Novice business person in need of help
 

Hi,

I'm sorry for this REALLY novice question but I talked to my accountant friend and he had no idea. I'm also afraid to ask the IRS at risk of being flagged and all that hassle, when I'm asking cause I really am trying to be 100% legit.

Over this past year I've spent a bunch of money on obtaining the equipment I need for my "Business." I've only gotten 1 paying video gig which in the end amounted to only a few hundred dollars. The other gig I got was actually some marketing consulting which ended up being a few thousand dollars. My question is... is there anything I have to do prior to the end of the year to be able to write off 1 of the camera's i purchased? The laptop, software, and small camera even though it was purchased solely for the business, I'm just going to eat as a "Family" expense but the XLH1 and the tripod i'd like to write off since if I fail those would be sold. If I do that... my expense more then washes out my income from the "Business" and I don't have to worry about paying tax on my consulting and video work. Right?

I am legitimately trying to make a go at freelance videography, this year's just been real tough with trying to learn and find gigs.

I also was wondering about sales tax. Do I have to charge tax in NYS and if so, do consulting services get taxed? If not, do i seriously have to apply for a Tax id number for the 1 gig I got which I didn't make a dime on... (in fact I lost a LOT of money). How does sales tax work with video? It really confuses me. I don't think you pay tax on services... so If I charge $350 for the production of the video and $20 per copy of the DVD... do they pay tax on all of it or just the product part? i've got to be missing something... Seams too easy like I'm misunderstanding something. Someone could really cook the books and make it work out however benefits them best.

Any help would be really appreciated.

Thanks!

Paul

Re: Novice business person in need of help
 

A very wealthy mentor once advised me to deduct everything you possibly can. Odds are you'll never be audited and if eventually you are and some deductions are disallowed so you have to pay back taxes, you've had the use of the money for your business in the meantime at a lower interest rate than you could get anywhere else. You don't have to make a profit your first year, all you have to do is operate as if you intended to make a profit. Eventually you have to go on the positive side but you don't have to right out of the gate for your start-up expenses to be considered legitimate business expenses. If you're using your cameras, computers, cell phone, etc for your business deduct them.

You really need to talk to a professional tax accountant, especially regarding such things as whether you need to charge sales tax, etc. Free advice from an internet message board on such specific questions is worth exactly what you pay for it (and remember their fee is deductible as a business expense).

Re: Novice business person in need of help
 

I use a CPA. Your gear gets "depreciated", and there is some variability in how long you can take to depreciate the gear. The CPA chose to accelerate the depreciation my first year in business, 2009, and it cut the 2009 taxes quite a bit.

I don't pretend to understand complicated tax issues and strategy. I also trust my attorney for legal issues, which I don't have expertise in those areas either. There is a lot to learn about running a business.

Re: Novice business person in need of help
 

As a recent thread pointed out, tax issues vary from locale to locale...

You might see if there's an SBA assistance or mentoring program in your area, but whatever you do, you need to get advice that fits YOUR location.

As far as the bigger "tax" picture, Steve nailed it - when in doubt, deduct, within reason... Don't deduct expenses for your poodle as a security watch dog for your equipment...

Part of surviving as a business is being able to DEDUCT legitimate business expenses - dig around, and you'll find what is LEGITIMATE and what won't fly. FWIW, if you deduct, or depreciate and then sell, you may even run into "recapture" on what you get back - accounting is tricky stuff...

Re: Novice business person in need of help
 

There is often some trepidation in contacting a CPA to talk about your business but there shouldn't be. A good CPA will save you money in the long run, and more than likely your initial meeting might be a discussion over lunch where you can pick up a few tips and get started on the right track. What you don't want is to take accounting advice over the Internet that turns out to be wrong for your situation and end up paying penalties and back taxes. There is a lot more to the discussion than simply whether you can deduct an expense. There needs to be a discussion of the advantages and disadvantages of various business entities and how that choice affects things like medical expenses and retirement planning, and whether equipment can or should be deducted on an accelerated schedule.

So your current accountant might handle most of your needs and your CPA is more strategic. If your current accountant is a CPA then you might consider switching to someone who has a better grasp of your type of business. That's not knocking the current one since many people tend to specialize, including accountants.

Re: Novice business person in need of help
 

Thanks guys. I appreciate it. I did so poorly this year that I was trying to get around having to pay anyone. That doesn't look to be wise from this advice. I'll find myself a good Tax accountant. My wife is a GL Accountant so my books look AWESOME from an organization and invoicing standpoint :-) She really doesn't know this other legal stuff though.

Re: Novice business person in need of help
 

Hi Paul,

You should definitely speak to an accountant. There are a lot of ways they should be able to help you.

Disclaimer, I am not an accountant but have one that helps me with my business setup and taxes.

For your business expenses. You do have to depreciate assets that are acquired for the business. The IRS website has a depreciation table that tells you what percentage you can depreciate each year. But there is a provision in the tax code that allows you to depreciate the entire amount of certain purchases in the first year that the asset was placed into service. It's Section 179 of the tax code and these deductions are known as 179 deductions. It was specifically set up with small businesses in mind. I believe they raised the limit on 170 deductions to $500,000 this year so you should be able to depreciate all of your equipment this year. The catch is, if you sell the asset or close your business before the normal depreciation time for that asset, you have to go back and do an amended return to pay the amount that should have been paid based on the actual amount of depreciation that should have been captured. In most cases that won't be necessary especially for computers that have an accelerated depreciation due to their short useful life. Check out the tax code on line.

You don't need a tax ID number if you are a sole proprietor. You would just use the SSN you use for your personal taxes. You can get one for your business but it is not necessary.

There are a lot of things that you should do to set up and manage your company that will help with your tax liabilities. Again, talking to a business tax accountant/consultant is a very good idea.

For sales tax, I'm not sure how many videographers deal with it. However, in a former life I owned a martial arts school so I had to deal with them a lot. Sales tax is collected at the state level by the designated agency of each state. Here in California it is the State Board Of Equalization. You need to check with NY. But, sales tax is only collected on tangible goods sold. Labor charges for production of those goods are not charged sales tax. Also, media for the delivery of your work may not be taxable if it's sole purpose is for the delivery of the labor. An example is if you do a big job and deliver the edit on a hard drive, you don't charge sales tax on the hard drive. Think of it as if you wrote a report, you don't charge sales tax for the paper that you write it on. However, selling multiple dvd's would be considered a product subject to sales tax. In your example you have already determined that the production costs are $350 so yes the entire $20 would be subject to sales tax unless part of that cost was shipping charges (which are not subject to sales tax). Here in California you have to apply for a resale license and then they assign you an ID number. You then file a sales tax return, usually quarterly. In some cases they'll collect yearly if you don't do enough sales to make it worth it, but the Board tell you when to file

For the job you lost money on did you lose money you actually expended or was it that you did not get paid? There is a difference in how you account for those. One is bad debt that you cannot collect and the other is an actual expense. In any case you also need to determine if you will be on a cash basis or accrual basis for your accounting in your business. There are benefits to both so you need to do some research on which will be best for your business.

Good luck,
Garrett