Pro Photo West Magazine Summer 2019

• Has the taxpayer made a profit in similar activities in the past?
• Does the activity make a profit in some years?
• Can the taxpayer expect to make a profit in the future from the
appreciation of assets used in the activity?
The IRS presumes that an activity is carried on for profit if it makes a profit
during at least three of the last five tax years, including the current year.
IF IT IS A HOBBY
Prior to the Tax Cuts and Jobs Act (TCJA) you could deduct Hobby expenses
up to the amount of income. This deduction was taken on Schedule A of your
personal income tax return (1040) as a miscellaneous itemized expense
subject to the 2%-of-adjusted-gross-income (AGI) deduction. THIS IS NO
LONGER THE CASE! Beginning in tax year 2018 and going forward to 2025,
the TCJA eliminated the miscellaneous itemized expense deduction from
Schedule A thereby eliminating the ability to deduct hobby expenses.
What does that mean for you? If your business is considered a hobby, then
you must report the gross income from the activity on your tax return but you
can no longer deduct the expenses you incurred in generating that income!
OUCH!!!
In conclusion, take a long, hard look at your photography business. Think about
the above considerations and how they relate to your situation. Just
remember, if you are charging for your services then chances are that some of
your clients may be treating your services as an expense on their tax returns.
So, whether you report the income as a business or as a hobby…make sure
that you report it!
Spring 2019