Hobby tax write off?

[ScottyJ]

Does anyone know about the hobby tax write off/deduction? I did a brief search to see what qualifies and how it works but couldn't make any sense of it. Does anyone know much about it and what qualifies? Thanks!



Scott

[Old dog]

We were told that you can't write off expenses for fishing tournaments because it is a hobby. The good news, as soon as we won a boat we had to pay taxes on the winnings and we were considered pros and now we could write off expenses. So I believe when you start receiving income from the sport you can write off expenses associated with generating that income. Very simplistic answer and you should certainly talk to a tax pro before taking this plumbers answer.

[Cooch]

I'm not sure about any new law regarding "hobbies", which is what the IRS will tell most angler's that their fishing is, but if you have a Guides Licsense, AND set up a business checking account for your fishing, it's no longer questioned as a Hobby by the IRS. Keep in mind, ya only have like 3 years though, as with any business, to take losses without showing a profit, before they tell ya it no longer qualifies.

Like Moen says, it works a lot like gambling, they consider it a hobby, until ya hit the big one or cross that barrier in winnings where they 1099 ya, then the IRS wants their piece and if ya have all the required pieces in place, then ya can claim and file Schedule C.

[Steve Reed]

Take my advice and go to a professional.

I had some extremely unique tax issues with 1099's from winnings and I can tell you a good tax guy is worth every penny.

[mahoney]

It really depends on how much you make a year. For me I make over $100K so the write offs dont get me near the lower tax bracket. I talked to Ross England about this same issue and he basically told me that it was not worth it.

[dyollp]

For probably 95% of tournament fisherman, fishing is a hobby and not a business. You may take a deduction for hobby expenses, but they are limited to your hobby income. To actually take advantage of these deductions, you have to itemize, and the expenses are subject to other limits (Only the portion of misc itemized deductions that exceed 2% of adjusted gross income are deductible.) Basically, you will not see much benefit from deducting hobby expenses unless you have a lot of hobby income. If that's the case, then it may be more than just a hobby for you.

If you think tournament fishing is more than just a hobby for you, you should really treat your tournament fishing like a business. Consider setting up some type of LLC, and have separate bank accounts and keep detailed accounting records for your business. Having said that, you can't continually take a loss. You'll have to show some income at some point.

To be conservative, I would stick to taking expenses to the extent of your tournament winnings. Regardless, keep really good records. That way, if you do win big, you'll be ready.

Disclaimer: Please don't take this post as actual advise. Try and find a CPA that has several bass pro clients. They'll know what to do.

[Marty]

Ten Tips For Deducting Your 'Hobby'

Will the IRS pay for your hobby? The short answer is: No. But the more nuanced answer is: "Yes, Uncle Sam will sometimes subsidize your hobby." If, that is, you make it into enough of a real business.
If you want to avoid any IRS hassles, my standard advice is to keep business and personal pursuits purely separate.

But that doesn't work for everyone. We live in a multipurposing culture. When we travel for business, we try to make it a vacation, too, by tacking on extra days at the end or squeezing in some golf or sightseeing between meetings. When we buy a new car, we want it to handle both family trips and office commutes. Today's economic and time demands make multipurposing even more compelling.
Moreover, Do What You Love, The Money Will Follow, isn't just the title of a classic self-help book by psychologist Marsha Sinetar: It's a way of life, and a much talked about one these day. Guy Kawasaki lectures about it, and many others write, blog, speak and even proselytize it.

What does all that have to do with tax law? It raises the question: If you are passionate about something you do, can you treat it as a business on your tax returns?

This is not an idle question. If you lose $20,000 a year in the "business" of breeding, training and caring for whippets, then you can report that loss on a Schedule C and write if off against your salary on your Form 1040. Assuming your combined state and federal income tax rate is 40%, your whippet breeding will really only cost you $12,000, and Uncle Sam and your state will have subsidized your passion.
In Pictures: Convincing Uncle Sam To Subsidize Your Hobby.

But you can only write off that loss if you are in the business of breeding--meaning the IRS believes you're in it to make a profit. If your whippets are a hobby, you can't claim a loss from breeding. You must still report any income from whippet sales, but you can only deduct your expenses from whippet breeding to the extent of those sales. Moreover those expenses must be claimed as miscellaneous itemized deductions, usable only to the extent they exceed 2% of your adjusted gross income.

Before you decide to turn your nondeductible hobby into a deductible business, be aware that this is an area of intense scrutiny by the IRS--so much so that last year it issued a new manual to help its agents ferret out taxpayers improperly writing off the costs of hobbies.

With that said, here are 10 tips for getting a more favorable business tax treatment for a pursuit you enjoy.

1. Match income and loss.
The IRS is unlikely to question whether you're engaged in a business if your income from an activity exceeds your expenses. If you make $20,000 breeding, showing and selling whippets but offset it with $20,000 of expenses, you net out at zero. You're still deducting all your expenses, but you're not offsetting them against other income--say, your salary or income from a medical practice. That makes the IRS less likely to complain.

2. Keep good records.
It matters whether you conduct yourself in a businesslike manner. If you keep good records, hold yourself out as running a business, etc.--that will help, no matter how unsuccessful you are at making a profit. Good record keeping is particularly important.

3. Show a profit three years in five.
If you can manage to eke out a profit three years out of every five (or two years out of seven, if your activity is horse breeding), the IRS will presume you're in business to make a profit. That presumption is worth a lot since you probably won't have to mud wrestle with the IRS over a more amorphous "facts and circumstances test" that looks at all the details of how you conduct your hobby/business. In fact, if you meet this presumption, the IRS can still argue that your activity is not engaged in for profit, but the burden shifts to the IRS to prove that the activity is not engaged in for profit. There have been tax cases where taxpayers have beat the IRS in court even though they made a profit only once in 10 or 15 years. But those are tough cases.

4. Plan income and expenses.
Our tax system is annual, and so are profit-and-loss determinations. You may have more control than you think over when you receive income and especially when you incur expenses. That control can help you make a profit three years out of five. You can legitimately bunch expenses by, for example, buying all your equipment in one year, rather than spreading your purchases over two, or by going to more whippet shows in one year than the other. You're less likely to be able to legitimately time your income, but you can sometimes time big payments by delaying sending an invoice, etc. (See "When You Have Income But No Cash.")

5. Delay a profits determination.
A special tax rule allows you to elect to defer the determination of profit motive until the fourth year of your "business," or sixth year in the case of an activity involving horses. To make this election you file a Form 5213, thereby postponing the determination of whether you've met the three-out-of-five-years profit presumption. The idea of the election is to give you time to ramp up and achieve a profit.
Warning: Most advisers don't recommend making this election. Why? It seems to invite audit by flagging the profit-motive issue. Plus, it has the effect of extending the IRS statute of limitations beyond the normal three years, so the IRS can examine all the years in question after the deferral period has passed.

6. Do it full-time.
Most of the time the IRS goes after a taxpayer who writes off his or her "hobby" against other income from a regular job. If you work 40 hours a week in an office and raise chinchillas on the side, does that mean you have no profit motive and chinchillas are just a hobby? No, you can still have a business that is part-time. In fact, you can have multiple part-time businesses. Nevertheless, the IRS is more likely to consider an activity a business if you do it full-time.

7. Write a business plan.
This may sound silly, but the IRS looks for businesslike activity. One of the auditors' checklist items is a business plan. Write one up, whether or not you stick to it. Revise it periodically. Try to look business-like in all things. For example, the plan might include project goals, start-up costs, advertising, projected results, and parameters for discontinuing an unsuccessful venture.

8. Hire experts and become one.
The more expert you become in a field, and the more you engage other experts, the more business-like you'll look. If you have advanced degrees or otherwise have expertise in the activity, it looks less hobby-like. (If you don't have a degree, but do extensive research on an area, keep records of that research to prove the time and effort you've invested in it.) Similarly, if you hire an expert consultant to help you grow prize orchids, raise toucans, or race mopeds, you'll have one leg up on the ladder to convincing the IRS of your business status.

9. Don't enjoy it too much.
Another oddity relates to pleasure and enjoyment. Despite societal preoccupation with doing what you love, the IRS looks for elements of personal pleasure or recreation as one indication your "business" is really a hobby. If you enjoy what you do too much, it looks more like an avocation, and it may be treated as one.

10. Combine activities.
If a stand-alone activity produces losses, it may be more at risk of being treated as a hobby by the IRS. Yet if it can be combined with a profitable activity, the IRS might have no problem with it. The IRS says that your characterization of what constitutes a single activity will be accepted unless it's artificial and cannot reasonably be supported by the facts and circumstances. That means you can't combine your profits from your main work as a tech consultant with your losses from breeding whippets and report them as a single business activity. But if you have a profitable sideline selling handcrafted dog collars and have started up an unprofitable sideline boarding dogs, you may be able to combine the two on a single Schedule C, making it more likely that you'll show that profit three years out of five.
The bottom line.

As I noted at the start, my standard advice is to keep your business and personal life separate. But especially if you find yourself generating income from something that starts out as a hobby, it can make financial sense to consider becoming more businesslike and treating it as a business on your tax return. Just be sure you don't end up chasing tax benefits at the expense of turning an activity you once loved into a daily grind!

http://www.forbes.com/2010/01/08/irs-ta ... -wood.html

[jloo283]

I just did my taxes 2 weeks ago and asked this very question to my tax pros. For most of us weekend guys, the short answers are:

Strictly as a hobby, there's no write off.

If you fish weekend tournaments and if a 1099 was not received at all, don't even bother. Even if one was received, probably not worth it unless the winnings justify deductions. So if you're in this situation, have your tax pro itemize all your deductions and see if it makes sense for you. I tried that and it didn't make sense for me.

James

[WB Staff]

Always consult a tax professional but this is from the IRS website to use as a test for tax filing

Business or Hobby? Answer Has Implications for Deductions

FS-2007-18, April 2007

The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is a business or a hobby, an activity not engaged in for profit.

In order to educate taxpayers regarding their filing obligations, this fact sheet, the eleventh in a series, explains the rules for determining if an activity qualifies as a business and what limitations apply if the activity is not a business. Incorrect deduction of hobby expenses account for a portion of the overstated adjustments, deductions, exemptions and credits that add up to $30 billion per year in unpaid taxes, according to IRS estimates.
In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.

In order to make this determination, taxpayers should consider the following factors:
•Does the time and effort put into the activity indicate an intention to make a profit?
•Does the taxpayer depend on income from the activity?
•If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
•Has the taxpayer changed methods of operation to improve profitability?
•Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
•Has the taxpayer made a profit in similar activities in the past?
•Does the activity make a profit in some years?
•Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?

[curtrol]

Good luck. After givining me a CF number, the DMV stated in the next minute they were going to tax me on a $45,00 plus boat deleivered out of State in NC and where State taxes were paid, registration completed and so on. I work between states and my next response was it is back in route to High Rock as we speak. WTF... Renewed my NC tags and it is regis. till 2014 in NC.
I work between States and have a home in both States., so The Cat goes back to NC and hello C@C marine.