Personal Use Photography Items Converted To Photography LLC Business

[PHMassie]

Nearing retirement age, I began to purchase Photography Equipment to begin a Photography Business when I did retire.  I also started taking photos and posting them to stock photo sites for sale prior to forming my LLC in 2019.  Going through the business asset section in TT it recommends that items costing less than $200 be moved to Business Expense section.  Going through some of the FAQ's I found something about Personal use items can't be converted to Business Expenses when you start the business???  I'm talking about personal use Photography Equipment such as tripods, backpacks, batteries, Memory Cards, etc..  Some of which I bought 2 - 6 years ago.  Can these be expensed as startup costs, other misc. costs or depreciated as an asset even though below the $200 recommendation?

[RobertG]

You can deduct or depreciate equipment converted from personal to business use.  

Just use the fair market value on the date of conversion as your basis.

You can't claim the Section 179 deduction on property that is not new to you.

[PHMassie]

Just to make sure I am using your terms correctly.  When you say:

-Deduct, you are talking about deducting expenses

-Depreciate equipment you are talking about business assets

Do I understand you correctly?  In both cases I need to use FMV or actual cost whichever is lower?

[AmyC]

Mostly! The sec 179 deduction is a bit of a misnomer since it is a depreciation term that allows you to deduct  it all the first year. Thanks for the lesson, I will word that differently in the future!

In all cases, you must use the LOWER of fair market value or what you spent plus improvements for converted items.

Let me give you my favorite IRS link for starting a business, it even has You Tube videos to teach you how to promote your business!

Please look through, you will see one publication on starting a business, another on record keeping and recommended reading list for new businesses. Be sure you do not look like a hobby or all expenses will be lost. That is is there as well.

Small Business and Self-Employed Tax Center - complete guide

Good luck!

[PHMassie]

Thanks, I have started two LLC's.  One for Business Consulting similar to my old professional work and the other for Photography.  For Photography I have created a website with eCommerce module to sell my photography.  I also sell it through several Stock Photography websites  I have reserved Google Domains and created Business Cards.  I am promoting my business on Instagram and Facebook Business sites.  This year I plan to pursue more portrait opportunities.  I'm hoping that looks enough like a real business.  I've moved on from just shooting personal family gatherings and kids sports.  This has all been a real learning curve and the tax part has been a new learning too.

[AmyC]

That sounds great! I think it help to know what the sch C actually looks like so you can track expenses to match the form.  About Schedule C (Form 1040), Profit or Loss from Business ... 

Since it sounds like you will have self employment income and self employment taxes, you may need to make quarterly payments unless you have a W4 with a job that you can change. You can use the IRS tax estimator / W4 planner anytime throughout the year.

• Self-Employment Taxes
• Form 1040-ES, Estimated Tax for Individuals

A few more just to be safe!

• Publication 583, Starting a Business and Keeping Records
• Deducting Expenses
• Recordkeeping
• Hobby or a Business. 

[PHMassie]

Thanks.  I did make Self-Employment Tax payments in the quarters I received payments for 2019.  The Business Consulting LLC is pretty clear cut a business.  I know how the Photography space could be a hobby or business.  I'm trying to make it a business.  Do you think my efforts to date would support Photography business with the IRS over hobby?  My income from it is pretty low vs. expenses but you have to buy the equipment and get out and take the photos before you can turn them into art in Photoshop people will buy.  Then you have to post them to websites for sale before you can make your first dollar.  Aslo, in 2020 pursuing more freelance portraits, product and architectural photography for real estate agents.  Just want to make sure I am hitting on the key requirements of business vs. hobby?  Many years of photography passion/hobby & training to learn the craft plus equipment purchases before you can transition to professional photographer.

[AmyC · Accepted solution]

Yes, you are transitioning and the IRS understands that start up year is a problem.

• That is why they allow up to $5,000 of your pre-business dollars to be a direct write off.
• As long as you have records showing your activity, you will be fine. You could have spent many hours doing research that don't have a visible progress this year but will in another year or two.
• You are expected to have a profit by year 3, unless you have extenuating circumstances. 

Your tone here certainly sounds like you are trying to make these 2 businesses work. The IRS also knows that most people who own a business, have 2 or more businesses.