Tools & Taxes: More Than a Hobby?

Re: Tools & Taxes: More Than a Hobby?

Carol Reed, Strawberry, AZ

>I have been self employed in the woodworking business for more than twenty years, Joe.

Generally speaking, I was required to show a profit on my venture 2 out of every 5 years. Then tools could be depreciated or written off on a Section 179. Other supplies and ammenities were also tax deductable.

I hope you are also reading the 'insurance' thread currently running. It will also raise some questions for you.

A few years ago, I taught a class on woodworking as a business. I had an insurance man and an IRS agent come in and talk with the class.

From the insurance man, we learned that upon a claim, the insurance company's first effort is finding a reason to not honor the claim. We are not surprized, are we? ;-) They call it 'detemining whether there is coverage for the claim'.

From the IRS agent, we learned that Schedule C expenses claimed when your income includes income other than income related to the Schedule C always raises flags with the IRS, especially when the expenses far exceed the related income. Keep some records for this next year with regard to expenses and possible income. You will have a better picture and you will have some 'real' numbers for the next thing you need to do. And that is..........

A heart to heart with both your insurance agent and tax preparer would be most enlightening and help you make an informed decision.

HTH,

Carol

Re: Tools & Taxes: More Than a Hobby?

Bill Hale

>Having been self employed as a landscape contractor for 25 years we us a CPA to do all of our tax work. In using a CPA he or she will be able to direct you in how to handle the expense and income. Also and most importantly to me is that he does it corectly and does not raise those so dreaded flags that cause audits.

A CPA does not charge any more than a good tax service.

Good turning and be safe

Bill in Casa Grande, AZ.

Re: Tools & Taxes: More Than a Hobby?

Jerry Whitaker

>From personal experience, I can attest to the fact that a CPA firm is worth the money...and may even be cheaper in the long run. The truth is getting out about tax preparers like H&R Block. They like to do minimum amount of work, collect your money and get you out of their face. Every year they "train?" a new group of people who probably don't know any more than you do. CPA firm rates seem high at the onset but they know what they are doing and can do it faster and make sure get the the maximum benefit. CPA firms have preparers also and if you ask for one of them to do your taxes, it will be at a cheaper rate but these people are more stable and work year around instead of seasonal. In the end, all their work is reviewed by a CPA in the firm before it is completed.

Re: Tools & Taxes: More Than a Hobby?

Lan Brady

>We were given the same information about making a profit every 2 of 5 years. We wanted to treat our craft business as a hobby since we showed a loss 7 years in a row.

The IRS man told us, it is a business if you have a business plan that shows the intent to make profit, not the fact of actually making a profit. I did not challenge him but just kept reporting the loss.

Lan

Re: Tools & Taxes: More Than a Hobby?

Smoky Joe

>Thanks for the replies.

I think I will have to run the idea by a CPA. I'm not sure I'm high enough quality to sell alot, but I definitely have the reciepts to show an intent to need to try to make a profit! If I have another year spending on my garage/shop like this one, my next project will have to be building a bed for my garage/shop/doghouse!

But then there is that matter of only having a 12" swing on my current lathe . . .

Re: Tools & Taxes: More Than a Hobby?

MikeinCapeMay

>Well I turned for several years with a 12" capacity and now have 24", however I make and sell lots of bottle stoppers, Only need about 2" or so for them ;^)

Re: Tools & Taxes: More Than a Hobby?

Don Evans

>My understanding is he and the IRS mean "show intent" as things like advertising your product, having items in a store for sale, gift shops, etc.

Advertising is very good way of showing "intent".

If you do nothing but reduce your taxes, make stuff and sell to some friends and family, then you'll have a tough time making them believe you are really trying to make a profit making business.

Don

Re: Tools & Taxes: More Than a Hobby?

Jack Stevenson

>Hi,

The danger of going pro is that once you make the step what was a fun hobby now becomes a business with all the attendant competing foci (focuses for you left coasters). I made the step about 40 years ago and my interest waned and I dropped out only to reenter about 3 years ago. Now I sell some only if somebody insists on paying me. Sure, I do commissions and stuff like that. I even supply a local guy who does the flea market thingy. The one rule I have is no job too small. Lot's that are too big.

I'm immersed in the Freedom Pens Project and loving every pen that goes to those dudes and dudettes out there on the leading edge keeping this great country safe. I also have adopted a local National Guard infantry unit and help fill their Care Package that goes out each month.

At 72 I've come to the conclusion that although lot's of bucks is great, soul satisfaction is better.

I suggest some very deep soul searching as well as checking with your family. Something like this must have a unanamous decision. Anything less will result in leakage in the future...

Jack

Re: Tools & Taxes: More Than a Hobby?

Jack Stevenson

>Hi,

I am very knowledgeable regarding tax accounting and CPA stuff. If you luck out and get a good one then that is fine.

I utilize TurboTax and have not had a problem regarding our operating our tree farm. If I were to use a CPA for my accounting and taxes then we are talking some serious green. Just using a CPA for taxes is half a loaf.

If you are one of them who were outsourced or are looking to make some alternative bucks I'd try bartending or waiting tables. Lot's more money for not too much effort...

I'm not kidding. My niece got her degree in telecomm. She looked around and got a job in a nice restaurant waiting tables. She still is waiting tables and laughing all the way to the bank...

Jack