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Author Topic: Taxes / depreciation / recovery period  (Read 9905 times)

Corey Scogin

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Re: Taxes / depreciation / recovery period
« Reply #10 on: March 26, 2014, 01:47:59 PM »

Let's get real.  For most in the sound "business" it is a hobby.  A hobby that makes money.  Why can't we simply take our income and deduct our expenses (purchases and the cost of doing business) and pay taxes based on extra income, because that is what it is.  But no, big brother wants us to also pay SSI and medicare.  $399? that is a hobby.  $401? That is a business... pay 2.5 times more to the government.

This is exactly my issue.  I do my taxes with TurboTax.  My "business" is really a hobby but a few years ago I reported earning ~$2k or so as extra income and noticed my return amount dropped by at least that much so I opted to take every advantage of the government now considering me a "business".  I take depreciation on everything and report all of my "business" purchases.  I've been in the red every year since but probably still get less back than I would if I were not in "business" for myself.
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RYAN LOUDMUSIC JENKINS

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Re: Taxes / depreciation / recovery period
« Reply #11 on: March 26, 2014, 01:53:48 PM »

My best advice is to listen to Tim.  Things change from year to year and having a CPA on your side to check things over is money well spent...AND it is deductible.  I pay $175/year for my guy and he has saved me that many, many times over.  CPA's are (or should be) up to date on all the ins and outs of the tax laws.

Complain all you want, but in the end you'll have to accept what the rest of us have to do.  Once you do it right you'll see why professional help pays for itself.  If not, let us know how the audit works out for you.  Say hi to the IRS.

Upon only pay $175????

I just paid my CPA $1400 for your tax preparation.  Of course we have six businesses now so it's a bit more complicated than the average return.
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g'bye, Dick Rees

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Re: Taxes / depreciation / recovery period
« Reply #12 on: March 26, 2014, 01:56:52 PM »

Upon only pay $175????

I just paid my CPA $1400 for your tax preparation.  Of course we have six businesses now so it's a bit more complicated than the average return.

6 businesses plus a working spouse?  Multiply that by $175 and it's not that much of a difference.  Of course, my job category has always been "self-unemployed".

To everyone out there paying into SS:

Thank you!!!!  I appreciate it the first of every month...
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Ray Aberle

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Re: Taxes / depreciation / recovery period
« Reply #13 on: March 26, 2014, 02:34:01 PM »

This is exactly my issue.  I do my taxes with TurboTax.  My "business" is really a hobby but a few years ago I reported earning ~$2k or so as extra income and noticed my return amount dropped by at least that much so I opted to take every advantage of the government now considering me a "business".  I take depreciation on everything and report all of my "business" purchases. 

Well be careful about being "in the red" every year. From what I have been told (I am not an accountant or tax attorney, nor do I work for the IRS), if you post a loss more then 3 years out of a five year period, they return to classifying you as a 'hobby,' as opposed to a 'business,' and you're going to lose alot of those fun deductions. (And they'll audit you, go over your books with a fine toothed comb, and so on...)

I've been in the red every year since but probably still get less back than I would if I were not in "business" for myself.

Once you're a business, you are paying the self-employment taxes, plus should be making estimated tax payments if you expect to owe money at the end of the year. (These replace the FIT withholdings from your normal, W2 paycheck...)

-Ray
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David Allred

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Re: Taxes / depreciation / recovery period
« Reply #14 on: March 26, 2014, 03:28:19 PM »



Once you're a business, you are paying the self-employment taxes, plus should be making estimated tax payments if you expect to owe money at the end of the year. (These replace the FIT withholdings from your normal, W2 paycheck...)

-Ray

Somehow making $8 a week equals "self employed" and a business..

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Corey Scogin

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Re: Taxes / depreciation / recovery period
« Reply #15 on: March 26, 2014, 05:12:19 PM »

Well be careful about being "in the red" every year. From what I have been told (I am not an accountant or tax attorney, nor do I work for the IRS), if you post a loss more then 3 years out of a five year period, they return to classifying you as a 'hobby,' as opposed to a 'business,' and you're going to lose alot of those fun deductions. (And they'll audit you, go over your books with a fine toothed comb, and so on...)

I was told that as well but the problem is that if anyone makes more than $400, they have to pay self employment tax and therefore (I think) should be eligible for business deductions.
http://www.irs.gov/uac/Reporting-Miscellaneous-Income

Interestingly, this page says that everyone must report all income AND expenses (deductions) but it makes a distinction between being a business or just making some money on the side.  I haven't found anything official that says what us hobbyists are supposed to do.
http://www.eitc.irs.gov/Tax-Preparer-Toolkit/faqs/income

I've just always done what TurboTax asks me to do.  It's probably not recommended and I'll probably end up getting audited eventually.  We all must weigh the risks I guess.  I don't think it's possible to file a 100% perfect tax return with all supporting documentation even if you try.  I certainly try to answer every question TurboTax asks to the best of my ability.
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David Allred

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Re: Taxes / depreciation / recovery period
« Reply #16 on: March 28, 2014, 01:29:57 PM »

Went to H&R.  I gave them the info they asked for.  Had receipts and lists, etc.  Got the peace of mind guarantee (they pay all interest, fines, AND up to $5500 in underpaid taxes) for $35 (no brainer).   I won't say that they did any thing fishy, but they did things that I would not have taken the risk if doing on my own (because of my own ignorance).  Cost me $445, but saved me $1000's.

FYI.  If you do your own taxes, they will do a free check to try to get you into a better situation.  If they can't make / save you money (even including their fee), there is no charge.  Even if you already filed. 
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Tim McCulloch

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Re: Taxes / depreciation / recovery period
« Reply #17 on: March 28, 2014, 03:02:42 PM »

Went to H&R.  I gave them the info they asked for.  Had receipts and lists, etc.  Got the peace of mind guarantee (they pay all interest, fines, AND up to $5500 in underpaid taxes) for $35 (no brainer).   I won't say that they did any thing fishy, but they did things that I would not have taken the risk if doing on my own (because of my own ignorance).  Cost me $445, but saved me $1000's.

FYI.  If you do your own taxes, they will do a free check to try to get you into a better situation.  If they can't make / save you money (even including their fee), there is no charge.  Even if you already filed.

I've been using Tax Act to do my personal income taxes for the last 4 years, prior to that I used TurboTax.  Tax Act saved me money because of the way the authors phrase the interview questions.  Example:

Tubro:  "Do you wish to file a Schedule C for your business or profession?"
TaxAct:  "I see you have income reported on 1099; do have expenditures related to this income?"

In the first example I'd say "no, that sounds like a hassle for my limited 1099 income".  In the second, I'd say "yeah, I have a bunch of receipts."  One year I had more qualifying expenditures than income but needed to show a profit, so I just threw the receipts away.  The primary benefit of filing the Schedule C is to lessen the self-employment taxes.
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"If you're passing on your way, from Palm Springs to L.A., Give a wave to good ol' Dave, Say hello to progress and goodbye to the Moonlight Motor Inn." - Steve Spurgin, Moonlight Motor Inn

Scott Sherman

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Re: Taxes / depreciation / recovery period
« Reply #18 on: March 28, 2014, 03:06:21 PM »

Computers (and related equip) ...5 years. Other equipment... 7 years. Did you remember mileage? Section 179 expensing.... immediate writeoff to the extent of profit and wages reported. Carry forward the unused 179 to the following year. Sell equipment before the end of the "recovery period" and you may have Sec 179 recapture (difference between regular depreciation allowed for the period and the section 179 taken), which is reported on your schedule c and is subject to self employment tax. Sell any equipment at a gain (proceeds less your undepreciated tax basis) and you will have section 1245 recapture (ordinary income).

Hobby status isn't necessarily better. You're suppose to report the all income and take the deductions on Schedule A, itemized deductions, not necessarily a good result.

No receipts, I know what I'd do. Seems a shame not to take a deduction for lack of a receipt, especially when you know you spent the money.

3 years of losses may be a talking point but the profit motive governs. What is the intent? Was the business conducted in "business-like" manner? Books kept? Taxes paid?

Been playing since the late 60's but had to get a "real job" in the mid 80"s when I got married and had kids. CPA since.

I always tell my clients, regarding tax advice... you get what you pay for.

Scott
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Re: Taxes / depreciation / recovery period
« Reply #18 on: March 28, 2014, 03:06:21 PM »


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