Business Deductions

[richard939]

I plan on starting a photographic business and need answers to several tax questions. I have always filed a joint return with my husband. We are both retired, we both receive social security and I receive an annuity retirement from Colorado, my husband receives a disability payment also from Colorado.

My plan is to travel and photograph state parks for a month at a time then return home to check and fix the quality of the photos and in some cases write articles to enhance the offer.

The photos and articles will the be submitted to travel magazines for publication. It is my understanding that there will be little or no income for a couple of years, since it generally takes a while to build a marketable portfolio and reputation. I also plan on trying to sell my photos, handmade cards and jewelry at flea markets and craft fairs.

Now my questions:

We purchased a used motorhome, it is titled in both our names, which will be used only for the business. I keep very detailed records on mileage and also all maintenance and fuel costs. My question is - can I deduct the purchase price of the motorhome over several years?

Since my husband will be traveling with me how do I apportion the food costs? There will be over night parking fees, since I would have to park over night with or without my husband – do I need to apportion that cost?

Can We continue to file a joint return?

[ColeenD3]

You don't have a business. You have the hope of a business. While the IRS does cut some slack in terms of start ups, your business may never come to fruition. If you had buyers in place for your photos, then it would be a different matter. Your expenses are not deductible.

The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is a business or a hobby, an activity not engaged in for profit.

In order to educate taxpayers regarding their filing obligations, this fact sheet, the eleventh in a series, explains the rules for determining if an activity qualifies as a business and what limitations apply if the activity is not a business. Incorrect deduction of hobby expenses account for a portion of the overstated adjustments, deductions, exemptions and credits that add up to $30 billion per year in unpaid taxes, according to IRS estimates.

In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.

In order to make this determination, taxpayers should consider the following factors:

• Does the time and effort put into the activity indicate an intention to make a profit?
• Does the taxpayer depend on income from the activity?
• If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
• Has the taxpayer changed methods of operation to improve profitability?
• Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
• Has the taxpayer made a profit in similar activities in the past?
• Does the activity make a profit in some years?
• Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity.

@richard939