Can You Deduct That Brand New Canon 5D Mark 2 on Your Taxes If You Sell a Few Photos? Tax Tips For the Part Time Photographer

And To the Republic, For Which it Stands Accountant Ivan Makarov has an excellent post over at his blog regarding how taxable income and expenses are treated for the part time photographer:

“You must declare all income you get from photography, and you may offset it with your expenses if it is a business. In the eyes of the IRS, it is a business when it is ran with for-profit motive. The test that is typically used to determine whether it is a hobby or a business is the level of profitability. If the business has been profitable (generated more income than expenses) for 3 out of the last 5 years, it is a business, and if in the current year taxpayer has a net loss when items of income are netted against expenses, that loss can be used to offset other income. If you do not meet the test, the IRS considers your photography a hobby, and deductions allowed will be rather limited.”


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7 Comments

  1. Scott Hunter says:

    Why would a $5,000 camera be considered an expense, not a capital purchase that requires a more gradual amortization write-off over several years?

  2. Andy Frazer says:

    I’m not going to argue with an accountant over this one. But I would caution anyone who wants to try this to check with their own accountant, first.

    I may be wrong, but I thought that the side business had to generate revenue that exceeded a minimum percentage of your total income (from your “day gig”) in order to qualify as a legitimate business.

    I may even be wrong twice (it wouldn’t be the first time), but I’ve also heard that these sort of deduct-your-hobby filings are a red flag for an audit.

    Again, please check with your own accountant. I don’t know what I’m talking about.

    Andy

  3. Tommy says:

    My brother in law, a CPA, told me recently: “Pigs get fatter, hogs get slaughtered.”

  4. TranceMist says:

    My accountant actually recommended this to me.
    Worked great the last couple of years.
    I’ll let you know in 5 years how it works out. 🙂

  5. Ivan Makarov says:

    To clarify, very few businesses are profitable in the first few years of its operations. If you just started your photography business, bought a nice new camera and bunch of lenses, of course you’ll likely not generate more income in the first year than you spent on the equipment. But you have to have a plan in mind of how you will turn it into a profitable enterprise in the next few years if you’re deducting your equipment in the first year. If after five years all you do is write new lenses and cameras off without becoming profitable, you should expect for the IRS to come in and disallow the deductions, assess penalties and tax owed on all the past tax returns where you claimed these as deductions.

    As for a camera, you can deduct the full amount of it in the year of purchase by making an election under Sec 179, which allows full deduction for depreciable assets in the year of purchase up to $250,000 in 2008.

  6. Eric in SF says:

    I read a similar story last year and will no longer be deducting anything. I make about 5% of my yearly income on photography and I don’t plan taking steps to increase that, so I would be at year 3 of no profits if I deducted this year.

  7. Another thing to consider before you deduct a camera is that the state sees your federal return. California in particular gets nosey about whether you paid sales/use tax on big-ticket items you deduct.