• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

Registered an LLC back in 2016, no tax filling until now

Accident - Bankruptcy - Criminal Law / DUI - Business - Consumer - Employment - Family - Immigration - Real Estate - Tax - Traffic - Wills   Please click a topic or scroll down for more.

nnomad

Member
What is the name of your state? UT

Hope this is the right section for this question. It may fall under Tax section too, but I will start here first.

I registered an LLC back in 2016 as my wife and I are the owners.
There was no income or loss (basically did not do any business), so we never included this LLC and it's info in our tax returns. We file "married filling jointly."
I have been renewing it with the State (Utah) yearly, so it is still "current."

My question is, can I start using this LLC now even though I have not used it for the last 3-4 years? Or Do I need to register a new LLC?

Additional info that maybe useful: The LLC was registered as a travel related business. Most recent renewal (which was a week or so ago), I changed the NAICS code from Travel to Commercial Photography (code of 5419). That's the focus of this LLC going forward even though the name of the LLC does not have a word "photo" in it. I also removed my wife from the LLC since I wanted to make it easier/simpler for tax purpose. She is also not doing any work for it. I did buy several lenses and a couple of cameras in 2019 (and 2020). I have been taking photos and trying to sell them, but have not made any money at all. All I have is the expenses. Can I use this LLC in my 2019 tax return and claim the equipment expenses from 2019 (I have yet to file my 2019 return). I was taking photos in 2019 too or even before. Thank you!
 


adjusterjack

Senior Member
My question is, can I start using this LLC now even though I have not used it for the last 3-4 years?
Yes.

I did buy several lenses and a couple of cameras in 2019 (and 2020). I have been taking photos and trying to sell them, but have not made any money at all. All I have is the expenses. Can I use this LLC in my 2019 tax return and claim the equipment expenses from 2019
Yes. The IRS understands start-ups and will give you some leeway deducting business expenses as long as it really is a business and not just a hobby.

The LLC is a disregarded entity for federal income tax purposes and you use Schedule C for your business revenue and expenses and Schedule SE (Self Employment tax).

You may also have to depreciate your equipment. That's another form.

The IRS has publications that will help you:

https://www.irs.gov/pub/irs-pdf/p334.pdf

https://www.irs.gov/pub/irs-pdf/p535.pdf

And more:

https://www.irs.gov/publications

I suggest you have a checking account in the name of the business so you can segregate your business activities from your personal activities.

Stick around. "Taxing Matters" may be around shortly with additional information.
 

Taxing Matters

Overtaxed Member
My question is, can I start using this LLC now even though I have not used it for the last 3-4 years? Or Do I need to register a new LLC?
Yes.

I did buy several lenses and a couple of cameras in 2019 (and 2020). I have been taking photos and trying to sell them, but have not made any money at all. All I have is the expenses.
When I was quite a bit younger, before the age of digital photography, I was a freelance photographer during school. I quickly found that while my photos were technically sound there was little interest in them by publishers, advertisers, and others. They just weren't striking enough and with so many photographers out there they could hold out for that truly eye popping photo. It's even harder today because digital photography and the internet have given rise to large stock photo firms that can supply perfectly good photos really cheap. You'll likely have a hard time making decent money from it unless you can do better than I did in breaking out of fairly ordinary stock type photos and offer something truly distinctive. I wish you the best of luck though. I understand the allure of what you are doing and would have liked that to have gone really well when I did it.

Can I use this LLC in my 2019 tax return and claim the equipment expenses from 2019 (I have yet to file my 2019 return). I was taking photos in 2019 too or even before. Thank you!
You aren't conducting a freelance photography business when you start taking photos. You are in that business when you start trying to market the photos you've taken. You cannot deduct expenses you incur prior to the start of conducting business. The camera equipment — camera body, lenses, flashes and lights, light stands, printer, etc., are all capital assets. Capital assets are those assets with a useful life exceeding one year. The general rule with capital assets is that you may begin depreciating those assets starting the month you buy them or the month business starts, whichever is the later. Depreciation means taking a portion of the cost each year for several years rather than deducting the full cost in the year of purchase. Things like computer software (e.g. photoshop, etc) that you use for the business are subject to similar amortization rules.

However, for tangible personal property (things other than real estate that you can touch, see, move — i.e. physical objects) and computer software that you purchase AFTER you start business you may elect to deduct the full cost in the year of purchase, however, by electing to use the section 179 deduction. There are several limits to this deduction, including one based on the income of the business. So if you have little income this deduction doesn't help you much that year, though the unused portion of the deduction can be carried over to the next year. Whether it is better to depreciate/amortize these items or use the § 179 deduction requires analyzing the details of your business and how it is likely to do over the next several years.

Non capital business expenses you incur before the business starts up also cannot be deducted prior the year the business starts. Once the business starts, the general rule is that you may amortize those start up expenses over 180 months starting the month the business starts up. However, you might qualify to deduct up to $5,000 of those expenses in the year the business starts up. But anything over that you are stuck with taking over the 180 months (15 years).

All these rules are discussed in IRS Publication 535. Also see IRS Publication 946 on depreciation and IRS Publication 334, which is a comprehensive publication on federal income tax for sole proprietorship businesses.

Note that if your activity is a hobby rather than a business you may only deduct your expenses up to the income you had from the business. In other words, you can't get a net operating loss (NOL) from a hobby. If the activity is a business, though, and the deductible expenses exceed your income from the activity, you do get NOL that can offset other income that you have on the return. The presumption in IRC § 183(d) is that if the business makes a profit in 3 of 5 consecutive years it is a business. That presumption can be overcome if the IRS has evidence it's really a hobby anyway, but at least if you meet the presumption you are on firmer ground than without it If the activity fails to meet that presumption there is a greater risk that the IRS will disallow any NOL you claim as being a hobby activity because there is no presumption there to help you and continuing a money losing activity for years, especially when that activity is an enjoyable one, like photography, are classic indicators of a hobby. I can tell you that creative endeavors like photography are especially ripe for challenge as a hobby by the IRS when you consistently lose money or make very little from it. One way to help counter that is to ensure you run it rigorously like any other business. Keep good business records. Undertake the kinds of activities a truly professional freelance photographer will do to market his/her business. Keep expenses reasonable in line with what the business is making. In other words, show you are doing the kinds of things that are needed to actually make money from the activity and to keep track of your results and act on the information you get to improve the earnings of the business. This means focusing on the business aspects as much as taking the photos themselves. Even then, if you continue to do in the face of years of losses the IRS will likely say it is a hobby anyway because someone engaged in an activity for profit will give that activity up after a few years if it doesn't make money and shows no signs that will ever make significant money.
 

quincy

Senior Member
What is the name of your state? UT

... I have been taking photos and trying to sell them, but have not made any money at all. All I have is the expenses ...
First, I am happy to see you have returned to the forum, nnomad. I was hoping you would.

Adjusterjack and Taxing Matters nicely addressed the major focus of your post (taxes) but I perhaps can add something about making money with your photography.

In 2017, the Columbia Journalism Review interviewed several freelance photojournalists and came up with a list of six publications that can provide a professional photographer with good outlets for their work. Although some of the information in the article has been updated since 2017, current rates paid by these publications to freelance contributors need to be confirmed/verified.

“Freelance photographers say these are the best outlets to pitch,” by Carlett Spike, CJR, April 5, 2017:
https://www.cjr.org/business_of_news/freelance-photographers-pitch.php

It can be difficult to build a successful photography business. Having a special niche - finding an area of photography not often covered by others - is one way to become successful. Being a great photographer also helps. :)

The extra money coming in through the freelancing of your photographs can be nice, of course, but getting your photos published in national magazines is also a good way to market your business.

Good luck.
 
Last edited:

nnomad

Member
I suggest you have a checking account in the name of the business so you can segregate your business activities from your personal activities.
Thank you so much AdjusterJack! I appreciate your time and advice. I do have a checking account for my LLC, but did not have much money in the account, so I used my personal debit and credit card to purchase the camera lenses and camera bodies. I hope I can still claim the equipment expenses.
 

Taxing Matters

Overtaxed Member
I do have a checking account for my LLC, but did not have much money in the account, so I used my personal debit and credit card to purchase the camera lenses and camera bodies. I hope I can still claim the equipment expenses.

Your single member LLC is disregarded for federal income tax purposes and your business will be treated like a sole proprietorship. So the fact that you bought the equipment yourself won't deny you the depreciation or § 179 expense deduction. But if you want to protect the limited liability protection of the LLC you need to take care that you don't blur the lines between business and personal activity. The LLC should own all the business assets and conduct all the business activity — your personal assets and accounts should not be used for business activity. The reverse is also true; do not use business assets for personal things or activities. It might be a good idea to document transfer of the photo equipment to the LLC if you want to preserve the limited liability protection. Note that the limited liability protection for a freelance photographer might not amount to much anyway, though the details of exactly what you do matters.
 

nnomad

Member
When I was quite a bit younger, before the age of digital photography, I was a freelance photographer during school. I quickly found that while my photos were technically sound there was little interest in them by publishers, advertisers, and others. They just weren't striking enough and with so many photographers out there they could hold out for that truly eye popping photo. It's even harder today because digital photography and the internet have given rise to large stock photo firms that can supply perfectly good photos really cheap. You'll likely have a hard time making decent money from it unless you can do better than I did in breaking out of fairly ordinary stock type photos and offer something truly distinctive. I wish you the best of luck though. I understand the allure of what you are doing and would have liked that to have gone really well when I did it.

Note that if your activity is a hobby rather than a business you may only deduct your expenses up to the income you had from the business. In other words, you can't get a net operating loss (NOL) from a hobby. If the activity is a business, though, and the deductible expenses exceed your income from the activity, you do get NOL that can offset other income that you have on the return. The presumption in IRC § 183(d) is that if the business makes a profit in 3 of 5 consecutive years it is a business. That presumption can be overcome if the IRS has evidence it's really a hobby anyway, but at least if you meet the presumption you are on firmer ground than without it If the activity fails to meet that presumption there is a greater risk that the IRS will disallow any NOL you claim as being a hobby activity because there is no presumption there to help you and continuing a money losing activity for years, especially when that activity is an enjoyable one, like photography, are classic indicators of a hobby. I can tell you that creative endeavors like photography are especially ripe for challenge as a hobby by the IRS when you consistently lose money or make very little from it. One way to help counter that is to ensure you run it rigorously like any other business. Keep good business records. Undertake the kinds of activities a truly professional freelance photographer will do to market his/her business. Keep expenses reasonable in line with what the business is making. In other words, show you are doing the kinds of things that are needed to actually make money from the activity and to keep track of your results and act on the information you get to improve the earnings of the business. This means focusing on the business aspects as much as taking the photos themselves. Even then, if you continue to do in the face of years of losses the IRS will likely say it is a hobby anyway because someone engaged in an activity for profit will give that activity up after a few years if it doesn't make money and shows no signs that will ever make significant money.
Thank you so much for taking the time to provide a very detailed answer/explanation. I had to read a few times and I am still trying to understand everything. Also, when it comes to the Tax, the IRS does not make it easy and straightforward.

I am also glad to hear that you were a freelance photographer during your school years. I have been reading a lot about the photography business and it seems impossible to survive as a full-time photographer. Even harder, if you have to support a family and that's the case for me. I am interested in Wildlife Photography and it was even harder to make money in it then in the Real-Estate, Portraits and even Wedding photography. But I only want to do Wildlife (mainly birds). I may start workshops and guided tours to photo locations when I am really good at it. The focus of the business would be workshops and guided tours to exotic locations. I heard workshops, tours and safaris are the only way to make some money in Wildlife photography. Also if I can publish my photos to National Geography, then I may find some additional assignments.

Now I would like to address the main concern here. First and foremost, photography is my hobby, the hobby that I love so much that I am willing to live with a very little money, but keep doing it. I also saw the opportunity to keep doing what I love, maybe make some money (when become famous) and also pay less tax in my income from my day job. That's the reason I decided to start an LLC. I have feeling that I will be not making any money (or very little) for a while. On the other hand, I will have more expenses as I buy more equipment and software and also travel for photography. How do I prove the IRS that it is really a business now even though it started as a hobby?
 

nnomad

Member
First, I am happy to see you have returned to the forum, nnomad. I was hoping you would.

Adjusterjack and Taxing Matters nicely addressed the major focus of your post (taxes) but I perhaps can add something about making money with your photography.

In 2017, the Columbia Journalism Review interviewed several freelance photojournalists and came up with a list of six publications that can provide a professional photographer with good outlets for their work. Although some of the information in the article has been updated since 2017, current rates paid by these publications to freelance contributors need to be confirmed/verified.

“Freelance photographers say these are the best outlets to pitch,” by Carlett Spike, CJR, April 5, 2017:
https://www.cjr.org/business_of_news/freelance-photographers-pitch.php

It can be difficult to build a successful photography business. Having a special niche - finding an area of photography not often covered by others - is one way to become successful. Being a great photographer also helps. :)

The extra money coming in through the freelancing of your photographs can be nice, of course, but getting your photos published in national magazines is also a good way to market your business.

Good luck.
quincy, glad to be back and thanks for taking the time to respond to my post. AdjusterJack and Taxing Matters were great. Thanks for your advice and the link. I will go over the info in the CJR website soon. Reading here and all over the Internet and also watching a lot of YouTube video, the one business that is harder to make money in than anything else seems to be Photography and that's the one I am most interested in. What a wrong choice I have made, but I cannot help. I love it so much. I make lot more money from my day job doing a very little and not needing to leave my desk (now my home office), but I rather be in nature somewhere far a way taking photos of exotic animals and eat just one meal a day and sleep in a tent. Thanks!
 

Taxing Matters

Overtaxed Member
I am interested in Wildlife Photography and it was even harder to make money in it then in the Real-Estate, Portraits and even Wedding photography.
Yep, nature photography was the area I dabbled in when I was freelancing. It's very hard, as you mentioned, because there are so many wildlife photos out there so the photos have to really stand out to get noticed. As I said before, I was technically proficient but the photos just didn't pop. I was no Ansel Adams, unfortunately. :( I also did sports photos and those I had better success with selling, but still that wasn't easy either and it wasn't what I enjoyed the most. In the end I made the business decision to do something else, starting with finance, then tax and law. I can at least make a good living as a lawyer, which to me is preferable than the starving artist photographer lifestyle.

Also if I can publish my photos to National Geography, then I may find some additional assignments.
I assume you mean National Geographic, and indeed getting published there is one of the gold stars of nature photography publications. If you can get the notice of their publishers for assignments that would be huge.

Now I would like to address the main concern here. First and foremost, photography is my hobby, the hobby that I love so much that I am willing to live with a very little money, but keep doing it. I also saw the opportunity to keep doing what I love, maybe make some money (when become famous) and also pay less tax in my income from my day job. That's the reason I decided to start an LLC. I have feeling that I will be not making any money (or very little) for a while. On the other hand, I will have more expenses as I buy more equipment and software and also travel for photography. How do I prove the IRS that it is really a business now even though it started as a hobby?
Note that you could eliminate the LLC and get exactly the same tax result. The only purpose to the LLC really is limited liability protection, and for a sole owner LLC that does freelance wildlife photography and presumably will have no employees that limited liability protection may not provide you much help.

As for proving to the IRS that it really is a business, the best way is to make a profit at it. But if you are running NOLs year after year it'll be a lot harder to do. Like I said before you need to prove that you are approaching it like a business that has the goal of making a profit, and that means approaching the work you do with a business mindset. Keep good business records. Do the sorts of things that a business person would do market his product, keep control of expenses, etc. Even with all that, if you keep running at losses for year after year the IRS will be skeptical of the business motive here because if the goal is to make a profit and you can't make that profit after several years of effort a true business person would cut his losses, close up shop, and move on. But if it's a hobby, you aren't looking to make money and thus the losses wouldn't put and end to the activity.
 

quincy

Senior Member
... but I rather be in nature somewhere far a way taking photos of exotic animals and eat just one meal a day and sleep in a tent. ...
Other than the whole “eating one meal a day” bit, I would like that type of life, too. :)

I hope you can make a success of it.
 

nnomad

Member
Yep, nature photography was the area I dabbled in when I was freelancing. It's very hard, as you mentioned, because there are so many wildlife photos out there so the photos have to really stand out to get noticed. As I said before, I was technically proficient but the photos just didn't pop. I was no Ansel Adams, unfortunately. :( I also did sports photos and those I had better success with selling, but still that wasn't easy either and it wasn't what I enjoyed the most. In the end I made the business decision to do something else, starting with finance, then tax and law. I can at least make a good living as a lawyer, which to me is preferable than the starving artist photographer lifestyle.



I assume you mean National Geographic, and indeed getting published there is one of the gold stars of nature photography publications. If you can get the notice of their publishers for assignments that would be huge.



Note that you could eliminate the LLC and get exactly the same tax result. The only purpose to the LLC really is limited liability protection, and for a sole owner LLC that does freelance wildlife photography and presumably will have no employees that limited liability protection may not provide you much help.

As for proving to the IRS that it really is a business, the best way is to make a profit at it. But if you are running NOLs year after year it'll be a lot harder to do. Like I said before you need to prove that you are approaching it like a business that has the goal of making a profit, and that means approaching the work you do with a business mindset. Keep good business records. Do the sorts of things that a business person would do market his product, keep control of expenses, etc. Even with all that, if you keep running at losses for year after year the IRS will be skeptical of the business motive here because if the goal is to make a profit and you can't make that profit after several years of effort a true business person would cut his losses, close up shop, and move on. But if it's a hobby, you aren't looking to make money and thus the losses wouldn't put and end to the activity.
Yes, nature photography is addictive. I guess nobody can be Ansel Adams :). It sounds like you made the right decision by going to law. For me, I am trying to go to photography (full-time if possible) after many years working as an IT professional. If I had saved a lot of money, I did not have to worry about making money from photography, but that did not happen :). So, I still need to make some money from photography. After reading your responses and some other materials, it seems like keeping the photography as a hobby seems to be the best and safest way to live a comfortable life. I also hate paying too much tax, so I need to find something and some ways (legally) to pay less tax.
 

Taxing Matters

Overtaxed Member
Yes, nature photography is addictive. I guess nobody can be Ansel Adams :). It sounds like you made the right decision by going to law. For me, I am trying to go to photography (full-time if possible) after many years working as an IT professional. If I had saved a lot of money, I did not have to worry about making money from photography, but that did not happen :). So, I still need to make some money from photography.
If you want to do it full time and live off that (even if it just living in a tent and one meal a day), then you'll need to make at least some kind of profit off it. ;) And if you make profit, even though it's not a large profit, that will be enough to avoid the hobby loss problem. Otherwise, if you have losses and treat it as a hobby, at least the photography income would be reduced to zero and you'd pay no tax on that. But as a hobby, the loss cannot offset other income.
 

nnomad

Member
If you want to do it full time and live off that (even if it just living in a tent and one meal a day), then you'll need to make at least some kind of profit off it. ;) And if you make profit, even though it's not a large profit, that will be enough to avoid the hobby loss problem. Otherwise, if you have losses and treat it as a hobby, at least the photography income would be reduced to zero and you'd pay no tax on that. But as a hobby, the loss cannot offset other income.
Thank you again for your time and advice! I really really appreciate it. Hoping to be able to capture great images and publish them on National Geographic and other well known magazines :).
 

Find the Right Lawyer for Your Legal Issue!

Fast, Free, and Confidential
data-ad-format="auto">
Top