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Home Office Hints

For Stock Photographers...

Are you missing out on tax deductions that could be yours? If you are a photographer, you probably fall into one of three categories:
  1. You are self-employed and photography (whether stock, portrait, wedding, commercial, or a combination) is your sole source of income.
  2. You are employed in a separate job or profession and your stock photography is a sideline business.
  3. You are employed as a photographer on staff by a company.
The "Home Office" laws have always been difficult for independent stock photographers to interpret. Almost 75% of us work out of our home office and fall into either category 2 or 3 above. To get a clearer picture of how we qualify (or don't qualify) for a home office tax deduction, we spoke with tax columnist and lecturer, Julian Block, who is author of the popular book, "Julian Block's Tax Avoidance Secrets."

Q: Is there any class of work-at-home photographers who definitely qualify for 100% of deductions available to a business?

A: If a description of your stock photography operation falls into the first category above, you are entitled to any and all applicable tax business deductions* that any business, including large ones, are entitled to by law. However, if you work at home, the present IRS regulation says that more than 50% of your time engaged in that business must be conducted in your home to qualify for home office deductions.

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Q: Just when is it that a work-at-home person does not qualify for home deductions?

A: When you hear about tax deductions that are not available to work-at-home persons, the rulings generally apply to people who spend most of their working time away from their home office. The IRS figures those people should not be entitled to a home office deduction if they are rarely using the home office-that in such cases claiming home office deductions is an abuse of the tax regulations.

Q: Please explain the Soliman case, where the Supreme Court decided that the IRS was correct in requiring that to qualify for home deductions a person must conduct his or her work at least 50% of the time in the home, not in the field or elsewhere.

A. The court ruled that persons who maintain an office at home are not entitled to office-at-home tax deductions unless more than 50% of their actual working time is spent in that home office. This is regardless of whether they have or don't have an office elsewhere.

Q: Does this mean that if a photographer is not employed elsewhere, the Soliman case does not apply?

A: No, the 50% rule still applies to photographers whether they are photographers employed elsewhere as a company photographer, or they are operating a business at home, even if it is their sole source of income. Even if it is your only business, 50% of your work time must be spent in your home in order to get the home office deductions.

Q. Just what are the home office deductions a person would qualify for?

A: If you are putting in 50% or more of your work time at home, you are entitled to deduct the percentage of your home that is used for your business. As example, if you conduct your business from a room at home that is one-eighth the size of your home, then one-eighth of the expenses to maintain your home are business expenses (heating, air conditioning, lights, cleaning, etc.). All of the office equipment, and other materials related to your business, are, of course, deductible.

Q: What if you don't qualify for the "home office" deductions you just mentioned- are you entitled to regular business deductions?

A: You are still entitled to standard business deductions such as telephone, film, cameras, office equipment such as computers, software, fax machines, etc. even if you are working less than 50% of your time in your home.
Of course, if you rented an office across the street or across town, all the office maintenance expenses can be considered a deduction on your Schedule C, including the cost of renting your office.

Q: How do you determine how much of your work is conducted at the home office?

A: Keep a log. In stock photography, unlike assignment photography, you very often will spend more than 50% of your time at your home office-editing pictures, cataloging them, filing them, mailing them out, re-filing them, phoning, faxing, and e-mailing photobuyers, plus processing the necessary paperwork. Your stock photography operation could very well qualify you for full home office deductions.* Keep a log, just as you would for business use of a vehicle to determine how much of your car travel time is spent photographing, building your stock file, etc. and how much of your time is for pleasure or non-work related travel.

FLASH! Senate Majority Whip, Don Nickels (R), Oklahoma, and Senate Small Business Committee Chairman, Christopher Bond (R), Missouri, followed through on a promise recently to "level the playing field" for entrepreneurs who work from their home, by introducing the "Home-Based Business Fairness" Bill of 1997.

According to Nickels, the legislation addresses bias in the tax code against those who run their business from home, and would overturn the Supreme Court decision of 1993 (Soliman) which greatly narrowed the scope of home office deductions. This bill considers home businesses that require that most of the work that produces the revenue be done outside of the home, as in photography, tree-cutting, farming, fishing, guiding, and so on.

Q: I notice that on the Schedule C form, the IRS inquires if you have a home-office business. If your answer is "yes" -do they scrutinize your tax return more thoroughly?

A: Basically, the IRS is looking for persons who claim a loss with their home business. If you are making a profit, you shouldn't expect red flags to go up. Of course, there's no guarantee the IRS would not scrutinize a business, any business, that is making a profit.

Q: Any words of advice for stock photographers who work at home?

A: The key is to show an intent to make a profit. Your paper trail (on business stationery), such as your efforts to conduct business with photo researchers, editors, and art buyers, will be convincing.

Q: If I don't make a profit, am I still entitled to standard tax deductions?

A: Yes, especially if you can document that you have conducted your operation in a business-like manner. If the IRS concludes you have not shown a profit motive (i.e. they consider your `business' is a `hobby'), you will still be able to claim standard business expenses,* but only to the extent that you have income from your stock photography. The deduction for any net loss will be disallowed.

Q: Doesn't this 50% rule put a lot of would-be entrepreneurs at a disadvantage? Doesn't it discourage entrepreneurship?

A: More, not fewer, businesses are being established at home nowadays. The work-at-home law, as interpreted in the Soliman case, is overly stringent and stands a good chance to be modified. Several proposals have been introduced to change the law, but to date, none have passed. Eventually we should see some relief in this area for home-workers. Meanwhile good record-keeping, business practices, and receipts are your best defense in case of an IRS audit. * Ed. Note: For a complete list of standard deductible expenses for your work-at-home office, see Chapter 16 of Sell & ReSell Your Photos. Reminder: If your log shows that you do not spend at least 50% of your working hours in your home office, your expenses for your home office (e.g. heat, maintenance, repairs, etc.) will not be allowed as deductions. However, normal business deductions such as telephone, computer supplies, office equipment would still be deductible. For more information, here's a free brochure: IRS Publications 587, "Business Use of Your Home," which discusses the home office rules. The brochure also discusses what you can or cannot deduct for a computer. Also, ask for "Guide To Free Tax Services" (#910) which includes a summary of IRS booklets. 1 800 TAX-FORM, or stop by an IRS office to pick these booklets up.

Julian Block, a former IRS agent and tax attorney, is the author of "Julian Block's Tax Avoidance Secrets" ($29.95 p&h included, 560 pgs. Mention you are a PhotoStockNotes subscriber and receive the book for $19.95. 3 Washington Sq, Station 5, Larchmont NY 10538-2032). Julian can be reached at julianblock@yahoo.com


More Home Office Info

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