I can haz deductions?

August 9, 2011 4:34 AM

My Taxes Filter: If I spend $2000 in self-employment income on equipment for said business (this is all the money I made on said business this year) will I be able to deduct roughly that amount and not pay taxes on the $2000?

I had $2000 in photography income based on usage rights that I sold this year (on pictures I took the previous year). I have another full time job which pays my bills. This so far is the only income I've made from this business this year.

I would ideally like to not pay self-employment tax on this $2000. I have filed as a small business for 2 of the last 3 years (middle year I did not file at all because I had $0 income based on being in school).

My equipment is all quite long in the teeth and I would like to invest in new stuff. Now that school is over I am able to take on some more photography work but my equipment is really over the hill.

My question: if I sank all of this $2000 into equipment, would I avoid paying self-employment tax on it? I most likely will spend more than $2k on equipment this year regardless, but just wondering if I should budget a percentage of this money on paying taxes. I guess I might have to depreciate the equipment over 5 years, now that I think about it.

If it’s relevant, I live in MA and my base salary for my other job is $50kish. I may or may not have additional photography income this year.

You are not my accountant! My accountant is H&R block and they actually did a pretty sweet job.

posted by sully75 to Work & Money (9 answers total)

Response by poster: I'm meaning, roughly. Like if I do this now, and show up to the accountant with the documentation in March, will I roughly avoid paying 33% or whatever on this money.
posted by sully75 at 4:35 AM on August 9, 2011

You would most like amortize the cost of the new equipment over a few years.
posted by Thorzdad at 4:39 AM on August 9, 2011

Some equipment can be expensed when purchased, but some has to be depreciated - expensed over time. You should be tracking mileage for photography, and other expenses that can make a big difference.
posted by theora55 at 4:41 AM on August 9, 2011

You mus also consider that (I believe--I'm no tax expert) you cannot deduct the full amount of the cost if you use the equipment partially for personal use. If you only ever use the camera equipment for your business, you could deduct it all, but if you use it partly for personal photography, then it would be deductable only on a percentage basis.
posted by drlith at 4:58 AM on August 9, 2011

In quantities like that, you can take it under Section 179, which lets you fully depreciate up to a certain amount of assets in a single year. (That amount is way more than what you're looking at here.) So, while I'm not your accountant, this is a pretty safe bet, as long as you're using it at least 50% for business. You'll only be able to deduct the portion being used for business, whether under MACRS depreciation or Sec. 179.
posted by gracedissolved at 5:09 AM on August 9, 2011

Section 179 specifying the percentage of business use makes sense, but you may want to mix and match the amortization so that you don't raise the business vs. hobby flag.
posted by holgate at 5:45 AM on August 9, 2011

I would Section 179 it but be sure to pay taxes on a small profit at the end of the year to help meet the 3/5 years profitable test. $100 would be good. As for personal use: you're supposed to apportion it, but I would deduct the whole thing and then if you're worried, write up a little business manual making the business case for allowing you to train with the equipment during off-hours.
posted by michaelh at 6:27 AM on August 9, 2011

Better answer: buy new cameras solely for business use. Use the older ones for personal.
posted by megatherium at 7:31 AM on August 9, 2011

the 3/5 years profitable test

Otherwise known as "hobby loss". Ask H&R Block to explain it to you.
posted by John Borrowman at 1:44 PM on August 9, 2011