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Key words in this issue: Home Advantage | Top Prices | Getty Finances | Damages Awarded | Photos In History | Army Magazine | Stock Photo

NEWSWORDS:

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## PhotoAIM weekly newsletter for 06/07/03 ## 393a

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PhotoAIM, the weekly newsletter from PhotoSource

ISSN 1530-0511

If you no longer wish to receive PhotoAIM, see the instructions at the end of this newsletter.

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USING YOUR HOME OFFICE TO ADVANTAGE

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Increase Your Pay Check

As a self-employed individual, every time you discover a tax deduction, you are in effect, "giving yourself a raise." There are many tax deductions you can claim that relate right to the place you probably do much of your work, your home. Here are some tips from the book, "422 Tax Deductions," by Bernard Kamoroff, C.P.A.

A "home" office can be in a house, apartment, loft, condominium, trailer, mobile home, or boat. The term also includes any separate structure that is part of your residence, such as a garage or barn. You can deduct the expenses directly related to your home office, such as utilities, insurance, property taxes, etc. You must, however, meet certain requirements for your home work space to qualify as a "home office," and be eligible for these deductions. (See below).

The home-office rules apply to sole proprietors, partners, and owners of an S corporation. The home-office rules do not apply to C corporations.

Regular and Exclusive Use: To be eligible for the home office deduction, a specific part of your home must be used regularly and exclusively for business. It can be a separate room or even part of a room, as long as the space is used for the business and nothing else. A TV set can be in the office if it is used in your stock photography work. Your office cannot double as a guestroom, poolroom, kids’ playroom, or anything else, even when you are not working.

Here’s an exception to the exclusive rule: If your home is your sole fixed location for a retail sales business, and if you regularly store your inventory (in this case, your stock photos) in your home, the expense of maintaining the storage area is deductible even if storage isn’t the exclusive use of the space.

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A BIG CHANGE

Your Principal Place of Business: The home-office rules changed in January 1999. Until 1999, you were not able to deduct any expenses for a home office unless used exclusively and on a regular basis as your "principal place of business," or a place of business used regularly by your patients, clients or customers in the normal course of business.

Up to 1999, the Supreme Court defined principal place of business as, "the most important, consequential, or influential location," with the main emphasis on where you do the work that produces the income. This meant that consultants, contractors, plumbers, caterers, musicians, independent travelling salespeople and others who do their income-producing work at customers’ and clients’ homes and offices, were not, in most cases, eligible for a home office deduction. The fact that your home office was essential to your business, or that you did all of your paperwork there, or even that it was the sole base of operations, according to the past law this was not enough to make it deductible. However, a law change in 1997, put into effect in 1999, makes it possible for you to deduct home-office "space" expenses that previously were not recognized by the IRS. The law now eliminates the "principal place of business" requirement. This is often referred to as the Soliman Decision. You will be allowed a home office deduction if your home office is the only place ("the sole fixed location") where the business owner conducts "substantial" administrative or management activities for that business.

You are allowed a deduction for your home office even if you have another business location, and even if you earn the major portion of your income away from the home office, as long as you do most of your paperwork, or your photo research, or ordering photo supplies, or scheduling assignments, at your home office. Note that you don’t have to do all of your administrative or management work at home. The key word here is "substantial." (Using the home office to do occasional or minor paperwork however, will not qualify it for the deduction.)

For details: See PhotoStockNotes, "New Tax Deductions," Back issue Oct. `97, pg. 1.

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Separate structure: If your home business is located not in the home, but in a freestanding structure such as a studio, garage or barn, you don’t have to meet the principal-place-of-business test. You are allowed deductions for upkeep of the space even if it is not your principal place of business. But the space still must be used regularly and exclusively for business, to qualify.

What’s Deductible: Deductible home-office expenses include a percentage of your rent if you rent your home or apartment, or a percentage of the depreciation if you own your home, and according to percent of spaced used, an appropriate percentage of home utilities, property tax, mortgage interest and insurance. You can determine the percentage based on any reasonable allocation. Most people use either square footage or number of rooms in the house.

Home repairs, such as a new roof or furnace, are also partly deductible (though if they are major, they must be depreciated).

The IRS specifically prohibits deductions for landscaping and lawn care, even if done solely to enhance the business (unless you are in the landscaping business).

Ed Note: As a stock photographer, you may be able to convince the IRS that landscaping, even flower or vegetable gardening, is essential to your business, if these be some of your photo specialties.

Carrying A Business Loss Forward: If your home business shows a loss for the year, part of your home office expenses are not deductible for that year. You may deduct all of your regular business expenses, e.g. phone, postage, stationery (other than expenses for the office space itself), and may deduct interest and property taxes on the office, regardless of profit and loss. But the remaining home office expenses (including rent or depreciation, insurance, utilities) may be deducted for the year only to the extent that there is no loss. Any expenses you cannot deduct due to this limitation can be carried forward to the next year, and deducted again only up to the point where they do not create a loss for the year.

Homeowner Deductions -- Caution: If you are eligible for the home-office deduction, you might run into tax complications when you sell your house. In computing profit on the sale, you are required to reduce your home’s cost basis by the amount of the depreciation allowed (whether you take the depreciation or not!), which will increase your profit, and possibly your taxes, on the sale.

For more information, see IRS Publication 587, "Business Use of Your Home."

Expense category: Home office expenses must be reported on Form 8829, "Expenses for Business Use of Your Home." Note that you do not report home office depreciation, utilities, property taxes, or other home office expenses on the expense category tax form normally used for your business deductions. All home office expenses are reported on Form 8829.

Source: "422 Tax Deductions For Self-Employed Individuals," by Bernard B. Kamoroff, C.P.A. ($16.95 plus $3 p&h) Bell Springs Publishing, Box 1240, Willits, CA 95490 (216 pages; ISBN 0-917510-11-9) 1 800 515-8050; Fax: 1 707 459-8614. (Ask about their monthly tax update for 2003).

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This week's featured photographer on PhotoSourceFolio: John Perryman :

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BUSINESS NOTEPAD

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GETTY IMAGES reports that their financial health continues to look good. Two years ago at this time, it was a different story. The massive London/Seattle-based digital stock agency had lost more than $368 million in the preceding four years, and while they reported first quarter sales of $125.8 million in 2001, that was not enough to turn a profit. One year ago, in 2002, their first quarter sales had slumped to $113.9, but the company was able to announce a first-time-ever profit, due to Getty world-wide cost-cutting moves and a new SEC accounting rule. This year Getty reports their first quarter revenue at $130.3 million. In the past 15 months, Getty has been engaged in a slim-down process that has reduced their original 3,000 staff to almost half. The layoffs were not due to the downturn in the advertising market, but the shift to emphasizing digital delivery of their commercial stock photos.

As Getty continues to figure what the advertising market needs, and applies its research, smaller commercial stock photo competitors are bound to brave the consequences. For we editorial stock photographers, Getty poses no threat. Our target markets are special-interest publishers of books and magazines who need highly specific photos. If you have tailored your photo inventory to match the needs of a select number of special-interest publishers whose monthly photo procurement budgets are $35,000 to $150,000 per month, you are on the right trail. Conversely, focussing on filling the same needs that Getty targets (advertising, corporate, pr agency markets) is hard row to hoe.

Addendum. And what of CORBIS, also there in Seattle? Getty is steam rolling forward with its plan to capture the Japanese market this year, and who knows, next year they just might fulfill my prophesy that they (Getty) will also gobble up CORBIS. –RE

YOU AND THE LAW

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Maximum Statutory Damages Awarded

It is rare that a photographer is awarded the maximum available damages in copyright infringement litigation. Jerry Greenberg has recently achieved this rare feat. If it is upheld after the expected post trial motions and appeals, the result will be a truly empowering event in photography.

As you may recall, National Geographic  reproduced its monthly magazines in CD-Roms, with new elements added. The District Court originally dismissed the case, holding that National Geographic had acquired such rights. This was reversed on appeal, with the Appellate Court finding these uses were, in fact, infringements and that Greenberg was entitled to damages to be determined after a trial. The reversal came down while the Tasini case was being heard by the Supreme Court, and was vindicated by the Supreme Court's ruling in Tasini in favor of photographers. National Geographic sought to appeal the reversal to the Supreme Court, but was turned down.

ONE FOR EACH STORY

National Geographic had published 64 of Greenberg's images in the context of four stories. In a pre-trial determination, the Judge severely limited the scope of the case by ruling, in effect, that each story was anticipated to be part of a collection. Therefore, he ruled that there were only four infringements (one for each story), and not 64 (one for each image).

At the actual trial the jury awarded Greenberg the maximum of $100,000 per infringement (the case arose before the maximum was raised to $150,000). The issue of attorney's fees has still to be decided. It is anticipated that, since the fees were substantial, extensive litigation may follow on this issue. Greenberg is obviously the prevailing party, but National Geographic is arguing that it was just following the advice it obtained from its counsel, who provided written opinions that the use would not infringe Greenberg's rights. That decision may be of equal or more interest than the actual trial result.

FLASHBACK

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1940 – The first cystoscopic photographs were published (in the Southern Surgeon). They were taken in color by Drs Edgar Garrison Ballenger, Harold Paul McDonald, and Reese Clinton Coleman of Atlanta, Georgia.

CONTESTS

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ARMY MAGAZINE PHOTO CONTEST. Deadline: June 30, 2003. Cash awards: $500 - 1<sup>st</sup> prize; $300 – 2<sup>nd</sup> prize; $200 – 3<sup>rd</sup> prize; five honorable mentions each will receive $100. Each contestant is limited to three entries. Contact: Joni Dodd, ARMY Magazine, 2425 Wilson Blvd. Arlington, VA 22201-3385. Phone: 1 703 841-4300, ext. 204.

QUOTE OF THE WEEK

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"Being an editorial stock photographer is akin to being a Starbucks and selling lots of cups of coffeee and the occasional muffin. Our business is lots of small sales - not like running a big restaurant that has a fancy menu and big prices and is only busy with customers a few hours a day."

-Bill Wittman, photographer, Ontario, Canada

FREE THIS WEEK

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FREE information about government bids. The leading online governmental bid and RFP listing service. A simple way for business owners to find local, state and federal bid opportunities.

THIS WEEK'S WEB FEATURE

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Want to get your stock photography business started right? There's help awaiting you at our site, Stock Photography 101, authored by veteran photojournalist, Mikael Karlsson. You'll find answers to technical questions, tips for successful marketing strategies, legal and copyright information, and much more.

Watch for developments in the field of stock photography in PhotoAIM's

PHOTOGRAPHY IN THE NEWS

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393a

Next Week: The X-Ray Files