Thinking of turning Pro, advice please

I've been in the transition from hobby to full-fledged business and have been staying on the 'hobbiest' side until I Know I'm ready to begin showing a profit--at which time I'm planning on declaring a full-fledged business. From my perspective this has some advantages and disadvantages:

Advantages:

-As long as I'm showing a loss (expenses exceed income), I can claim that this is just a hobby and pay for my equipment
-I, personally, own the equipment and not the business

Disadvantages:
-I can't deduct many 'business' expenses (cell phone, mileage, internet, etc)

However, I currently don't know what my obligations are for collecting sales tax, how to establish an actual business, and what I should be doing in terms of insurance (liability and equipment protection). Also, I live on the border of Illinois and Wisconsin and photograph in both locations.

Can someone please help me with figuring out where to turn to begin to answer some of these questions (any referrals to good, reasonably priced accountants is appreciated--Rockford area)?

I've shot 3 weddings this year and am about to sign another for later this year. I'm also about to book 3 weddings for next year already--and I'm still not advertising. I'm contemplating placing an ad in the paper but figure I need to 'get my ducks in a row' first--especially if I need to go back and pay sales taxes, etc. for weddings I've already shot.

In advance, I understand that most of the replies won't be from 'authoritative' individuals and is for help, guidance etc. I appreciate your willingness to help and your assistance/patience by remembering when you were at the same spot I'm currnently in.

If you're interested in any of my work, you can check some of it out at the portfolio gallery located at http://www.smhphoto.com/weddings .

Sean

Once you establish a DBA and report your equipment, you are now
liable for city and county property tax on all reported equipment. This
will not stop for years, even if you go out of business. Deductions are
a two way street. Many local counties want you to report to them as
well. Many cities now require a permit for each shoot because you are
a business and need that permit to operate in their town. A city may
want to see your tax returns for over a decade to confirm your permits
and account for every commercial job you do.

Once you declare a business, you are in the system for life. You may not
do much business in the 1st few years, but those cities and counties will
want their permit and property taxes, nonetheless. If you think "deductions"
are going to help, you better watch out for the other side of the coin and
let your accountant fill you in on local regulations and fees.

You now have to raise your package prices to cover all the taxes and overhead.
You will find that a $1K wedding almost costs you money if you count your
time and then deduct all the taxes and time to process all the paperwork. A
$2K wedding might be a net small profit in the real business world and you
still have to compete with the low ball newbies that don't have the taxes or
overhead. Now that you CAN'T under bid these newbies, you are on the road
to failure unless you increase your marketing which also costs more money
and raises your cost of doing business. All this in hopes that you will not only
gain clients, but do so for at least ten years into the future so your business
plan has time to get into the profit zone which allows you to pay the taxes?

Sound complicated? Yes, it is not all as it appears once you are in the system
and you still have the non tax paying newbies at your heals.

Do you wonder why most business fail within five years with the owners deep
in debt?

smhagger said:

Advantages:
-As long as I'm showing a loss (expenses exceed income), I can claim
that this is just a hobby and pay for my equipment
-I, personally, own the equipment and not the business

Disadvantages:
-I can't deduct many 'business' expenses (cell phone, mileage,
internet, etc)

However, I currently don't know what my obligations are for
collecting sales tax, how to establish an actual business, and what I
should be doing in terms of insurance (liability and equipment
protection). Also, I live on the border of Illinois and Wisconsin
and photograph in both locations.

Can someone please help me with figuring out where to turn to begin
to answer some of these questions (any referrals to good, reasonably
priced accountants is appreciated--Rockford area)?

I've shot 3 weddings this year and am about to sign another for later
this year. I'm also about to book 3 weddings for next year
already--and I'm still not advertising. I'm contemplating placing an
ad in the paper but figure I need to 'get my ducks in a row'
first--especially if I need to go back and pay sales taxes, etc. for
weddings I've already shot.

In advance, I understand that most of the replies won't be from
'authoritative' individuals and is for help, guidance etc. I
appreciate your willingness to help and your assistance/patience by
remembering when you were at the same spot I'm currnently in.

If you're interested in any of my work, you can check some of it out
at the portfolio gallery located at http://www.smhphoto.com/weddings .

Sean

Click to expand...

Go to the thread in this forum on "Wedding newbies are they legal"

and you will really be confused. Contact a CPA in your city and you will be much happier with the conclusion you reach. Just my opinion, but I am at peace with all my business legal matters because my CPA does the work. Yes I have been audited both corporate and personal, both State of Texas and Federal. Check it out. I do not consider myself a pro but I do read this forum and sell a few photos, yet my accountant handles all the paperwork for taxes, etc. It is not as costly as you might think, especially if you are going into "business" and not going to just sell a few photos.;
--
JClark

Hi Sean,
First of all you are a good photographer, I urge you to become professional.

I feel you are approaching this correctly. Find an accountant and set yourself up so that you pay the sales tax you have collected, and continue to collect. Where I'm from, the process of obtaining a business license was a simple procedure.

I have a million dollars business liability, and can present a certificate of insurance if anyone requests one. It is not too expensive, including the insurance for my equipment (replacement cost,) the total cost is only $800 a year or so.

When I started, and it still hasn't changed after all these years, I wanted to carry as little overhead as possible. No studio, no employees. The hardest thing for me is figuring where to spend my advertising dollars. Get a great website.
Good luck to you, you most certainly have the talent!
Ron
My wedding gallery is here http://ronphoto.zenfolio.com/p259794063/
My people gallery is here http://ronphoto.zenfolio.com/p21558656/

Ron
--
http://www.ronphoto.zenfolio.com

Thanks Ron, for the compliments, encouragement and advice. I think we're thinking along the same lines in terms of keeping the overhead low, the insurance appropriate, etc. I do appreciate your encouragement regarding my abilities--that does help me a lot.

I should have clarified in my original post that I'm an engineer by day and make good money--enough to support my wife and 4 children on. Thus I'm looking to become a "Pro" simply because the wedding photography is starting to take off and I just want to do things legally. I actually don't mind operating at the break even point for right now as it allows me to fund any equipment that I want to purchase--hence the reason why I'm a hobbiest right now and not a pro. With just a few more weddings signed and completed, I'll be at the point of breaking even with this year's expenditures (over $10k). I feel I have a decent understanding of some of the business side of things and I enjoy meeting and working with clients. So for me, right now, this is a non-pressure, enjoyable activity (yes, I am talking about weddings!).

Thanks again for your comments.

Sean

(PS You have many great images in your gallery as well, nice work!)

--

You may already working illegally. The IRS does not have different rules for those that claim to be a pro and those claim to be professionally. If your receiving income and have a paper trail, the IRS will no doubt want there part. I am no accountant but it seems as though you may need to file schedule C. It is my understanding you can claim losses for 3 of 5 reporting years. More losses in consecutive years and an audit flag might go up. Look closely at a schedule C and you will see a host of deductions. Also home based businesses. You should file a DBA with your state. Google this and you find alot of helpful hints. As I said before, I'm no accountant. Get professional help if in doubt. Good Luck!

First of all, thank you for the time and thought you put into reply--I appreciate your comments. Having said that, I'm not sure if I totally follow some of your points--or if they apply to me living in Illinois in the USA (maybe they do, I'm just not sure).

AperturePro said:

Once you establish a DBA and report your equipment, you are now
liable for city and county property tax on all reported equipment. This
will not stop for years, even if you go out of business. Deductions are
a two way street. Many local counties want you to report to them as
well. Many cities now require a permit for each shoot because you are
a business and need that permit to operate in their town. A city may
want to see your tax returns for over a decade to confirm your permits
and account for every commercial job you do.

Click to expand...

OK help me out: what's a DBA? Does Illinois law require me to report my equipment (I don't think it would, since it is my own personal equipment--If I buy new equipment under the company's name then it is the company's property)?

Your next points about deductions, county, city permits--I appreciate them, but I don't think they apply in the US and in my state--but I may be ignorant?

AperturePro said:

Once you declare a business, you are in the system for life.

Click to expand...

This I don't necessarily agree with and I'll tell you why (and it may be an indication that your comments/experience may not directly apply to my situation--although they are valuable and interesting none-the-less).

My Mom once sold jewelry and it was a business (dollar amounts, profits, etc don't really matter for this discussion). Yes, it made taxes different and more complicated, but when she finally closed the business and finished that year's taxes, things just went back to filing normal US personal income taxes. It didn't follow her for life as has been your experience.

AperturePro said:

You may not
do much business in the 1st few years, but those cities and counties
will
want their permit and property taxes, nonetheless. If you think
"deductions"
are going to help, you better watch out for the other side of the
coin and
let your accountant fill you in on local regulations and fees.

You now have to raise your package prices to cover all the taxes and
overhead.
You will find that a $1K wedding almost costs you money if you count
your
time and then deduct all the taxes and time to process all the
paperwork. A
$2K wedding might be a net small profit in the real business world
and you
still have to compete with the low ball newbies that don't have the
taxes or
overhead. Now that you CAN'T under bid these newbies, you are on the
road
to failure unless you increase your marketing which also costs more
money
and raises your cost of doing business. All this in hopes that you
will not only
gain clients, but do so for at least ten years into the future so
your business
plan has time to get into the profit zone which allows you to pay the
taxes?

Click to expand...

I appreciate your comments, and sense this is a frustrating area for you--and I can appreciate why from what you've told me. Again, I'm not sure that we're in the same situation. Additionally, I'm a full time engineer by day and I'm not planning on quitting that profession anytime soon (not with a wife and 4 children to provide for). Thus, the pressures of my situation are vastly different than yours (possibly). Right now, I'm looking for photography to provide the funds to allow me to buy whatever photographic equipment I want. After that occurs, I'll begin to use the money to pay down personal debt (student loans, car loan, and then mortgage). Once I move into this phase, then I'm lowering my cost of living and opening up the possibility to move into photography full time--if desired.

Again, I don't mean any disrespect towards you and appreciate your experience, advice and comments.

Sean

I started to read that confusing thread and it was what prompted me to post my question here in the first place.

I started off thinking that I may be liable for collecting or paying sales tax.

Sean

Larry,

Thanks for the comments. I actually called the IRS and discussed this with them earlier this year (in the context of me doing this as a hobby). I should have clarified that I intend to report the income on my 1040 form as a "hobby" and this changes my tax liability accordingly--so the IRS is taken care of from that perspective. However, I'm not sure if that number rolls over into the state income taxes or not--I'll need to review that next year when I'm doing my taxes (or sooner).

Sean

smhagger said:

I actually don't mind operating at the break even point for
right now as it allows me to fund any equipment that I want to
purchase--hence the reason why I'm a hobbiest right now and not a
pro. With just a few more weddings signed and completed, I'll be at
the point of breaking even with this year's expenditures (over $10k).

Click to expand...

Just remember to calculate a little more than break even, because for some reason there are always unexpected expenses with most jobs. (You probably already know this...)
Ron
http://www.ronphoto.zenfolio.com

While we are not in the same state...in California....the IRS wouldn't be the problem....the State Board of Equalization most certainly would be. They will expect you to be collecting and paying sales tax on all your sales. Also, at least in California...you cannot separate out labor of any sort (as a non-taxable portion of the sale) from the prices you charge....the entire amount is taxable. If you itemized travel, and equipement rentals even modeling fees....all which would quite reasonably be considered "labor" in most fields of endeavor.....it is ALL taxable for sales and use tax in the State of California.....and they take a really dim view of people who charge for product and don't collect and pay sales tax...

This is where the DBA or at least the sales tax registration comes in from the prior answers... In California it costs nothing to get a sales tax permit...merely registering, and if your income is low enough they could put you on a once a year filing schedule...as you do more work they want it Quarterly or Monthly....
--
Richard Katris aka Chanan

as well as the best cases.

The two biggest hassles are Taxes and Liability followed by deductions and depreciation.

Quarterly filings can be a pain as well. If you make enough to pay 1 k in Q1, 1k in Q2, and 0K in Qs 3 and 4 you still have to pay the estimated quarterlies (or pay a CPA). In any case it can be a hassle.

What about liability? Insurance? If you have an assistant are you paying them "Under the table (illegally)"? If so, how will you account for this? If not, how will you afford it? WIll you 1099 them for every job?

I urge you to visit a CPA and get all the multipliers, fire up a spreadsheet representing 5 years in business (with all of the multipliers for taxes, etc) and play with revenue numbers to see what might happen. Talk about worst cases. What if I get sued? How do I tunnel the business? Etc.
Good luck!
-Kent

if you do plan on going into this, ditch the smugmug site and get your own site.

I'm in another country, so can't help with the tx stuff; where I do offer advice is in the need for a business plan.

OF course, take into account what you learn about taxes.

But to me, it's more important to determine the reationshop between kinds of phtography, your skill level in thaose kinds of photography, and the opportunities for each kind of photography. Then factor in the likelihood someone will hire you for that.

If the big local market is for poorly-paying shots of amateur school kid athletes, and you're not much good at phtographing children...

And, where I am, there are local goivernment agencies (at several levels) dedicated to helping entrepreneurs start businesses. For one company I'm involved with, we went over to the office, got all the start-up forms we needed for various registrations, got lists of names of accountants wand lawyers specializing in small business, got info on banking arrangements, and got lots of local market data, too.

BAK

Smugmug has a pro account. And if you have a domain name, then it's practically your own site... or at least that's how I understood it.

How did you come across your first wedding gig? Did you shoot a friend of yours wedding first and collected some experience and portfolio that way. I want to do weddings myself but don't know where to begin. Could you share your exp.please? Thanks in advance.

OortCloud said:

How did you come across your first wedding gig? Did you shoot a
friend of yours wedding first and collected some experience and
portfolio that way. I want to do weddings myself but don't know where
to begin. Could you share your exp.please? Thanks in advance.

Click to expand...

That's exactly what I did! I started into photography nearly a decade ago and about 3 years after I started my best friend / best man was getting married and asked me to shoot his wedding. It was an outdoor wedding under a wooden shelter. I shot it with a Nikon N90s and 80-200 AFS lens exclusively. They loved the photos (still love them to this day). I partially shot a few weddings over the next 5-6 years (nothing serious in the midst of selling off my equipment, having children and buying homes. I went all DSLR about 4 years ago and started shooting up in weddings again last year by shooting my brother's wedding, a coworker's wedding and then a wedding for a friend. The results turned out very well and I really liked doing it. I then started to compile a contract and printed some business cards and told people I shot weddings on the side. I got several more weddings and things have been starting to really take off. I feel like I learn more and more with each wedding I shoot and I'm beginning to not get stressed anymore--now that I realize that I'll never get every single shot that I would like to during a formals session. After I've accepted that, it helped get my expectations in line with reality and it's helped me to know what would happen.

But, to answer your question: I started out working for near nothing, then $200 (my co-worker's voluntary gift), then $550 and now I'm into signed contracts that typically start at $800 for budget half-day weddings and go up to $1800 for full day coverage. At this point I'm still just using the weddings to gain the experience and to cover my equipment needs. I spend a lot of time looking at the wedding work of others and get creativity ideas from viewing their work. All in all, I really love shooting weddings and hope to continue doing so with a higher volume in the next couple years. It will really be worthwhile if I can fund my equipment and turn a profit to pay down some personal debt (car loan, student loans, etc). From there I would like to be able to fund a few family vacations and college savings to help share the benefits with my family. When that happens, I know I'll have the full support of my wife. Who knows where it could lead from there.

Did I mention I LOVE shooting weddings? I start to get a little anxious if I don't have another one booked or if I have one that is more than two months away.

I hope this helps.

Sean

Thank you for your reply and your time, Sean.

Looks like you've had good luck with this second job. Hopefully, you'll be able to do it full time one day and make your wife respect that ).

You mentioned a contract in your last post. Since you are not yet officially in this business, what kind of contract is this? Do you really need one? Did you thought of the content yourself or you had some point of reference?

Also, what kind of equipment is absolutely essential for wedding photography and what lens you find yourself using most of the time.
Thanks again

OortCloud said:

Thank you for your reply and your time, Sean.

Click to expand...

No problem, I know what it's like to need the help/input from others. ;-)

OortCloud said:

Looks like you've had good luck with this second job. Hopefully,
you'll be able to do it full time one day and make your wife respect
that ).

Click to expand...

I would like for this to become my full-time profession, but it's going to be a while before my photography income threatens to exceed my engineering income. Even then, there's also the stability aspect...

OortCloud said:

You mentioned a contract in your last post. Since you are not yet
officially in this business, what kind of contract is this? Do you
really need one?

Click to expand...

In my opinion, Absolutely! This is my only hope of protection should anything go awry. In my contract, I have a limit of liability section where I fully disclose to my prospective client that I'm not a full-time working professional wedding photographer--but merely a wedding photographer by hobby. I also disclose in the contract--and the bride signs it--that they understand this and have been shown representative examples of my work--that I will try my hardest to match or exceed, but that I cannot guarantee it in every case. My contract may or may not hold up in court, but it's better than not having one at all.

Also, as you've seen, I don't pretend nor represent myself as being, something that I'm currently not. I figure that if the prospective client isn't comfortable with that, then it is better for both of us for them to look elsewhere--and I will sincerely wish them the best during there wedding day with NO spite or sarcasm. If/when those clients come and pass by, I figure it was meant for the best.

OortCloud said:

Did you thought of the content yourself or you had
some point of reference?

Click to expand...

I started out by copying one from Al Jacobs "Bridezilla" book (online download)and modified it significantly to suit my needs. Al's book can be found at: http://www.aljacobs.com/NEW%20WEDDING.pdf

OortCloud said:

Also, what kind of equipment is absolutely essential for wedding
photography and what lens you find yourself using most of the time.
Thanks again

Click to expand...

Regarding equipment: I shoot Nikon & Fuji (just recently). I always shoot with two bodies for myself and a third (and sometimes fourth) for my assistant--when I have one. I have a D2Hs, S5 Pro, D200, & a D70 (for now). I will always have a 17-55 f/2.8 & 70-200 AFS VR on two of the first 3 bodies and the third body (not D70) will have on it my 200 f/2.0 AFS VR (an AMAZING lens, btw!). I have 3 SB800's, light stands, backdrops, Sekonic 758 light meter, etc. I have a LOT of money invested so far.

The mainstay of my equipment are having at least 2 bodies and the 17-55 f/2.8 and 70-200 f/2.8. I can't stress enough about having backups and plenty of batteries and memory. It may be expensive, but it is relatively cheap insurance.

If you have any other questions, please don't hesitate to ask. If others here, with more experience than myself, would like to correct me in something I say or recommend, then we can learn together. ;-)

BTW, I happen to shoot Nikon, but Canon (and others) also make great equipment and you can find equivalents to my equipment from the other manufacturers as well.

Sean

Thanks again for your detailed info and your willingness to help, Sean. And for the link to that pdf file. It's very useful. Appreciate it a lot.

Wow, that's a lot of equipment All I got is a EOS 5D body and 24-70L and 70-200LIS lenses + 580EX Speedlite. Obviously, one more body and one more flash is the must, let alone light stands and backdrops. My head spins from all the essentials you listed )

No doubt, artificial lighting is crucial when you shoot indoors. I wonder if you use any apart from your flash units. If so, what are those? And what kind and brand of light stands do you use for your flashes or other lights? I know there's a lot of lighting equipment out there but it would be nice to hear about what is actually being used and how practical it is in the settings of a wedding from experienced photogs such as yourself. Also, do you really need a light meter in that fast paced environment? I thought it was just for studio work.
Thanks again,

Serge