They’re Teaching You Wrong: You Can Still Make Money From Your Photography as a Hobby

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Here is a very basic statement:
You can make money from your photos as a hobby.
If you take photos for money, you are a business.

Photo hobbyists making money is a trigger topic. If you don’t believe me, go into any social media group where working photographers hang out. Make a casual comment about making a little money on the side with your photography. Then ask at what point you should consider starting a business. The overwhelming majority of responses will say that you’re already running a business, period.

Depending on the details of your specific situation, though, they may be wrong.

Many people assume that any time you get money for a product or service, you are classified as a business. If this were true, the average yard sale would call for a complicated tax return. Likewise, just because someone hasn’t taken the steps to get a business permit or form a business entity doesn’t mean they aren’t indeed a business.

In the United States, the ultimate judge of whether or not you are running a business or a hobby is the Internal Revenue Service (IRS). Businesses and individuals file tax returns annually. Businesses must file returns even if the year ended in a loss after expenses. Because the objective of a business is to make profit, a business is limited in how many years it can run at a loss.

The third time’s the charm

The red flag for your business is the ‘3 out of 5 rule‘. If you have a loss in 3 years of 5, you run the very real risk of being reclassified as a hobby by the IRS. This explains why many businesses fail in less than 5 years. If you haven’t started making profit by your third year, only some drastic change will keep the business alive.

Just because the IRS determines your business is actually a hobby, does that mean you must stop taking money for your photos? Can you just ignore the money that people pay you?

Of course not. And of course not. The IRS doesn’t care where your money comes from. They expect you to report it. Even income from illegal activity must be reported, so they certainly want to hear about legitimate money. The IRS has a very limited list of things that aren’t reportable income. Like business income, hobby income must be reported.

There are people who – wrongly – believe that as long as you aren’t running a business, you don’t have to report the income. It’s this misunderstanding that makes people believe that any money for services must be a business. A misconception in reverse is still wrong.

If the IRS can call a business a hobby, can they call a hobby a business?

Once again, the answer is: of course, they can. The IRS has lists for everything, so you know they’ll have a list of criteria to determine whether an activity is a business or a hobby. They call this list the ‘9 factors‘. How each of these factors applies to your situation helps determine whether the IRS considers your activity a business or a hobby.

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Remember that 3 out of 5 rule? Even if your business falls into that category, it is still possible to maintain classification as a business. This is because the 9 factors don’t stand individually. The totality of facts and circumstances is considered when applying the factors as a whole.

The 9 factors are (quoted from the IRS website):

  • Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
  • Whether you have personal motives in carrying on the activity.
  • Whether the time and effort you put into the activity indicate you intend to make it profitable.
  • Whether you depend on income from the activity for your livelihood.
  • Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
  • Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
  • Whether you were successful in making a profit in similar activities in the past.
  • Whether the activity makes a profit in some years and how much profit it makes.
  • Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

As you can see, profit is a major component. These factors boil down to one single question: Are you acting like a business, with the intention and potential to make profit?

A hobby is something you do for enjoyment, with no intention of making profit. You don’t hold yourself out as someone who will take photos for money. If money comes your way because someone asks for your services, that doesn’t mean you are a business. Just because someone likes a photo you’ve taken and offers to pay you for rights to use the photo doesn’t mean you need to rush out and get a business license.

Here is a very basic statement:
You can make money from your photos as a hobby.
If you take photos for money, you are a business.

The difference is subtle, but massive. Think of a hobby as photos first, with money following. Business is definitely money first, with photos following. You mean to make money. You offer your services and you take photos with the intent to sell them.

So why does the IRS care, anyway?

The biggest difference between business and hobby as far as your taxes are concerned is that businesses are allowed to deduct expenses. This is why a photographer can take in what seems like plenty of money, but find out that expenses have wiped out any profit. If your income is from a hobby, you may not deduct expenses, and anything you make will always be a positive figure.

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When you think of it that way, it seems the IRS might want you to be a hobby. If you have income, but no loss, you pay more tax. That makes sense. This is obviously why the 3 out of 5 rule exists. Sooner or later, if you never plan to make a profit, your losses just eat away at your overall tax liability. What you call a business, the IRS calls a tax dodge. And the IRS wants its taxes.

Oddly enough, that’s also why they would want to reclassify your hobby as a business. There are several layers of taxation involved in running a small business. Licenses and permits to government agencies, sales and other operating taxes, and self-employment taxes all add to government coffers.

If your hobby brings in a substantial amount of money compared to your overall income, you are effectively creating a livelihood. It isn’t just incredibly lucky that people seek out your work, there has to be enough work to begin with. So even if you believe you’re just enjoying a successful hobby, you should take steps to create a legitimate business.

If you pick up your camera to occasionally take photos of family and friends who happen to pay you for your effort, you can probably carry on as a hobby.

Contrary to the ‘any money makes you a business‘ mantra, you most certainly can receive money as a hobbyist and not be a business.

And it is legal.

But first, ask yourself:

  • Do I hold myself out to make the money (instead of someone casually offering to pay me for photos)?
  • Do I consistently make money (instead of the once in a while little here little there)?
  • Do I rely on my hobby income to meet living expenses?
  • Is my hobby income a noticeable percentage of my total income?
  • Do I operate in a way that says I intend to be a business, either now or sometime in the future?

If the answer to any of those questions is yes, you should form a legitimate business. Otherwise, go enjoy your hobby.


Notes to accompany:
The IRS puts out statements about this very topic once a year. The information is always the same, but here they are if you prefer to read them yourself.

2022
https://www.irs.gov/newsroom/heres-how-to-tell-the-difference-between-a-hobby-and-a-business-for-tax-purposes

2021
https://www.irs.gov/newsroom/heres-what-taxpayers-need-to-know-about-paying-taxes-on-their-hobby-activities

2020
https://www.irs.gov/newsroom/earning-side-income-is-it-a-hobby-or-a-business

2019
https://www.irs.gov/newsroom/tips-for-taxpayers-who-make-money-from-a-hobby

The 9 Factors (from the IRS FAQ)
https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses

Federal Tax Regulation
https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFRcc67ec453a5e514/section-1.183-2