Has anyone incorporated their photography business?

[HDNitehawk]

Joel, selling the prints I don't see a need to hurry out and make an LLC. Keep in mind at any time you can change from sole proprietor to LLC. If you start taking on clients do it.

I think what would be more important is good liability insurance. I know general liability would be a necessary in case you accidentally hurt some one, I am not sure what other types of insurance a photographer might carry. Here is an instance, if you have been watching USA olympic basketball a player on an opposing team ran in to a photog and hit his head on his big white lens a game or two ago. Imagine if you were at the local high school game and the top prospect in the country ran off the court and was knocked out by your lens. Big lawsuit, an LLC might help you but probably will not in this situation.

[Joel Eade]

I would agree that forming an LLC just for liability protection is probably not critical at this stage. The most significant advantage is a deduction for equipment depreciation on my personal income taxes. In my particular situation I believe that it is worth the effort. I already have an accountant who takes care of my main business and my personal taxes. He feels that he can do the photography LLC with minimal additional effort.

At some point I may need insurance as well but not yet. I think it would be definitely be needed if I brought clients to my home or a studio. Also if I were to get into offering classes or workshops but that isn't in the immediate future. I suspect insurance costs is one reason why workshops are so expensive.

[Joel Eade]

It isn't about how much you make but how much you get to keep!

Amen brother!!!!!!

[HDNitehawk]

Joel,

I try to avoid talking taxes but, i see no benefit here for you in this regard. To take the allowable deductions as a business you could simply file schedule C. If your business can be considered a true business for profit your gains will be taxable and on years with a loss it will lower your tax burden.

However the IRS has rules on what it conciders a hobby and a business. One of the rules for it being a for profit business is that you show a profit at least two of five years. This could be the toughest to meet. But there are many rules they have for a hobby.
But the difference in a hobby and a business for profit as it matters to us is that a hobby can only write off deductions to the point you had income, where a business for profit can have a loss that offsets against your taxable income. There is a spot on the tax forms to enter hobby expenses and income.

Rick

[thekingb]

[/I]So you can see there is no tax benefit to a LLC as far as the IRS is concerned.

Not necessarily true. An individual/sole proprietorship cannot file taxes as a corporation. Depending on your business, there might be significant advantages to being taxed like a corporation (dividend distributions, depreciation, etc.). If you want that tax treatment, there are only two ways: incorporate or create an LLC and elect to be taxed as a corporation.

[HDNitehawk]

Not necessarily true. An individual/sole proprietorship cannot file taxes as a corporation. Depending on your business, there might be significant advantages to being taxed like a corporation (dividend distributions, depreciation, etc.). If you want that tax treatment, there are only two ways: incorporate or create an LLC and elect to be taxed as a corporation.

Sure you can choose that option. As an individual sole owner I am not sure why you would want to be double taxed like a corporation. But you could elect that option if it fit your situation. One of the reasons we see so many LLC's now, an LLC affords you less protection than a corporation but you do not have to be taxed as a corporation. Most of the people I know that changed from an INC to an LLC was just for that reason.

[thekingb]

Sure you can choose that option. As an individual sole owner I am not sure why you would want to be double taxed like a corporation.

Some people's businesses have an income/expense profile that makes it relatively easy to zero out income based on high expenses. I suspect that in a photography business, the high capital costs depreciated over time could wipe out any income, leaving you with actual income (money in the pocket) from the business but no paper income because of the offsetting expenses. I believe the tax rules for corporations give you more flexibility here than with sole proprietorships. But that's for the accountants. And it seems like Joel's accountant sees a benefit to corporate tax treatment rather than sole proprietorship.

But I still think all of this is beside the point. Forming and maintaining a single member LLC is cheap and easy. The LLC requirements for my old consulting business took me about 10 minutes and $25 a year. No reason not to do it IMO.

[HDNitehawk]

I suspect that in a photography business, the high capital costs depreciated over time could wipe out any income, leaving you with actual income (money in the pocket) from the business but no paper income because of the offsetting expenses. I believe the tax rules for corporations give you more flexibility here than with sole proprietorships.

You can deprecate capital expense with both types and it will definitely keep money in the pocket. I am not aware of how there might be a benefit form one to the other, and from my time owning a corporation I don't think it was much diffrent. That was 12 years ago though and times change.

But that's for the accountants. And it seems like Joel's accountant sees a benefit to corporate tax treatment rather than sole proprietorship.

It will be a benefit to the accountants taxes, it makes more work for him and he makes more money because he spends more time on your taxes. As with doctors, lawyers, accountants and other professionals they are in the business to make money. They have to be managed or you end up with unnecessary expenses. The more you know yourself the better off you are.

It does make it easier for the accountant to justify the expense as a legitimate buisness rather than a hobby, if it appears the buisness is actually a buisness. If you go to the trouble to structure a business it will appear to actually be a business. Proving that the business is a for profit business in this situation is the biggest hurdle to overcome.

But I still think all of this is beside the point. Forming and maintaining a single member LLC is cheap and easy. The LLC requirements for my old consulting business took me about 10 minutes and $25 a year. No reason not to do it IMO.

I agree, it isn't a big deal to do.