An indie business lies dormant for a year due to illness.

Hi June,

I have your book, Self-employed Tax Solutions, and it has answered a lot of the tax questions I've had in the past. Thank you!

However, I'm in a bit of a unique situation for 2007. I've had a part-time photography business since 2003. Due to some serious personal issues with my child in 2006, I had no photography income. I had a website, but didn't actively market my business in other ways.

I did not file a schedule C with my 2006 taxes as I had no photography income.

Now, fast forward to 2007. During this year, I've sold my home in Florida, moved to Tennessee, and am attempting to turn my former part-time photography business into a full-time venture. I've purchased a lot of equipment this year and have about $18-20K in business expenses. My income has been minimal. Do you think my expenses in 2007 are defensible as "expanding the existing business" or will the IRS consider them start-up costs because I had no 2006 photography income and didn't file a Schedule C?

HELP!

Cheryl from Tennessee


Dear Cheryl,

Glad you like my book. Thanks for letting me know.

I just spoke to the IRS about your question because, although I was pretty sure of the answer, I thought it best to confirm.

In 2007 yours is an existing not a new business. You simply had a hiatus due to illness for 2006.

I don't give tax preparation how-to instruction but you need to be aware, or your tax pro needs to be aware, that if you took a certain kind of depreciation on any of your equipment between 2001 and 2005 then there is an amount of that depreciation that should have been included as income on your 2006 tax return. Just mention IRS code section 179 to your tax preparer and she will know what to do.

Happy to hear that health problems have been resolved and you are back in business.

As a photographer you might want to check out my son's photo blog at http://thatcherkeats.blogspot.com/ .

Best,
June