the money that you save on your taxes more than makes up for what you have to pay, and if you wait until next year you will have lost out on potential deductions.
A hobby is generally an activity that you pursue for your own enjoyment. A business is a pursuit in which you engage with an expectation of making money.
It sounds like you are right on the line. However, IMHO, where you have charged for prints and you are building a portfolio you could potentially list this as a business. Practical advice: take an evening class, you might luck into a fantastic instructor like I did. Buy books and manuals on the subject. Put up a website of your work. Join a networking group. Now you're on the way to becoming a business. When the little ones grow up you've got a business to take over the time they are consuming now.
This answer is provided for informational purposes only. Actual legal advice can only be provided in an office consultation by an attorney licensed in your jurisdiction, with experience in the area of law in which your concern lies.
If you earn income it must be reported. It seems that you would be operating at a loss, at least initially. If there are any liability issues then you must consider forming some form of entity to operate your business, such as a S corporation, or an LLC or a regular corporation.
As far as losses are concerned you would be subject to the hobby loss limitation rules. For details as to these rules, please look at my legal guide entitled Hobby Loss Limitation Rules found at the following cite: http://www.avvo.com/legal-guides/ugc/hobby-loss-limitation-rules
There are many issues to be explored here; really you need to get with a business or tax attorney to explore all the angles.
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Mr. Fromm is licensed to practice law in PA with offices in Philadelphia and Montgomery Counties. He can be reached at 215-735-2336 or at the email address listed below. He has received a 9.7 rating from AVVO and recently was featured as a 5Star Wealth Manager in the Philadelphia Magazine, November 2009 issue on page 123.
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