Your Stock Photography -- is it a Hobby?

A: Generally speaking, no deductions are allowed for hobbies unless your hobby is earning you some money.

Q: Do I pay taxes on any profits that I make from my photography?

A: Of course, just as a regular business would.

Q: Are my expenses deductible?

A: Expenses such as film, scanner, digital camera, airline flights, office equipment, business faxes and phone calls, ISP fees, etc. are all deductible, but only up to the amount of income.

Q: What does that mean?

A: Assuming stock photography is not your principle business and that you are employed elsewhere or are self-employed in a different type of business, you can show a profit (and pay taxes), or break even (and pay no taxes), but, as a hobbyist, you cannot declare a loss. However, a business that is a real business and not a hobby, can show a loss and be able to use that loss to offset other income in figuring your taxes.

Q: How do I explain to the IRS that I'm trying to make my stock photography a real business?

A: The IRS has a 3-year-year rule: if you do not show a profit for at least three out of five consecutive years, the IRS can declare your "business" to be a hobby and disallow any losses that you have declared.

Q: You mean I would have to pay a penalty?

A: Yes. But this would be a rare case. The IRS has been lenient in cases like this, especially in the area of the arts, such as photography. If your paper trail (your invoicing, purchasing, and income records) indicate to the IRS that you have shown "intent" to make a profit, and not abusing the Tax Code, the IRS will no doubt approve your deductions.

Q: How can I best show that I "mean business?"

A: Open a checking account in the name of your business. Apply for and get a Tax I.D. number (it's free). Get professional-looking stationery, business cards, invoices, printed. Set up a website, get a local "dba" license.

Q : To get my pictures I have to travel far and wide. Is my travel expense a deduction?

A: Again, if you can show the IRS that "you mean business" by operating it in a professional manner, your chances are good that all travel deductions for your photography-related trips will be deductible. Expenses that are not related to your stock photography business while on the trip are definitely not eligible as a tax deduction. As for receipts, your pictures are additional good receipts because they show that you actually traveled to the place you reported.