OT: Business Taxes

[icor1031]

I haven't posted here for a while, and my post is one I'm copying/pasting. (I still love the 2-way speakers I built with the help of this forum.)

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I need to know when business income is counted as personal income.

I'm disabled and on social security. I'm able to work, but sporadically. And I have to be careful: for example, if I earn 14k (personal income) in year 1 - then in year 2 I won't receive any funds from social security. Yet, due to the nature of my disabilities, I may not be able to work in year 2. This leaves me homeless and hungry.

Anyway, I have a photography business. This is how I understand that it works: If I earn 2k with my business, and purchase a lens for 2k - I'm golden. I can deduct it, and it counts as no income.
However, if the item was worth more than 2.5k, I can only depreciate it - so I'll be paying tax on it up front. (Much of my camera gear will costs over 2.5k per item, so this concerns me.)
Also, if I use that lens for personal use 50% of the time, I can deduct only 50% of it. Thus, I owe tax on 50% (1k). Therefore, 1k is counted as personal income. Is this correct?

Is there any way of having business income / expenses etc. reside with the business - that is, the business pays the tax owed, and it's not counted as personal income?

Also, what happens if I deduct everything (say I get a dozens lenses for 2k each, count them as expenses so I owe nothing) and later disband the business?

I'm trying to support myself and get through college so I can get a job I'm able to do consistently.

Thanks!

[Whitneyville1]

I am a professional photographer for the last 50 years with my own business. Rule of Dumb: NEVER, EVER draw the IRS's attention! So if you buy a lens or camera body and use it EXCLUSIVELY in your business, you can deduct it as a business expense using one of two methods of depreciation. If you use the equipment AT ALL for personal use, the IRS WILL declare your "business" as a "hobby" and you will have to pay penalty and interest from the start-up of your business on all the gear you've purchased. That was my late CPA/tax attorney's advice to me, BUT you can take 50% of your personal photos as "stock photography on spec(ulation)" as long as you have model releases signed by people appearing in the photo, and all the landscape/ flowers/creative, experimental/ testing work you do. I do LOTS of lens testing myself on chromes. The film and processing are 100% deductible. Pay a CPA the ~$100 for your specific situation. I'm 100% disabled too, and your state also has a say on your disability work. I know the hoops you have to jump thru and around. In OK, if I make $300 a week, or 20 hours a week,I am considered "gainfully employed" and no more disability payments. Err on the side of caution, although, with "Ticket to Work" you MAY have the option of "test employment" especially if you show you are in college trying to become gainfully employable.

Hope this helped-Ricky

[icor1031]

Sounds pretty hopeless, then. Not only can I not use anything I buy with the money I earned for personal use, but I can't spend more than 2.5k on any item and deduct it; I have to depreciate it, which up front will count against me as personal income. And if I have personal income, I lose my SSDI, etc; I did the calculation: if I earn 1k per month, I lose ~850+/mo, and that's before the loss of my medical insurance.

So, yeah - may need to just close my business.

[dwigle]

Are you organized as a C-corp or more likely an S-corp? If c-corp, you would have personal taxable income paid to you by the business. You can determine how little. If S-corp, the income from the business flows through as personal income to the owners of the S-corp, who could be you, your wife or family members. In both situations, the business can deduct business related expenses which would reduce taxable income. There may be restrictions on how much personal use is allowed and limitations over year one expenses versus depreciated asset expenses. I can ask around.

[billfitzmaurice]

Unless you are incorporated there's no need to jump through any hoops with business income. Get tax software (I use H&R Block) and follow the directions. I've been using it for fifteen years, never had an issue, and that's with over $50k a year of business income. As for SSI eligibility, there's no getting around that if you earn enough. If you keep your business a proprietorship as I have all net income after expenses is personal income. If you incorporate whatever the corporation pays you is personal income. If you want to keep your SSI don't earn more than you're allowed to.
Not that I recommend it, but if you want to stay off the IRS radar you have to deal in cash only, and never deposit any of it in a bank account. And cash means cash, no checks. Of course if you do that you can't deduct any expenses.

[scottvalentin]

If you set up a corporation, income is counted towards the corporation until you pay yourself out of the corporation, either through dividends or a salary. It doesn't matter how much the corporation makes, you can pay yourself as little as $0, or if its $1, that is the only money that will be counted as personal income to you. There are costs involved in setting the corp up, and helps to get advice from both a lawyer and an accountant to do it properly.

[Sydney]

Check on L.L.C

[billfitzmaurice]

If you set up a corporation...you can pay yourself as little as $0

True, but by the sounds of it the OP wants to maximize his income, not minimize it. My 36 year old daughter is disabled. She works a few hours a week, enough to pay for her lunch, but that's all. It's a different situation as she still lives with me and pays no rent, but still it's against her best interests to work too much. When I pass on she'll come into a major windfall, but she won't get a penny directly. It will all go into a trust administered by whoever her guardian is, otherwise she'd lose all her benefits, including Medicare.

[icor1031]

True, but by the sounds of it the OP wants to maximize his income, not minimize it. My 36 year old daughter is disabled. She works a few hours a week, enough to pay for her lunch, but that's all. It's a different situation as she still lives with me and pays no rent, but still it's against her best interests to work too much. When I pass on she'll come into a major windfall, but she won't get a penny directly. It will all go into a trust administered by whoever her guardian is, otherwise she'd lose all her benefits, including Medicare.

My mother wanted to do that too, but if she had - I'd have lost my benefits; they took such trusts into account (unless I misunderstood.)

I'm willing to pay myself a little, but not a lot - I can't lose my benefits. And what you said about making so much I don't need it - yes, except my disabilities are sporadic. If I make too much in year 1, then in year 2 I get nothing - even if I'm not able to work in year 2. Screwed!

[icor1031]

Check on L.L.C

A regular LLC doesn't help, but I can have it taxed as a c-corp apparently (as suggested above.)

http://www.nolo.com/legal-encyclopedia/electing-c-corporation-tax-treatment-single-member-llc.html

[icor1031]

Does anyone know about this?

"Such a person treats the corporation as an extension of his/her personal property, rather than a separate entity."

http://www.investorguide.com/article/11573/what-are-the-benefits-and-requirements-of-a-c-corporation-igu/

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At what point does this become the case?... If I use my lenses etc for business almost all the time, but sometimes for personal - does that mean I become ineligible for c-corp? I follow that rule, but it would be annoying.

[billfitzmaurice]

Investigate special needs trusts starting here:

http://www.nolo.com/legal-encyclopedia/how-special-needs-trusts-work.html

[icor1031]

Investigate special needs trusts starting here:

http://www.nolo.com/legal-encyclopedia/how-special-needs-trusts-work.html

She's deceased now, so it's irrelevant for me - but thanks for offering the link. Glad you got things figured out (at least somewhat - SSI is impossible to predict) for your girl!

[billfitzmaurice]

It's something that has to go into the will, arranged in advance, as is making sure that someone on disability isn't made a direct beneficiary in a will. Anyone who might be inclined to leave something to my daughter knows that they can't, to leave it to me or her sister, to eventually end up in her trust.