16 Oct
2007
16 Oct
'07
10:20 a.m.
Grant asks:
Is there anyone in here who is qualified to give
advice on
taxes? I've made a few computer kits and am still deep into the
hole. No money made, so no profit. I want to know what to expect I
have to do for the tax man. A lot of money has changed hands with no
gains for me. I hope I don't owe anyone anything.
I've got a few more computer kits on the back burner, but its not
worth it to me to continue if there are tax implications.
Not trying to get free services, just free advice. : ) Respond off
list if you want to help a fellow vintage computer guy.
I am NOT qualified, but my two cents, on the situation in the US:
1. Any money you have coming in has to be reported as income somewhere.
2. It's possible that you can report it (at least in the US) on schedule C
as a sole proprietership and deduct your expenses.
Just because you lost money in your first year doesn't mean it's
not a "business activity". But if you don't have any hope or plan to
turn it into something profit-making, it's probably a hobby.
Under some circumstances hobby expenses might be itemized
deductions if you itemize, but the deductions cannot exceed
gross income from the hobby. This would mean for example
that if you spent $10,000 on parts and expenses, but only
sold $3,000 worth of stuff, that at least you won't have to
pay income tax on the $3000. This area is a little hairy.
There are some potentially onerous taxes associated with
stocking large quanties of parts/assemblies/computers that
might be of value to your business, depending on how your
locality figures inventory taxes. Sitting on inventory more
than a year or two can be incredibly costly if your jurisdiction
has inventory taxes.
IRS Publication 535 has some of the tests for whether it's
a hobby or a business.
Tim.
17 Oct
17 Oct
10:59 a.m.
On Tuesday 16 October 2007 13:20, Tim Shoppa wrote:
There are some potentially onerous taxes associated
with
stocking large quanties of parts/assemblies/computers that
might be of value to your business, depending on how your
locality figures inventory taxes. Sitting on inventory more
than a year or two can be incredibly costly if your jurisdiction
has inventory taxes.
I think it was Don Lancaster that wrote once about how Santa Fe, NM (?) tried
to consider a writer's unsold works to be "inventory"...!
--
Member of the toughest, meanest, deadliest, most unrelenting -- and
ablest -- form of life in this section of space, ?a critter that can
be killed but can't be tamed. ?--Robert A. Heinlein, "The Puppet Masters"
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Information is more dangerous than cannon to a society ruled by lies. --James
M Dakin
4:18 p.m.
Grant,
When I was a sole proprietor of a similar business, I was told that the
business had to make money at least once in every three years for the
losses to be deducible from ordinary income. If you are going to treat
this project as a business, you should be able to claim your development
costs (what you are doing now) as a loss. All accounting must be on a
cash basis which means you cannot accrue these losses and use them to
offset future income (when that might help reduce profits).
No, I'm not "qualified" to give this advice, just experienced.
As a suggestion, if you used Turbo Tax last year, open it up and look in
the tax advice for information on your situation. That should be a good
as any other free advice.
Jim
Roy J. Tellason wrote:
On Tuesday 16 October 2007 13:20, Tim Shoppa wrote:
There are some potentially onerous taxes
associated with
stocking large quanties of parts/assemblies/computers that
might be of value to your business, depending on how your
locality figures inventory taxes. Sitting on inventory more
than a year or two can be incredibly costly if your jurisdiction
has inventory taxes.
I think it was Don Lancaster that wrote once about how Santa Fe, NM (?) tried
to consider a writer's unsold works to be "inventory"...!
4:36 p.m.
On Wed, 17 Oct 2007 scheefj at netscape.net wrote:
Grant,
When I was a sole proprietor of a similar business, I was told that the
business had to make money at least once in every three years for the
losses to be deducible from ordinary income.
WHO told you that?
It ain't true, and there have been a few BIG businesses that have had more
than 2 successive years of losses.
BUT, . . .
there is the issue of whether the IRS will believe that it is a business,
not a hobby. IF you always lose money (less than 1 in 3 profitable, or
less than 2 out of 5, etc. depending on the agent), then they are MUCH
more likely to take a look at whether or not they'll believe that it is a
"real" business.
20 Oct
20 Oct
8:07 p.m.
I think you just made my point. BIG businesses are not a hobby, they are
corporations and thus a different animal. It's always the little guy who
gets screwed.
cisin at xenosoft.com wrote:
On Wed, 17 Oct 2007 scheefj at netscape.net wrote:
Grant,
When I was a sole proprietor of a similar business, I was told that the
business had to make money at least once in every three years for the
losses to be deducible from ordinary income.
WHO told you that?
It ain't true, and there have been a few BIG businesses that have had more
than 2 successive years of losses.
BUT, . . .
there is the issue of whether the IRS will believe that it is a business,
not a hobby. IF you always lose money (less than 1 in 3 profitable, or
less than 2 out of 5, etc. depending on the agent), then they are MUCH
more likely to take a look at whether or not they'll believe that it is a
"real" business.
22 Oct
22 Oct
12:43 p.m.
Fred Cisin wrote:
On Wed, 17 Oct 2007 scheefj at netscape.net wrote:
Jerome Fine replies:
Since the original question was with regard to a hobby rather
than an actual business, this information may not be helpful.
However, tax departments tend to regard a profit making venture
as a business. So it is important to document revenue and
expenses to prove that the expenses exceed income where that
is the situation.
The following information is for a company (incorporated) in
Ontario, Canada, so it may not apply to IRS practice in the US.
In addition, a sole proprietor can't (at least in Canada it is
not possible) apply a loss in one year against the next year
whereas an incorporated company has that advantage.
I have been running a company since 1980 and after about
4 profitable years, I made a profit less than half the
time. Around 1998, business picked up again due to Y2K,
but after that, there were at least 5 or 6 years with a loss.
This year (2007) I finally made a profit again, but if the
carry forward losses from previous years exceed the net
profit in 2007, there will not be any tax to be paid.
Sincerely yours,
Jerome Fine
--
If you attempted to send a reply and the original e-mail
address has been discontinued due a high volume of junk
e-mail, then the semi-permanent e-mail address can be
obtained by replacing the four characters preceding the
'at' with the four digits of the current year.
Grant,
When I was a sole proprietor of a similar business, I was told that the
business had to make money at least once in every three years for the
losses to be deducible from ordinary income.
WHO told you that?
It ain't true, and there have been a few BIG businesses that have had more
than 2 successive years of losses.
BUT, . . .
there is the issue of whether the IRS will believe that it is a business,
not a hobby. IF you always lose money (less than 1 in 3 profitable, or
less than 2 out of 5, etc. depending on the agent), then they are MUCH
more likely to take a look at whether or not they'll believe that it is a
"real" business.
20 Oct
20 Oct
8:19 p.m.
On 10/17/07, Tim Shoppa <tshoppa at wmata.com> wrote:
There are some potentially onerous taxes associated
with
stocking large quanties of parts/assemblies/computers that
might be of value to your business, depending on how your
locality figures inventory taxes. Sitting on inventory more
than a year or two can be incredibly costly if your jurisdiction
has inventory taxes.
In my area, there is a no-questions-asked $5000 deduction on business
property and inventory. It covers manufacturing machinery (soldering
irons in this venue, for example) as well as parts and unsold
inventory. For a small-scale operation, as long as you are below
that, there are no huge burdens in dealing with property tax. Get
large enough to go over (or, as we did once, own a number of DEC
machines bought new), and you start paying. One disadvantage to
property taxes is that typically, you can depreciate tools and
fixtures, but only down to a certain level, no matter their actual
market value (20% of price paid, in the case around here). We paid
enough in property taxes per year to probably re-purchase our VAXen
annually, at the prices in the mid-1990s, but the disruption to the
business would have been huge to sell and re-buy them in an
arms-length, legally defensibly transaction - so we just paid the tax.
-ethan
6272
days inactive
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6 comments
6 participants
participants (6)
-
cisin＠xenosoft.com -
ethan.dicks＠gmail.com -
jhfinedp3k＠compsys.to -
rtellason＠verizon.net -
scheefj＠netscape.net -
tshoppa＠wmata.com