For the independent Photo researcher. . .
Goodbye Taxes

Arithmetic in grammar school and algebra in high school never appealed to me. But when I discovered later on in life that I could save hundreds of dollars every year, I soon became fascinated by mathematics.
Once a year we have to get serious about taxes. Most independent business entrepreneurs make the same comment: "Taxes...Oh! I leave that to my tax accountant."
It turns out the tax accountant is usually Uncle Harry a neighbor down the street, or someone picked out from the Yellow Pages. In other words, a non-expert, who usually cost the client mucho dollars in the long run.
Let me make two points: right away: 1) you are missing an opportunity to save anywhere from $10 to $1,000 a year (or more) on your taxes if you are a salaried person and working on the side to get your freelance business off the ground, and 2) what I'm going to say has nothing to do with evading taxes -- that's illegal. You will find how to avoid taxes -- that's your legal right.

THE IRS RULES ENCOURAGE YOU

The IRS encourages you to avoid taxes. Sound odd? It's correct.
The reason the IRS doesn't want you to over pay your taxes is that our free enterprise system recognizes that it takes courage to start up a business, thus, the IRS wants to en-courage you. They know that if you succeed, you could very well help stimulate the economy by hiring more workers, who in turn will pay more taxes.
Perhaps you thought "write-offs" were only for the big boys, and that it costs big dollars to ask questions about tax advantages. Not so. The IRS provides you with all the information I'm about to reveal to you, in their free and informative, "Taxpayer's Business Kit." (Phone them to order a copy at 1 800 242-1040).
But if you're like most of us, you'll take one look at that two pounds of information and put it away in a drawer for "later."
A costly mistake. Here's what you'll discover when you sift out the information as it applies to you, the freelance photo researcher. The government will give you five years to stop calling your operation a hobby and start calling it a business. Within those five years,* you should show a profit ($1 is a profit) in at least two of those years. That means you could go three years without showing a profit and still reap the tax benefits (more later). (This applies to someone who has a salaried position and is starting a stock photo research business on the side. If you are self-employed, with your stock research business as your only enterprise, you don't have to make a profit in any of those years, to qualify as a full-fledged business.)
You don't have to "get a license" (unless your local city or township requires it). You only have to show intent to be a business, rather than a hobby.
Intent translates into "putting up a shingle." In other words, get some stationery printed, and open a separate bank (business) account. At income tax time, fill out Schedule C, a form that lets the IRS know whether you made a profit or a loss on your photo research operation.
Now here's where your savings come in.
Much of your business-related expenses (telephone, travel, home office, vehicle, computer costs, etc.) are no longer your personal expenses, they are business expenses, because you need them to be able to operate your photo research enterprise. Therefore these costs become "deductions" -- in other words, expenses to your business. Even though you don't make a profit, you are still entitled to this write-off.
"And how 'bout that $1,000 savings?" you ask.
It depends how much in taxes was taken out of your regular salaried paycheck. Say your annual salary is $40,000 (the national median). Withholding taxes were taken out on this amount. Now let's say that in your first year of your photo research operation, you bought a computer, office supplies, and sent out a direct mail piece to prospective clients. Your total expenses for the year were $4035.
Say you made $35 for one transaction your first year. You have, in effect, a $4,000 loss on your business your first year. [This will be no surprise to the IRS, nor to the SBA (Small Business Administration), who both figure it takes anywhere from three to five years to start making a profit in any business.]
Since taxes were taken out on your $40,000 salary, not $36,000 (remember, you had a $4,000 loss...), the government owes you a rebate. This will amount from $10 to $1,000 -- or more, depending on your deductions, exemptions, and of course, your tax bracket.
Start keeping a daily log to record your photography research operation expenses. Save your receipts.

A KEY PLAYER

Who is your accountant? Now that you are operating in the area of "intellectual properties," you will need someone who is up to speed in this area, not Uncle Harry or a friend at work who is "good at figures."
Just as you would turn to a specialist in medicine or a specialist in law, it's best to seek out an accountant who is knowledgeable in intellectual properties.
Here's how to find one. Seek out the successful creative people in your city or community: the artist, song writer, movie producer, the painter, the musician, and ask them, 'Who do you use as a tax advisor?' The same name will probably keep coming up. This is the person who you should be working with.
This tax advisor will be aware of tax revisions and changes in the IRS code as it applies to your area of business.
To try to get your present accountant to cooperate with you and study the tax law in this area of intellectual properties, would be tantamount to opening your check book to him or her to educate them. Say adios to your present accountant and go with a person already schooled in the area of intellectual properties. His/her fee may be higher, but he/she will be a specialist in saving you many dollars in the future as you get your stock research photography business on firm footing with a smooth cash flow. Now is the time to begin thinking about next year's taxes.
With your first $1,000 of tax savings, buy yourself some new software, and write it off next year as a business expense.
Our tax laws were wisely designed to help the small businessperson get started by allowing tax breaks for him or her.
If you don't make a profit your first couple of years, you're in good company. If anyone should be an expert on this subject, it should be the chief of the accounting department at MONEY magazine. The magazine was founded in 1972 -- and did not record a profit until 1981. MONEY must know something that SBA consultants and accounting teachers don't: Sometimes it is profitable not to make a profit.
You have shown your creativity by becoming a photo illustrator. Show the same creativity in your approach to taxes, and you will join the many successful photo illustrators who do.

Rohn Engh is director of PhotoSource International and publisher of PhotoStockNotes. Pine Lake Farm, 1910 35th Road, Osceola, WI 54020 USA. E-mail: info@photosource.com . Fax: 1 715 248 7394. Web site: www.photosource.com.

* Tax laws change from time to time. Not greatly, but they change, go back to old rules, a new administration comes along and adjusts the tax laws, etc. Your tax advisor will inform you when these changes come about.

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