Saturday, March 30, 2013

Paid Clients Part II

One thing I forgot to mention is when you decide to take on paid clients don’t forget the legal ramifications.  The first thing you need to read are the IRS publications Is Your Hobby a For-Profit Endeavor? and Business or Hobby?  Answer Has Implications for Deductions.  Two more useful articles are Don’t Get Caught by the Hobby Trap and Is Your Business Just A Hobby In The Eyes Of The IRS?  The good news is, if your “business” only qualifies as a hobby then you will  have a lot less to worry about even though you won’t be able to deduct any of your expenses/losses.  If the IRS thinks you are running a legitimate business then you can deduct your expenses and losses but you will also be dealing with a  lot more paperwork and red tape. 

You also have some other things to worry about.  Here in Columbia County, Georgia where I live this is what you need to do (this is just an example of what you can expect):

“When operating a business in Columbia County there are three departments that require completion of various forms in a timely manner: the Department of Building and Commercial Services, the Tax Assessor's office and the Tax Commissioner's Office.”

You will need to keep your personal finances and your business finances separate. It will help you when tax time rolls around. The federal government expects you to be making a profit 3 out of 5 years (assuming they agree that you are running a business and not a hobby). Best advice is to keep track of EVERYTHING and then you can decide which situation applies to you come tax time. You really can’t bounce back and forth between the two situations or it will be a red flag to the IRS to audit you.

Another thing to think about is marketing and advertising. Most professional genealogists get their business via word of mouth once they are established but when you first get started you might need to get your name out there. 

Professional Genealogy: A Manual for Researchers, Writers, Editors, Lecturers, and Librarians by Elizabeth Shown Mills has information on setting up your business that is genealogy specific.  There are chapters on executing contracts, copyright and fair use, structuring a business, setting realistic fees, and business recordkeeping.  Another good resource is the U.S. Small Business Administration.

Going from hobbyist to professional is a big step.  You need to do some research on all of your options before you take the plunge.

Copyright © 2013 Michele Simmons Lewis

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