Comments on: Tax deductions for freelancers

Question: Tax deductions for freelancers

blim8183 — Thu, 22 Feb 2007 10:33:52 -0800

I'm an aspiring filmmaker, is the new camera I just bought tax deductible?

Although I hope to be a filmmaker, I'm currently working as a web producer so the camera doesn't have much to do with my actual job. However, I bought it so that I could start doing freelance videography on the side. I don't have a business or anything, I just find freelance gigs through craigslist and friends, can I still deduct all my camera equipment from my taxes?

Along the same lines, I'm also doing freelance web work and am need of a laptop. It's the same situation as the above where I don't have a business setup, I'm just finding odd jobs, I can deduct the laptop if I get one?

By: putril

putril — Thu, 22 Feb 2007 10:40:25 -0800

If you claim any income as from a "hobby" you can claim hobby expenses against that income (only up to the hobby income amount).

By: grouse

grouse — Thu, 22 Feb 2007 10:43:09 -0800

You might want to see IRS Publication 535: Business Expenses. Among other things, it makes clear that the expense for things that are used for personal as well as business use be pro-rated.

I'm also doing freelance web work and am need of a laptop. It's the same situation as the above where I don't have a business setup, I'm just finding odd jobs, I can deduct the laptop if I get one?

If you do, you better make damn sure you report all your income and pay self-employment tax on it. Not that you wouldn't.

By: grouse

grouse — Thu, 22 Feb 2007 10:45:02 -0800

Make sure you read the sections about whether your business is considered for-profit or not. If the IRS considers it is not-for-profit, then expenses can only be deducted up to the amount of money it brings in, as putril says.

By: blim8183

blim8183 — Thu, 22 Feb 2007 10:48:19 -0800

Wow, I just realized how bad the grammar is in my original post. Sorry about that.

By: jellicle

jellicle — Thu, 22 Feb 2007 10:50:45 -0800

Yes, but you should show income from that equipment.

If you bought the equipment, you now use it to earn income, you report that income on your taxes, absolutely, the equipment is deductible. Note! The equipment is actually a capital expense, and thus you cannot deduct its cost all in one year, but have to deduct it over several years as it depreciates.

By: ikkyu2

ikkyu2 — Thu, 22 Feb 2007 18:49:08 -0800

A fledgling business doesn't become a hobby until it's lost money for 3 years running.

You can section 519 a lot of business expenses - not all of them - and deduct them all in one year.

blim8183: do you already itemize deductions? If not, you'd better do some back-of-the-envelope calculations with a sample 1040 and Schedule A. If you don't have more deductions than the standard deduction, which is, what, $5200 for 2007, you won't be deducting anything, because it won't be in your interests to do so.

By: Mr. President Dr. Steve Elvis America

Mr. President Dr. Steve Elvis America — Thu, 22 Feb 2007 19:53:16 -0800

ikkyu2, that's not quite the test. If an activity has produced profit in excess of deductions for three of the past five years, it's presumed to be for profit.

If this test can't be met (e.g. the activity has only been engaged in for two years), there's a complicated facts and circumstances inquiry that looks at the method in which the taxpayer carries on the activity, the taxpayer's expectation of profits, and a bunch of other factors to determine whether the activity is for profit.

The significance is that deductions for activities not engaged in for profit can only be taken to the extent of income from such activities.

The long and the short of it is that the original poster can't deduct the price of the camera to the extent it exceeds income from filmmaking unless the filmmaking is being carried on as a business with the expectation of profit.