Steven Slatin on fri 27 feb 04
There are a few things to think of here. First, getting audited is
actually
no big deal, as long as everything you have done on your return is legal
and
defensible. Obviously if you're playing fast and loose you don't want
to
have the IRS looking at you (but then again I don't want to be helping
you).
The actual audit is a hassle, but while it gets you nervous, it doesn't
Really hurt all that much.
IRS bases its determination during an audit on whether you appear to
have a
Reasonable expectation of making a profit. There's lots on this in the
archive. The quick summary is -- if it's a business, it looks like one.
There are records, there's a business plan, there's a business license,
you're collecting sales tax, etc. Obviously it is easier to demonstrate
this when you're fully operational.
The archive is a good place to start.
-----Original Message-----
From: Clayart [mailto:CLAYART@LSV.CERAMICS.ORG] On Behalf Of William
Hershey
Sent: Friday, February 27, 2004 3:58 PM
To: CLAYART@LSV.CERAMICS.ORG
Subject: Taxes: Hobby or Business?
Turbo Tax is warning me that writing off a "home business" is a good way
to get audited.
Especially since I have a full time job, and this being my first year
claiming a home business, my
equipment and material purchases far outweigh my profits. Everything is
legit, but how do you
know if you qualify as a business, or just a hobby... I'll get a pretty
good refund writing off the
expenses as a business, but is it worth it? Anyone else experience this?
________________________________________________________________________
______
Send postings to clayart@lsv.ceramics.org
You may look at the archives for the list or change your subscription
settings from http://www.ceramics.org/clayart/
Moderator of the list is Mel Jacobson who may be reached at
melpots@pclink.com.
William Hershey on fri 27 feb 04
Turbo Tax is warning me that writing off a "home business" is a good way to get audited.
Especially since I have a full time job, and this being my first year claiming a home business, my
equipment and material purchases far outweigh my profits. Everything is legit, but how do you
know if you qualify as a business, or just a hobby... I'll get a pretty good refund writing off the
expenses as a business, but is it worth it? Anyone else experience this?
Bonnie/Jeremy Hellman on sat 28 feb 04
William, Steve has given you a good answer here.
You ask: How do you know if you qualify as a business?
The answer: You have a business if you have approached the activity like a
business, with your goal being to make a profit!
Whether or not you actually made a profit is not the question in your first
year of business. Did you try? This has been discussed previously, and you
should find longer discussions in the archives.
You need to ask if you did those things that "businesses" normally do, and
would an outsider (say, for example, an IRS auditor) look at your activities
and believe that you are really trying to make a profit. The question isn't
whether you actually spent the money, which you say you spent. (BTW claiming
phony deductions and ignoring taxable revenue is considered to be fraud, an
illegal activity.)
When we have hobbies, not businesses, we buy what we want (and can afford),
spend money when we want to. We may sell a few things we make. Most of my
own hobbies in the past have involved spending far more money than I ever
made, without a second thought, with no disappointment, without efforts to
generate a profit. If I've sold anything, I put the revenue on my tax
return, and deduct related expenses equal to, but not exceeding my revenue.
No loss shows, regardless of how much money I might have spent. That's a
hobby. No profit motive.
So the question is, "Are you trying to make a profit? Does it LOOK like you
are trying to make a profit?" If the answer is yes, and you did not make a
profit, what are you going to do differently so you don't have a loss next
time around?
Bonnie
Bonnie Hellman
CPA in PA & CO
PS As for Turbo Tax, it's a good tax program, but there is no substitute for
a knowledgeable tax practitioner.
----- Original Message -----
From: "Steven Slatin"
To:
Sent: Saturday, February 28, 2004 2:25 AM
Subject: Re: Taxes: Hobby or Business?
> There are a few things to think of here. First, getting audited is
> actually
> no big deal, as long as everything you have done on your return is legal
> and
> defensible. Obviously if you're playing fast and loose you don't want
> to
> have the IRS looking at you (but then again I don't want to be helping
> you).
> The actual audit is a hassle, but while it gets you nervous, it doesn't
> Really hurt all that much.
>
> IRS bases its determination during an audit on whether you appear to
> have a
> Reasonable expectation of making a profit. There's lots on this in the
> archive. The quick summary is -- if it's a business, it looks like one.
> There are records, there's a business plan, there's a business license,
> you're collecting sales tax, etc. Obviously it is easier to demonstrate
> this when you're fully operational.
>
> The archive is a good place to start.
>
>
> -----Original Message-----
> From: Clayart [mailto:CLAYART@LSV.CERAMICS.ORG] On Behalf Of William
> Hershey
> Sent: Friday, February 27, 2004 3:58 PM
> To: CLAYART@LSV.CERAMICS.ORG
> Subject: Taxes: Hobby or Business?
>
> Turbo Tax is warning me that writing off a "home business" is a good way
> to get audited.
> Especially since I have a full time job, and this being my first year
> claiming a home business, my
> equipment and material purchases far outweigh my profits. Everything is
> legit, but how do you
> know if you qualify as a business, or just a hobby... I'll get a pretty
> good refund writing off the
> expenses as a business, but is it worth it? Anyone else experience this?
>
> ________________________________________________________________________
> ______
> Send postings to clayart@lsv.ceramics.org
>
> You may look at the archives for the list or change your subscription
> settings from http://www.ceramics.org/clayart/
>
> Moderator of the list is Mel Jacobson who may be reached at
> melpots@pclink.com.
>
>
____________________________________________________________________________
__
> Send postings to clayart@lsv.ceramics.org
>
> You may look at the archives for the list or change your subscription
> settings from http://www.ceramics.org/clayart/
>
> Moderator of the list is Mel Jacobson who may be reached at
melpots@pclink.com.
jim bisbee on sat 28 feb 04
William, There are a number of ways to demonstrate that this is indeed a
home business and not a hobby:
* Have an area or room specifically set aside for it and have you equipment
and chemicals there.
* Keep good records of expenses and income.
* Have a separate checking account for the business.
* Make an effort to sell your product by going to shows, advertising, etc.
If you do these kinds of things you will be able to withstand and audit if
you have one. From what I read the presence of a home business doesn't
really increase the likelyhood of an audit anymore. Jim
----- Original Message -----
From: "William Hershey"
To:
Sent: Friday, February 27, 2004 6:57 PM
Subject: Taxes: Hobby or Business?
> Turbo Tax is warning me that writing off a "home business" is a good way
to get audited.
> Especially since I have a full time job, and this being my first year
claiming a home business, my
> equipment and material purchases far outweigh my profits. Everything is
legit, but how do you
> know if you qualify as a business, or just a hobby... I'll get a pretty
good refund writing off the
> expenses as a business, but is it worth it? Anyone else experience this?
>
>
____________________________________________________________________________
__
> Send postings to clayart@lsv.ceramics.org
>
> You may look at the archives for the list or change your subscription
> settings from http://www.ceramics.org/clayart/
>
> Moderator of the list is Mel Jacobson who may be reached at
melpots@pclink.com.
Maurice Weitman on sat 28 feb 04
At 9:57 -0500 on 2/28/04, Bonnie Hellman wrote:
>PS As for Turbo Tax, it's a good tax program, but there is no substitute for
>a knowledgeable tax practitioner.
Although many of us strive for and take pride in our
self-sufficiency, Bonnie makes an important point here, ""
notwithstanding.
Although most of us are smart enough to learn enough about the tax
codes to do a reasonable job of financial planning, reporting, and
tax issues, it is most often in our best interest to use the services
of a knowledgeable accounting and tax person.
Poring over the tax code and then trying to interpret it in our
context is mostly NOT a good use of our time, and will often cost us
MUCH more than the fees we would save by relying solely on TurboTax
and Quicken's advice.
Besides, would you rather be making art or playing with TurboTax and
worrying about The Man?
Regards,
Maurice
Cindi Anderson on sat 28 feb 04
Bonnie covered most of what I wanted to say.
But another way to show you are a business: are you following all the
regulations? Do you have a reseller license and do you collect sales tax
on your sales? If you don't then I wouldn't even try to say you are a
business. Do you have a business license? Many cities even require
separate permission to have a home business.
Cindi
Fremont, CA
Carole Fox on sun 29 feb 04
Bonnie wrote:
PS As for Turbo Tax, it's a good tax program, but there is no substitute
for
> a knowledgeable tax practitioner.
Bonnie gave me that same advice several years ago and IT IS REALLY GOOD
ADVICE! Sorry to shout, but that is what you do when you save hundreds of
dollars each year that you would have never found with turbo tax. Even
convinced my computer fanatic husband.
Carole Fox
Silver Fox Pottery
Elkton, MD
thesilverfox@dol.net
----- Original Message -----
From: "Bonnie/Jeremy Hellman"
To:
Sent: Saturday, February 28, 2004 9:57 AM
Subject: Re: Taxes: Hobby or Business?
> William, Steve has given you a good answer here.
>
> You ask: How do you know if you qualify as a business?
> The answer: You have a business if you have approached the activity like a
> business, with your goal being to make a profit!
>
> Whether or not you actually made a profit is not the question in your
first
> year of business. Did you try? This has been discussed previously, and you
> should find longer discussions in the archives.
>
> You need to ask if you did those things that "businesses" normally do, and
> would an outsider (say, for example, an IRS auditor) look at your
activities
> and believe that you are really trying to make a profit. The question
isn't
> whether you actually spent the money, which you say you spent. (BTW
claiming
> phony deductions and ignoring taxable revenue is considered to be fraud,
an
> illegal activity.)
>
> When we have hobbies, not businesses, we buy what we want (and can
afford),
> spend money when we want to. We may sell a few things we make. Most of my
> own hobbies in the past have involved spending far more money than I ever
> made, without a second thought, with no disappointment, without efforts to
> generate a profit. If I've sold anything, I put the revenue on my tax
> return, and deduct related expenses equal to, but not exceeding my
revenue.
> No loss shows, regardless of how much money I might have spent. That's a
> hobby. No profit motive.
>
> So the question is, "Are you trying to make a profit? Does it LOOK like
you
> are trying to make a profit?" If the answer is yes, and you did not make a
> profit, what are you going to do differently so you don't have a loss
next
> time around?
>
> Bonnie
> Bonnie Hellman
> CPA in PA & CO
>
> PS As for Turbo Tax, it's a good tax program, but there is no substitute
for
> a knowledgeable tax practitioner.
>
> ----- Original Message -----
> From: "Steven Slatin"
> To:
> Sent: Saturday, February 28, 2004 2:25 AM
> Subject: Re: Taxes: Hobby or Business?
>
>
> > There are a few things to think of here. First, getting audited is
> > actually
> > no big deal, as long as everything you have done on your return is legal
> > and
> > defensible. Obviously if you're playing fast and loose you don't want
> > to
> > have the IRS looking at you (but then again I don't want to be helping
> > you).
> > The actual audit is a hassle, but while it gets you nervous, it doesn't
> > Really hurt all that much.
> >
> > IRS bases its determination during an audit on whether you appear to
> > have a
> > Reasonable expectation of making a profit. There's lots on this in the
> > archive. The quick summary is -- if it's a business, it looks like one.
> > There are records, there's a business plan, there's a business license,
> > you're collecting sales tax, etc. Obviously it is easier to demonstrate
> > this when you're fully operational.
> >
> > The archive is a good place to start.
> >
> >
> > -----Original Message-----
> > From: Clayart [mailto:CLAYART@LSV.CERAMICS.ORG] On Behalf Of William
> > Hershey
> > Sent: Friday, February 27, 2004 3:58 PM
> > To: CLAYART@LSV.CERAMICS.ORG
> > Subject: Taxes: Hobby or Business?
> >
> > Turbo Tax is warning me that writing off a "home business" is a good way
> > to get audited.
> > Especially since I have a full time job, and this being my first year
> > claiming a home business, my
> > equipment and material purchases far outweigh my profits. Everything is
> > legit, but how do you
> > know if you qualify as a business, or just a hobby... I'll get a pretty
> > good refund writing off the
> > expenses as a business, but is it worth it? Anyone else experience this?
> >
> > ________________________________________________________________________
> > ______
> > Send postings to clayart@lsv.ceramics.org
> >
> > You may look at the archives for the list or change your subscription
> > settings from http://www.ceramics.org/clayart/
> >
> > Moderator of the list is Mel Jacobson who may be reached at
> > melpots@pclink.com.
> >
> >
>
____________________________________________________________________________
> __
> > Send postings to clayart@lsv.ceramics.org
> >
> > You may look at the archives for the list or change your subscription
> > settings from http://www.ceramics.org/clayart/
> >
> > Moderator of the list is Mel Jacobson who may be reached at
> melpots@pclink.com.
>
>
____________________________________________________________________________
__
> Send postings to clayart@lsv.ceramics.org
>
> You may look at the archives for the list or change your subscription
> settings from http://www.ceramics.org/clayart/
>
> Moderator of the list is Mel Jacobson who may be reached at
melpots@pclink.com.
Gary Ferguson on sun 29 feb 04
William:
If everything you are doing is legit, and you are honestly trying to make a
"profit" then take all the deductions you can (even to the point of a loss).
You don't get brownie points from the IRS by not taking deductions. Even if
you are audited, you should have nothing to worry about as long as
everything is done, tracked, and logged correctly.
I'm not sure you can declare a home office and have a loss though - but you
should be able to carry the office deduction over to future more profitable
years and off set them.
Gary Ferguson
Raku Clay Artist
Raku Gallery at: http://www.garyrferguson.com
300+ Glaze Collection at: http://www.rakuglazes.com
Subscribe to Just Raku Newsletter at http://www.JustRaku.com
Got Raku? Wear it here: http://www.cafepress.com/gotraku
----- Original Message -----
From: "William Hershey"
To:
Sent: Friday, February 27, 2004 4:57 PM
Subject: Taxes: Hobby or Business?
> Turbo Tax is warning me that writing off a "home business" is a good way
to get audited.
> Especially since I have a full time job, and this being my first year
claiming a home business, my
> equipment and material purchases far outweigh my profits. Everything is
legit, but how do you
> know if you qualify as a business, or just a hobby... I'll get a pretty
good refund writing off the
> expenses as a business, but is it worth it? Anyone else experience this?
>
>
____________________________________________________________________________
__
> Send postings to clayart@lsv.ceramics.org
>
> You may look at the archives for the list or change your subscription
> settings from http://www.ceramics.org/clayart/
>
> Moderator of the list is Mel Jacobson who may be reached at
melpots@pclink.com.
Steve Slatin on sun 29 feb 04
OK guys -- at the risk of repeating myself, the home office is one of
the hardest deductions to qualify for. For details, go to this link --
http://www.irs.gov/newsroom/article/0,,id=3D108138,00.html
which is actually quite understandable. You can write off a home office
if it is the principal place where your business is conducted. (If any
potter out there has been able to figure out how to pot in an office
inside of your home, I'd like to know how. My wife won't let the stuff
in the house.) You get only one principal place of business, for most
potters it will be their studio. Also, it must be space exclusively =
used
for your work -- if it's an office/spare bedroom or an office/plant room
or whatever, you can't claim it.
Rules are different, obviously, if you are an employee of another person
or firm. The link also has sub-links to other publications that may =
help.
-----Original Message-----
From: Clayart [mailto:CLAYART@LSV.CERAMICS.ORG] On Behalf Of Gary =
Ferguson
Sent: Sunday, February 29, 2004 2:30 PM
To: CLAYART@LSV.CERAMICS.ORG
Subject: Re: Taxes: Hobby or Business?
William:
If everything you are doing is legit, and you are honestly trying to =
make a
"profit" then take all the deductions you can (even to the point of a =
loss).
You don't get brownie points from the IRS by not taking deductions. =
Even if
you are audited, you should have nothing to worry about as long as
everything is done, tracked, and logged correctly.
I'm not sure you can declare a home office and have a loss though - but =
you
should be able to carry the office deduction over to future more =
profitable
years and off set them.
Gary Ferguson
Raku Clay Artist
Raku Gallery at: http://www.garyrferguson.com
300+ Glaze Collection at: http://www.rakuglazes.com
Subscribe to Just Raku Newsletter at http://www.JustRaku.com
Got Raku? Wear it here: http://www.cafepress.com/gotraku
----- Original Message -----
From: "William Hershey"
To:
Sent: Friday, February 27, 2004 4:57 PM
Subject: Taxes: Hobby or Business?
> Turbo Tax is warning me that writing off a "home business" is a good =
way
to get audited.
> Especially since I have a full time job, and this being my first year
claiming a home business, my
> equipment and material purchases far outweigh my profits. Everything =
is
legit, but how do you
> know if you qualify as a business, or just a hobby... I'll get a =
pretty
good refund writing off the
> expenses as a business, but is it worth it? Anyone else experience =
this?
>
>
_________________________________________________________________________=
___
__
> Send postings to clayart@lsv.ceramics.org
>
> You may look at the archives for the list or change your subscription
> settings from http://www.ceramics.org/clayart/
>
> Moderator of the list is Mel Jacobson who may be reached at
melpots@pclink.com.
_________________________________________________________________________=
___
__
Send postings to clayart@lsv.ceramics.org
You may look at the archives for the list or change your subscription
settings from http://www.ceramics.org/clayart/
Moderator of the list is Mel Jacobson who may be reached at
melpots@pclink.com.
Bobbruch1@AOL.COM on mon 1 mar 04
Gary writes: If everything you are doing is legit, and you are honestly=20
trying to make a "profit" then take all the deductions you can (even to the=20=
point=20
of a loss). You don't get brownie points from the IRS by not taking=20
deductions.=A0 Even if you are audited, you should have nothing to worry abo=
ut as long as=20
everything is done, tracked, and logged correctly.
There are rules about losses that require that you make a profit in two year=
s=20
(possibly three) out of every five in order for the activity to be considere=
d=20
a business and not a hobby. If it is not considered a business, then you=20
cannot take "hobby" losses against other income on your tax return. I suppo=
se=20
theoretically that you could make a gain of one dollar twice every five year=
s=20
and still be able to deduct business losses in the the other years (i.e. - v=
ia=20
careful tax planning) - but you would need an accountant to give you advice=20
about that.
Bob Bruch
rhona on mon 29 mar 04
Just a note regarding taxes and the 'art' of making our studio a business.
In Canada, in the ranching business, we must have revenue to legitimately
make our ranch a 'business' for the tax department. I would imagine that
the same rules go for those of us in the pottery business. I haven't looked
into it yet because I am still teaching but our place is named Open Armes
Studio and Ranch, for when I retire.
rhona@mail.ocis.net
----- Original Message -----
From:
To:
Sent: Monday, March 01, 2004 4:01 AM
Subject: Taxes: Hobby or Business?
Gary writes: If everything you are doing is legit, and you are honestly
trying to make a "profit" then take all the deductions you can (even to the
point
of a loss). You don't get brownie points from the IRS by not taking
deductions. Even if you are audited, you should have nothing to worry about
as long as
everything is done, tracked, and logged correctly.
There are rules about losses that require that you make a profit in two
years
(possibly three) out of every five in order for the activity to be
considered
a business and not a hobby. If it is not considered a business, then you
cannot take "hobby" losses against other income on your tax return. I
suppose
theoretically that you could make a gain of one dollar twice every five
years
and still be able to deduct business losses in the the other years (i.e. -
via
careful tax planning) - but you would need an accountant to give you advice
about that.
Bob Bruch
____________________________________________________________________________
__
Send postings to clayart@lsv.ceramics.org
You may look at the archives for the list or change your subscription
settings from http://www.ceramics.org/clayart/
Moderator of the list is Mel Jacobson who may be reached at
melpots@pclink.com.
| |
|
