Starting Photography Business

[Nataliaphotography]

Hi yall! A little help here please! 

Im thinking of starting my photography business and becoming  a sole proprietor in November, in order to deduct the inicial equipment investment, I would have to have a higher or equal income, which wont be the case by April given Im just starting. 

Will they pass it on to the next year? 

Should I wait until January to start my business? ( even if I purchased the equipment this year?) 

[Anonymous]

section 179 depreciation (the election to expense qualifying items in the year placed into service - the year the business begins operating)  is limited to business income before the deduction.  on the other hand maybe most or all of the equipment qualifies for 168(k) bonus depreciation deduction (you can elect to use 50% or 100% bonus)  - 100% would allow the full deduction for the cost  in the first year of operation and is not limited to business income.     

you business gets reported on your 1040 Schedule C so your business income for 2019 would only cover November through December 31, 2019.  any income after that date would be on the 2020 return.

section 179 not used, is carried over to the following year.     

since you are starting a new business, start up cost are subject to section 195.  if they don't exceed  $50,000 up to $5,000 can be deducted the first year 

The term “start-up expenditure” means any amount—
(A)paid or incurred in connection with—
(i)investigating the creation or acquisition of an active trade or business, or
(ii)creating an active trade or business, or
(iii)any activity engaged in for profit and for the production of income before the day on which the active trade or business begins, in anticipation of such activity becoming an active trade or business,

whether you should take the maximum amount of depreciation allowable is not an easy question to answer.     if you are in a low tax bracket in 2019 taking some  in future years when you are in a higher tax bracket might be more beneficial.    you might have a net operating loss, then a decision needs to be made as to whether to carry forward such loss (election required), if not a 2019 NOL would need to be carried back to 2017 with any remaining carried forward to 2018 and then 2020

another issue is should you form an LLC for the business - the theory is limited liability.   a single member LLC reports just like a sole proprietorship on schedule C.   the downside is there are fees for creating it and many states have annual fees for maintaining it.

since this is your first year, I strongly suggest that you use a pro who can look at the various alternatives to give you advice on the business and your taxes.   he can also give you advice on other things.   

if the equipment you will be using are personal assets that will be converted to business use, then forget about section 179 and 168(k) 

[Carl]

You're doing the right thing by seeking information "before" you do anything to start a business. Do note that if your state also taxes personal income, you may find it more helpful to seek professional help in your area, as the tax laws differ state to state.

 - Start up costs -- These are cost incurred during the process of starting a business, before the business is actually "open for business". Start up costs are reported/claimed as startup cost in the first year the business is "actually" open for business. It flat out does not matter in what year those startup costs were incurred either. But the main thing is, you can't "claim" your startup costs until the tax year you are actually open for business.

You can claim/deduct a maximum of $5000 or up to the amount of actual taxable profit the business makes in that first first (whichever is lower). Anything after that is amortized (not capitalized) and deducted (not depreciated) over the next 15 years.

Some expenses are not expenses, but are assets. Assets are capitalized and depreciated over time. The period of time over which an asset is depreciated, depends on the classification of that asset. For example, photographic equipment is depreciated over 5 years. Basically, an asset is any item used to "produce" income on a recurring basis. For you that would be things like cameras, lights, stands, enlargers, developing equipment, etc.

So it's important to know the difference between a startup expense, and a business asset.