How to legally offset operating expenses without a Commercial License

[FlyWright]

Having to pay taxes is the goal of all entrepreneurs. The alternative means you are losing money on every transaction.
Now Minimizing taxes is another goal of every entrepreneur.

I agree! And if we can make a profit LEGALLY, take full advantage of our tax law LEGALLY and partially offset some of the direct operating costs LEGALLY, it's a WIN-WIN-WIN!!

All this talk of illegal or sly tax interpretations is not what I was posting about at all.

 

[MurrayM]

Are you making prints for sale? If so, you may want to consider donating some to a local museum or registered historical society.

One of the most powerful attributes of photographs is that they become more important as time goes by, especially when seen a hundred years or more later.

I don't foresee a herd of Fine Art investors beating down a path to my door, so once I fight my way up the photogravure learning curve I hope to be donating some on a regular basis to our local museum.

Here's a link to how it works in Canada, which may help search out the US equivalent:

https://www.canada.ca/en/canadian-heritage/services/certification-cultural-property/donors.html

 

[Chrisjs]

Not a tax guru but do have significant business experience. My understanding is that provided a business intends to be profitable and has some reasonable basis to become profitable, it is acceptable to write off upto $3,000 for a couple of years, during which time efforts should be made to derive income. Once the business is profitable, it is acceptable to offset operating expenses and material costs against profits. But in the same way that a home office expense assumes dedicated use of a home space, and not the entire house, it is important to apportion the costs associated with the business activity and not your entire boating experience. So, bottom line is unless you expect to generate a good amount of side income and declare it to the IRS, there is no basis to take a meaningful deduction.

 

[syjos]

Not a tax guru but do have significant business experience. My understanding is that provided a business intends to be profitable and has some reasonable basis to become profitable, it is acceptable to write off upto $3,000 for a couple of years, during which time efforts should be made to derive income. Once the business is profitable, it is acceptable to offset operating expenses and material costs against profits. But in the same way that a home office expense assumes dedicated use of a home space, and not the entire house, it is important to apportion the costs associated with the business activity and not your entire boating experience. So, bottom line is unless you expect to generate a good amount of side income and declare it to the IRS, there is no basis to take a meaningful deduction.

Where did you come up with the $3,000 write off for a couple years?

 

[ProMaritime]

Don't know where you got the $3,000 loss number. Amazon lost, wrote off and carried forward billions before becoming profitable a couple of years ago. Yes, you have to have a "reasonable expectation" as the IRS puts it, of making a profit, even if it takes two years or ten. If its obviously a ridiculous idea and on one in history has ever tried it, let alone make money at it, they my nix it in year one.

Any business gets more favorable IRS review if a professional license is involved, as long as you can document your time spent (usually 750hrs a year, give or take), because there and thousands of others making money with the same license. I would suggest a USCG six-pack license or a coastal master's ticket if you've got the sea time. And of course all the federal, state, and local, business and tax licenses and business insurance along with a professionally designed accounting system like QuickBooks will improve your chances.

 

[Chrisjs]

Amazon is a totally different animal. It is a C Corp and owners are not permitted any deduction from personal taxes, unless they sold stock at a loss in which case they are permitted to deduct the $3K figure previously referred to in error - my bad!
Only sole proprietorships, LLCs, partnerships and S corps get to deduct losses from personal taxes.
There is a limit of $250K (single) or $500k (married) but I would guess that taking such a deduction would immediately put you in the cross hairs!!
Reporting a well documented reasonable loss for a few years (3 ?) as a deduction for these business types is permitted but eventually you need to pay the piper, or he comes looking!!

 

[catalinajack]

In my working life, I spent 33 years in IRS income tax enforcement from the field level all the way to managing national level programs. It was I who started this series of comments with a cautionary posting meant only to maybe prevent someone taking a tax position that may put them at risk. Your statement that "Any business gets more favorable IRS review if a professional license is involved" is absolutely incorrect. The IRS only cares about the particular "facts and circumstances" of each case.

It was my intention not to post again but I have seen many other commennts here that are just plain wrong, many misconceptions. For example, the comment about a $3,000 threshold is notable; no such thing. There is just one principle that is over-riding: intent to make profit. There is no IRS requirement to make a profit, just a demonstrable intent to do so. If, in fact, yours is just a hobby, that's okay also. IRS will always allow deductions of expenses up to the amount of revenue.

My advice, talk to a tax professional. There are almost an infinite number of IRS myths out there floating around. I've seen plenty including some right here in this thread.

I know, working for the IRS must have been awful but getting 10% employee discount on my tax bill was a nice perk.

Don't know where you got the $3,000 loss number. Amazon lost, wrote off and carried forward billions before becoming profitable a couple of years ago. Yes, you have to have a "reasonable expectation" as the IRS puts it, of making a profit, even if it takes two years or ten. If its obviously a ridiculous idea and on one in history has ever tried it, let alone make money at it, they my nix it in year one.

Any business gets more favorable IRS review if a professional license is involved, as long as you can document your time spent (usually 750hrs a year, give or take), because there and thousands of others making money with the same license. I would suggest a USCG six-pack license or a coastal master's ticket if you've got the sea time. And of course all the federal, state, and local, business and tax licenses and business insurance along with a professionally designed accounting system like QuickBooks will improve your chances.

 

[ProMaritime]

Wrong again Chris. The "$250K (single) or $500k (married)" deduction you mentioned applies only to a capital gain from the sale of a primary residence. I think there is a miniscule ($1,000 or so) deduction on your IRS 1040 from generally taxable capital gains. Get professional help on this

Passive activity losses (from any c-corp, LLC, LP, etc. I own several of them.) must be accumulated and set off against passive activity gains, if you have any, or accumulated and written off upon the termination of the activity that gave rise to them. This means a boat business which produces nothing but passive activity losses (usually from depreciation, which your are required to book, and other expenses exceeding income) must be carried forward until the activity is terminated, ie the boat is sold and the c-corp, LLC, etc. is dissolved. Then, and only then, can you take the accumulated losses off on your personal IRS 1040. That is unless you've been shut down after a few years for running a "hobby farm." Then you get nothing. Oh, one more thing, passive activity gains are immediately taxable in the year they occur.

 

[Chrisjs]

As previous not professing to be an expert here but check out the attached site.
The $250K/500K is just coincidentally the same as you stated for the home sale deduction limit. There is also an "Excess Loss Limitation" of $250K/500K which I strongly doubt will be of any concern to TFers interested in a side job!!


https://www.thebalancesmb.com/business-losses-to-offset-income-397687:dance: