Tax Write Off?
- Thread starter denzlite
- Start date
ZazaCast is right, in a simplified way. The best way to deduct your expenses is by starting a corporation or LLC. You will file incorporation papers with the state you are in, then file for a federal tax ID and elect your corporate type.. You will then file two tax returns, one for your corporation and one for yourself. There are a couple of corporate types out there but for a family business, usually an S Corp is best. There are quite a few tax advantages, but there are some expenses associated with keeping a small corp open such as license fees, corporate tax return, etc.
A corporation can also reduce your liability when working, protecting your personal assets to a point.
You will need a little advice to set this up, but less than an hour with your accountant or attorney should be enough. You can do all the filings yourself and save some money.
This advice is worth what you paid for it.
Regards,
Grant
A corporation can also reduce your liability when working, protecting your personal assets to a point.
You will need a little advice to set this up, but less than an hour with your accountant or attorney should be enough. You can do all the filings yourself and save some money.
This advice is worth what you paid for it.
Regards,
Grant
I write all my gear off against taxes (through my company) because I earn money from it.
You need to talk to an accountant. While I am in the UK, I have experience of running companies in the USA too. Currently we are an LLC because as a foreign national I cannot own an S Corporation, and would need to be a C Corp instead (which is much less tax efficient).
You need to figure out what the costs vs benefits are for each type of entity in the state you are in. California charges fixed scale fees for LLCs based on turnover regardless of whether you make a profit or not, and then wants taxes on any profits on top of that. Other states may do the same, and that may immediate eat in to any tax savings you gained.
If you want to run as a sole-trader, that can be done too - but really you need to speak to an accountant.
You need to talk to an accountant. While I am in the UK, I have experience of running companies in the USA too. Currently we are an LLC because as a foreign national I cannot own an S Corporation, and would need to be a C Corp instead (which is much less tax efficient).
You need to figure out what the costs vs benefits are for each type of entity in the state you are in. California charges fixed scale fees for LLCs based on turnover regardless of whether you make a profit or not, and then wants taxes on any profits on top of that. Other states may do the same, and that may immediate eat in to any tax savings you gained.
If you want to run as a sole-trader, that can be done too - but really you need to speak to an accountant.
ZazaCast
Major Contributor
For the same reason you hire a professional videographer instead of Uncle Phil to shoot your wedding... you get what you pay for!
I can't begin to tell you how much my accountant has saved me over the years...and their fees are deductable on your next years return.
You will certainly have expenses greater than income for quite a while. I would consider all equipment an expense rather than a depreciated asset for simplicity and because equipment can rapidly become obsolete.
You can only show losses for 3 years before the IRS classifies the business as a "hobby".
I would get legal advice, but my non-legal advice is to start out as a sole-proprietorship. This reduces your annual over-head and administrative burden to manage the business. Liability issues are minimal to non-existant in this business but you still need liability insurance no matter now you are set up.
You then file Schedule C with your 1040, along with a host of other schedules.
You can only show losses for 3 years before the IRS classifies the business as a "hobby".
I would get legal advice, but my non-legal advice is to start out as a sole-proprietorship. This reduces your annual over-head and administrative burden to manage the business. Liability issues are minimal to non-existant in this business but you still need liability insurance no matter now you are set up.
You then file Schedule C with your 1040, along with a host of other schedules.
Straw man fallacy, your analogy only would work if Uncle Phil read everything he could about the camera and how to shoot, studied basic aesthetics, and had months to practice and as many re-shoots as he wanted to get it right.
One can read everything needed about taxes on the IRS web site, all the forms are step-by-step, they require a simple knowledge of basic mathematics, and tax forms can be filled out time and time again until they are all perfect. They do not need to be completed until April 15th.
MadHMC150
DVXuser Sponsor
I know what they are but could you guys be more specific to what the difference is? expense vs depreciated asset...
I might have to be 'uncle phil' for a while and want to use the most effective way of write offs for my LLC.
ZazaCast
Major Contributor
If you have that much free time...more power to ya'. I'm busy building my business, depositing checks and taking a nap in the afternoon!
Best of luck to you filling out forms again & again...oh...and enjoy the audit when you've been red-flagged.:laugh:
MadHMC150
DVXuser Sponsor
Common now zaza... i been doing taxes since i was 16... cant be more then a few more boxes to fill out
An 'Expense' is something you can write off in a single year. So if something costs $4000 you can write off $4000 against taxes in that year.
A 'Depreciated Asset' is something you cannot write off in a single year, and have to write off (by depreciation) over multiple years. As an example, an asset costing $4000 deprecated at 25% per year means you only get to write off $1000 per year for four years.
Typically equipment becomes an asset that can only be written down as it depreciates, so if you were hoping to write if off in a single year you need to be careful. There are laws (federal & state) that govern what can and can't be expensed. It may be that you can expense up to $X in your state each year without attracting attention, but this may vary from state to state.
Now, some people always expense their equipment - and they may get away with it, but most of the time it's not the correct way to do it. In most cases the official way to do this is to add it as an asset, write it down each year by the allowed amount, then if you sell it (at a large loss) before it's completely depreciated to $1 then you can adjust for that loss at that time.
However, as has been said several times, you need to talk to an accountant (the first consultation may be free if they are trying to get your business) to find out where you stand in your state. This is one case where the accountant could save you time & money if you get audited.
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Dafilman21
Carbonite Member
Very good info guys I love when we get into the nitty gritty stuff around here!
Allen Ellis
Well-known member
Will anyone else be depreciating their HMC150 on taxes this year? How long do you think it should depreciated over... 5 years? 7 years?
ZazaCast
Major Contributor
Common now zaza... i been doing taxes since i was 16... cant be more then a few more boxes to fill out
You know what they say...."A lawyer who defends himself has a fool for a client." Same goes here. My tax returns average 20 pages with all kinds of forms I've never heard about. The laws change every year. I'll stick with the accountant. :happy:
ZazaCast
Major Contributor
Yes. It will be a one-time expense for me.
Most (expensive) equipment depreciation is done over 4 years (e.g. 25% over the purchase price per year) and this is normally only shortened when it is sold or no longer working.
While you could choose to write it down over a longer period (e.g. 7 years) it does not make sense to do so.
The problem with trying to expense something large is that the IRS can justifiably say that at the end of THIS year the equipment still has some resale value - and therefor you cannot claim that residual value against tax. If you did expense it - and then you sold it for more than zero dollars then you need to declare a 'profit' and pay tax on the amount you sold it for.
While many people get away with things like this - some people get caught - and then it's penalties and interest time.
You can certainly get away with expensing smaller items, and if the camera is cheap enough then you may get away with it. But, if you tried writing off $200K of camera in one year it may raise some eyebrows. So, check with your accountant about how much you can expense or whether you need to capitalize it and depreciate over time.
Exact, you are correct except that you failed to mention that if you sell depreciated equipment, you must also pay capital gains (income) on that amount.
Jeff, If you deduct as a sole proprietor, you must have enough in deductions to get beyond the threshold of standard personal deduction or it is pointless. If you own a house, and pay interest, and invest some equipment, then this might work if you made very little from your business. But if you are making even small amounts of money from the business then you are losing money; here is why. As a corp or LLC you can take the standard personal deduction AND the expense and investment deductions AND the loss (if any) from your business. It works better if you begin to make some $ and especially when you begin to pay yourself. An S corp doesn't pay income tax, you forward that gain or loss onto your personal return. Your corporation must pay you a reasonable wage and anything beyond that can be taken as a dividend. You don't pay social security (payroll tax) on a dividend, only income tax, so you are saving 16% tax on everything taken as a dividend. If you pay yourself $15/ hr as a cam operator, and take a $10,000 dividend at the end of the year, then you have already saved $1600. As a sole proprietor, you pay social security on all your income from the business.....you get to pay the extra 16% on all of it.
This is pretty different on a C corp, since C corps do pay income tax. C corps are much more complicated and offer few advantages for a small operator until you are making lots of money (we all hope). C corps can carry money forward from year to year, but they also pay income tax, so you can end up paying tax twice if you delay taking all the gain in one year. But they can also carry a loss forward at the corporate level, so over time, with larger investments, it is better. It is also better if you have investors and more shareholders.
Accountants.....I pay one to do my corporate returns. For the $400/year he charges me, I don't have to spend my time learning tax code and keeping up with changes. I can make more with that time doing what I do well, and paying him for what he does well.
Best Regards,
Grant
This advice is worth what you paid for it.
Jeff, If you deduct as a sole proprietor, you must have enough in deductions to get beyond the threshold of standard personal deduction or it is pointless. If you own a house, and pay interest, and invest some equipment, then this might work if you made very little from your business. But if you are making even small amounts of money from the business then you are losing money; here is why. As a corp or LLC you can take the standard personal deduction AND the expense and investment deductions AND the loss (if any) from your business. It works better if you begin to make some $ and especially when you begin to pay yourself. An S corp doesn't pay income tax, you forward that gain or loss onto your personal return. Your corporation must pay you a reasonable wage and anything beyond that can be taken as a dividend. You don't pay social security (payroll tax) on a dividend, only income tax, so you are saving 16% tax on everything taken as a dividend. If you pay yourself $15/ hr as a cam operator, and take a $10,000 dividend at the end of the year, then you have already saved $1600. As a sole proprietor, you pay social security on all your income from the business.....you get to pay the extra 16% on all of it.
This is pretty different on a C corp, since C corps do pay income tax. C corps are much more complicated and offer few advantages for a small operator until you are making lots of money (we all hope). C corps can carry money forward from year to year, but they also pay income tax, so you can end up paying tax twice if you delay taking all the gain in one year. But they can also carry a loss forward at the corporate level, so over time, with larger investments, it is better. It is also better if you have investors and more shareholders.
Accountants.....I pay one to do my corporate returns. For the $400/year he charges me, I don't have to spend my time learning tax code and keeping up with changes. I can make more with that time doing what I do well, and paying him for what he does well.
Best Regards,
Grant
This advice is worth what you paid for it.
Correct. Sorry - I had that typed as well, and while editing prior to posting it got lost
Anything you expense or write down, if you sell it for more than the value on the books - you made a profit from a tax perspective.