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Posted by SMF on March 19, 2008, 9:48 pm
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Part time Sch C business building custom guitars. It takes a couple
years to complete one. Have not had a profit in four years of
operation. Even though operated with the intent to make a profit,
have not had a sale in two years. Do have web site and advertize,
etc. Loss is only $4,000. Other wages 150,000. Worried about the
hobbie loss rules. If we just don't claim this year, do we just
suspend depr. write offs, etc? Thanks.
--
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Posted by removeps-groups@yahoo.com on March 20, 2008, 2:01 am
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> Part time Sch C business building custom guitars. It takes a couple
> years to complete one. Have not had a profit in four years of
> operation. Even though operated with the intent to make a profit,
> have not had a sale in two years. Do have web site and advertize,
> etc. Loss is only $4,000. Other wages 150,000. Worried about the
> hobbie loss rules. If we just don't claim this year, do we just
> suspend depr. write offs, etc? Thanks.
The main thing is that you have the intention of making a profit. The
3 out of 5 year thing is a guideline only.
See for example http://www.bankrate.com/brm/itax/tips/20010403a.asp
<Quote>
Basically, the IRS examines:
* Whether you carry on the activity in a businesslike manner. This
includes, for example, keeping good books and records, promoting your
business and holding down costs where possible.
* How much time and effort you devote to the enterprise.
* Whether you depend on income from the activity for your livelihood.
* If your losses are due to circumstances beyond your control or are
normal for a business in its startup phase.
* Whether you change your methods of operation in an attempt to
improve profitability.
* The knowledge and background you (or your advisers) have in running
such a business.
* If you were successful in making a profit in similar activities in
the past.
* Whether the activity makes a profit in some years and, if so, how
much.
* Whether you can expect to make a future profit from the
appreciation of the assets used in the activity.
* The element of personal pleasure involved in the activity. That
doesn't mean you can't enjoy your new business, but you better be
getting more out of it than just a good time.
</Quote>
I'd say having revenues are the most important thing as it suggests
you are doing something, but it sounds like you have revenues of at
least 146k.
--
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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<< Copyright (2007) - All rights reserved. >>
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Posted by Seth on March 27, 2008, 1:03 pm
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>> Part time Sch C business building custom guitars. It takes a couple
>> years to complete one. Have not had a profit in four years of
>> operation. Even though operated with the intent to make a profit,
>> have not had a sale in two years. Do have web site and advertize,
>> etc. Loss is only $4,000. Other wages 150,000. Worried about the
>> hobbie loss rules. If we just don't claim this year, do we just
>> suspend depr. write offs, etc? Thanks.
>I'd say having revenues are the most important thing as it suggests
>you are doing something, but it sounds like you have revenues of at
>least 146k.
Where? It looks like OP has a day job paying $150K, which has nothing
to do with the part-time Sch C business.
Seth
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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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Posted by L K Williams on March 20, 2008, 3:18 pm
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>Part time Sch C business building custom guitars. It takes a couple
>years to complete one. Have not had a profit in four years of
>operation. Even though operated with the intent to make a profit,
>have not had a sale in two years. Do have web site and advertize,
>etc. Loss is only $4,000. Other wages 150,000. Worried about the
>hobbie loss rules. If we just don't claim this year, do we just
>suspend depr. write offs, etc? Thanks.
The code does not use the words "hobby loss." Instead, it refers to
"an actvity not conducted for profit." So, if you can establish that
you have made a true effort to make money, the so-called hobby loss
rules do not apply. You should be able to document the things you
have done or are doing to make a profit (see the provious response.)
Continue to claim the usual expenses, including depreciation, and have
the documentation ready to show IRS that you are really conducting a
business.
Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by eagent on March 24, 2008, 12:14 pm
Please log in for more thread options > Part time Sch C business building custom guitars. It takes a couple
> years to complete one. Have not had a profit in four years of
> operation. Even though operated with the intent to make a profit,
> have not had a sale in two years. Do have web site and advertize,
> etc. Loss is only $4,000. Other wages 150,000. Worried about the
> hobbie loss rules. If we just don't claim this year, do we just
> suspend depr. write offs, etc? Thanks.
>
> --
> << ------------------------------------------------------- >>
> << The foregoing was not intended or written to be used, >>
> << nor can it used, for the purpose of avoiding penalties >>
> << that may be imposed upon the taxpayer. >>
> << >>
> << The Charter and the Guidelines for submitting posts >>
> << to this newsgroup as well as our anti-spamming policy >>
> << are atwww.asktax.org. >>
> << Copyright (2007) - All rights reserved. >>
> << ------------------------------------------------------- >>
What does your business plan say about when you are expected to break
even or make a profit? You should have a business plan, review it and
update it periodically, and follow it. If you aren't meeting the
goals of your plan you should be working with an advisor to evaluate
your plan and find out why you aren't on track, then modify the plan
to account for necessary changes. IF you're doing all that, you
should be OK with the loss.
If you aren't doing all of that - or any of it - then you'll have a
problem if the IRS looks at your return. You make enough money on
your day job that the IRS will likely try to classify your guitar
making activity as a hobby - ESPECIALLY if you don't have a plan that
has been reviewed and updated periodically.
The key to surviving an IRS audit is in conducting your business like
a business. If you intended to make a profit you may need to be able
to show the IRS how you came to that conclusion. If you're not making
money, what have you done to find out why - more importantly have you
documented this? And what are you doing now to correct the situation?
What you may not want to hear is that your activity really is a hobby
because the industry won't support your model. If that's the case you
may well have a hobby.
Good luck,
Gene E. Utterback, EA, RFC, ABA
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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