Tax Question: Hobby Income

[TromboneAl]

I'm doing my 2007 income taxes now, so that I can figure out how much I want to convert to a Roth IRA.

Here's my first question:

When figuring in driving expenses, etc., I will have a net loss for my jazz gigging. That is, my net profit will be about -$150 (Income about 650, expenses about 800).

I have decided not to use a schedule C for this, and to treat it as a hobby. So...

On what form/line do I report this income and these expenses?

Thanks!

[VaCollector]

Sch D.....of course your expenses are limited and can be no more than your income.

[TromboneAl]

Schedule D -- Capital Gains and Losses? I don't see any lines there that seem appropriate.

[RetireeRobert]

Quote:

Originally Posted by TromboneAl I'm doing my 2007 income taxes now, so that I can figure out how much I want to convert to a Roth IRA. Here's my first question: When figuring in driving expenses, etc., I will have a net loss for my jazz gigging. That is, my net profit will be about -$150 (Income about 650, expenses about 800). I have decided not to use a schedule C for this, and to treat it as a hobby. So... On what form/line do I report this income and these expenses? Thanks!

I'd try putting the income on the front of Form 1040 on the Other Income line --line 21 on 2006 forms--(just before you get to the Adjustments to Income section at the bottom).

The deductions could go on Schedule A as Miscellaneous Deducts, but only to the extent of income (ie, no net losses allowed).

For the amounts involved, I don't think you will get in much if any trouble for disclosing it "just about anywhere" on your tax return. (Except Sched D does not make any sense).

Or you could go ahead and report on Scedule C and take the net loss. This with the idea that if you report your jazz playing in future years and show a profit in 2 out of 5 years, then you ARE considered in a valid business -- not a hobby-- and can then deduct even later future years losses without them claiming--It's a hobby!

[clifp]

I am not accountant but I think Schedule C is the right place. If you expect to get more gigs in the future I would treat it as a business. If you don't make money in the next few years I don't think IRS is going to be overly upset for $150.

Otherwise I'd follow Turbo taxes advice...

[cute fuzzy bunny]

Quote:

Originally Posted by TromboneAl I'm doing my 2007 income taxes now, so that I can figure out how much I want to convert to a Roth IRA.

Congratulations Al, ya beat me.

[TromboneAl]

Here's the thread on Sched C vs. Non-sched C.

I'd prefer not doing Sched C, just for the convenience.

All my gigs are paid in cash these days, much from tips. I should probably do what everyone else seems to do, simply not report anything.

But if there were one line where I could put the cash income and another where I could put the same amount as an expense, everyone could be happy.

[youbet]

Quote:

Originally Posted by TromboneAl I'm doing my 2007 income taxes now,

I thought about that but decided to take off my shoes and socks and stand barefoot on my woodstove until the bottom of my feet blister.

[cute fuzzy bunny]

Usually I'm the one annoying Martha with my stories of ridiculously early tax preparation.

This year I'm going to wait until late march to even open the envelopes.

[clifp]

I'l make an estimate in Dec. but I know that no matter what I still be recieving K1 forms after April 15 so I'll be filing an extension.

Al regarding deductions, it seems to me that by treating this as a hobby, you maybe falling into that horrible section where your income is fully tax, but your deductions are limited by the 2% rule where your deduction have to exceed 2% of your AGI.

Good chance I am wrong about this but I remember finding myself in a similar situation ten+ years ago.

[Nords]

Quote:

Originally Posted by TromboneAl When figuring in driving expenses, etc., I will have a net loss for my jazz gigging. That is, my net profit will be about -$150 (Income about 650, expenses about 800).

We used to deal with this when I was treasurer of a non-profit.

No one is required to report that they've paid you until you earn at least $600 from them. They'll usually alert you to this reporting by asking you to fill out a W-9 so that they can issue you a 1099-MISC. So if you didn't give your Social Security number to anyone in 2007 then they're not reporting your pay to the IRS. I would go out of my way to pay people no more than $599/year.

If you weren't paid via a W-2 or a 1099 then you may not have been paid at all-- you may have been reimbursed for your expenses. For example I used to pay judges at dressage shows. I'd pay them $400 for a day's labor and I'd reimburse airfare/rental car of $1000, hotel bills of $500, and food/drink of $75. None of that is reportable to the IRS until their pay reached $600.

In my (inexpert, unqualified, unaudited, unindicted) opinion you haven't even been fully reimbursed for your expenses, let alone paid. If any of these events were for charity, then maybe you should be considering claiming mileage for your volunteer work!

[RetireeRobert]

Quote:

Originally Posted by TromboneAl Here's the thread on Sched C vs. Non-sched C. I'd prefer not doing Sched C, just for the convenience............

I'd prefer not doing my 1040 or any of the Scedules---just for convenience.

[RetireeRobert]

Quote:

Originally Posted by clifp Al regarding deductions, it seems to me that by treating this as a hobby, you maybe falling into that horrible section where your income is fully tax, but your deductions are limited by the 2% rule where your deduction have to exceed 2% of your AGI.

Life is so onfair---and so are income taxes

[TromboneAl]

Good thinking, Nords. Sounds reasonable.

To give you an idea how I get paid, at the end of the night I go the bar or the counter and say "I'd like the money for the band." They take a pitifully small amount money out of the cash register and give it to me, I add it together with the tips, and divide it up for the band members.

I thought I'd almost enjoy doing the taxes myself this year. Take my time, figure out how things work, etc. However, the first thing I found out was that last year my accountant forgot to put the Vanguard dividends on the 1040, so now I have to figure out what to do about that.

[Martha]

Quote:

Originally Posted by TromboneAl I thought I'd almost enjoy doing the taxes myself this year. Take my time, figure out how things work, etc. However, the first thing I found out was that last year my accountant forgot to put the Vanguard dividends on the 1040, so now I have to figure out what to do about that.

Close your eyes and think of England?

[cute fuzzy bunny]

Good one, Martha.

Quote:

Originally Posted by TromboneAl my accountant forgot to put the Vanguard dividends on the 1040, so now I have to figure out what to do about that.

Call the accountant and bring it to their attention and ask them how many days it'll be before they can put together the amended tax return and write the check for any interest or penalties on the amount.

[clifp]

Quote:

Originally Posted by cute fuzzy bunny Good one, Martha. Call the accountant and bring it to their attention and ask them how many days it'll be before they can put together the amended tax return and write the check for any interest or penalties on the amount.

I am with CFB on this that is pretty basic mistake. I'd say the odds are at least 10x that the IRS will notice a miss match between your 1040 and the 1099 Vanguard filed, than catching the "wages" you earned your musical career.

Unless of course there is an IRS agent reading the boards, what's up with privacy policy again LOL.

[RetireeRobert]

Quote:

Originally Posted by clifp I am with CFB on this that is pretty basic mistake. I'd say the odds are at least 10x that the IRS will notice a miss match between your 1040 and the 1099 Vanguard filed, than catching the "wages" you earned your musical career.

The IRS will send you a "correspondence audit" letter. Their matching system *will* turn up the unreported Vanguard dividends/interest since Vanguard reported to the IRS the 1099 amounts they paid to you (assuming it was not a tax-exempt type fund). Figure hearing about Sept/October of 2008 for 2006 tax returns.

The IRS will tell you how much in back taxes, interest, and penalty if any, you owe. So, one way to deal with that mistake is to just wait. The IRS *will* tell you how much to pay.

Since you did have an accountant/preparer do your tax return, as mentioned by clifp and CFB, you really should notify your preparer of the mistake. Assuming you *did* give the preparer the Vanguard 1099 when you took your papers in to him, they should prepare an amended tax return for you at no charge, especially if you have been a longtime customer.

Of course, if you forgot to include the Vanguard 1099 in your moving carton you gave your tax preparer last year, full of grease-stained, jumbled, donut-jelly smeared tax papers mixed in with grocery store receipts and magazine subscription cards, don't count on your tax preparer being to happy! The preparer is under absolutely no obligation moral or otherwise to pay the additional tax due for you. They may offer to pay interest or penalty if any due on the additional taxes.

In short, tell your tax preparer of the oversight.

[TromboneAl]

Right. I already emailed the accountant, and I have the original gmail email, with the attachment with the 1099, that I sent him on Jan 19, 2007.

[TromboneAl]

Quote:

However, the first thing I found out was that last year my accountant forgot to put the Vanguard dividends on the 1040, so now I have to figure out what to do about that.

Update: The accountant did the amended return for free, and despite an additional 7.5K in dividends, I didn't have to pay any more tax (the liability was zeroed out by a retirement contribution credit). Yay!