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Old 10-20-2012, 12:39 PM   #21
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I guess I don't understand what is the problem--if you would no longer be spending $700 on these business expenses, why will you be sorry to not have them to write off? I must be missing something (not unusual for me).
I was wondering the same thing.

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Old 10-20-2012, 02:26 PM   #22
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OP here,

Yes I see how I caused some confusion, poorly written at first. I wrote (wistfully) about losing write offs but I didn't put in why I'd lose them...Let me re-start:

I imagined myself in two years at 62 throttling down the commercial clients, mainly Fortune 500s. They require a lot of time, create cash flow problems, need intense hand holding and cause stress although are profitable. I fantasized I could do just worthy projects to improve the world (this is not to be confused with one of the posters Meals On Wheels volunteerism). The videos I do take about a week of time and require a lot of expenses. So it would be running the business at hopefully break even and and try to avoid a loss.

So my question to those that have throttled down their small service business: If I have expenses exceeding revenue from doing mainly non-profit work, then I can't even take the write offs correct? The IRS wouldn't even consider it a business, or is that after 7 years of no profit? This may be a question for the CPA? He has never allowed me to write off charity work. For me to even possess, insure and update all the equipment I need requires me to be able to write off.

Or perhaps I've answered my own question: If I want to continue past 62 I will need to generate revenue exceeding the expenses, which can't happen if I am doing mostly charity work. Therefore the IRS would not consider me a profitable business. So I guess I am looking at semi-retirement not a true FIRE situation because I will still need to maintain enough commercial biz to offset the non-profit projects. Or I can just fold up the tent...
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Old 10-20-2012, 03:00 PM   #23
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OP here,

So my question to those that have throttled down their small service business: If I have expenses exceeding revenue from doing mainly non-profit work, then I can't even take the write offs correct? The IRS wouldn't even consider it a business, or is that after 7 years of no profit? This may be a question for the CPA? He has never allowed me to write off charity work. For me to even possess, insure and update all the equipment I need requires me to be able to write off.

Or perhaps I've answered my own question: If I want to continue past 62 I will need to generate revenue exceeding the expenses, which can't happen if I am doing mostly charity work. Therefore the IRS would not consider me a profitable business. So I guess I am looking at semi-retirement not a true FIRE situation because I will still need to maintain enough commercial biz to offset the non-profit projects. Or I can just fold up the tent...
Correct on most all counts. I'm not sure the IRS takes a stand on whether you are actually profitable or not. I know a lot of companies that show losses every year. Particularly the last 4 years. They are still in business but owners have had to go into their personal funds and loan their businesses money in the form of a loan. Most companies can not "stay" in business without enough revenue to support "operations". Most would not want to.
Sounds to me you have pretty much nailed the situation. Like others here I don't think you need to worry about write offs if you aren't in business because it becomes a wash . You don't spend the money on expenses so no need to deduct what you haven't spent. Good luck to you.

p.s. I am a small business owner. But it isn't run out of my house.
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Old 10-20-2012, 03:06 PM   #24
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Yes that make's sense. So if I can financially make it in the FIRE mode with the tree legged stool of SS, savings and the DW's pension, then if I just break even doing non-profit videos I don't even need to worry about write offs, or losing money that I don't have write offs.

But I will take this up with the CPA, it's more a tax question than this forum's sphere.

Thanks
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Old 10-20-2012, 03:07 PM   #25
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Hi Cheesehead,

I'm curious about the 7-year rule you have mentioned, because of an experience we had some years back. I cannot address the charity-work aspect of your questions, as we have no experience with that.

We don't currently run a small business, but Mr. A. had a lawn-care business for a couple of years after retiring. Thus, my info is dated; however, I doubt the IRS will have gotten any more liberal.

1) We were allowed to deduct all his start-up and running expenses from our full income (not just the business's income) for 2 years. That was a nice benefit for us, although we were conservative with our deductions (for example, we didn't deduct for the truck he used, since we also used it for personal business, but we did deduct his work-related mileage).

After 2 years, our CPA told us, the business would have to show a profit against its own income, or else the IRS would consider it a hobby. A seven-years limit was never mentioned. So, when the business still was not showing a profit after 2 years, he shut the business down.

If he could have deducted expenses while not showing a profit for longer than 2 years, he might have kept up the business, although it was starting to get on both our nerves by then.

So my thinking is: In your shoes, I would go straight to the tax adviser. It would be interesting to hear what you learn.

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OP here,

So it would be running the business at hopefully break even and and try to avoid a loss....

So my question to those that have throttled down their small service business: If I have expenses exceeding revenue from doing mainly non-profit work, then I can't even take the write offs correct? The IRS wouldn't even consider it a business, or is that after 7 years of no profit? This may be a question for the CPA?

Or perhaps I've answered my own question: If I want to continue past 62 I will need to generate revenue exceeding the expenses,......
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Old 10-20-2012, 03:20 PM   #26
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My understanding of the tax law is a non-hobby business must have a "profit motive". AFAIK the simplest way to demonstrate a profit motive is by showing profits in 3 of every 5 years. I believe the IRS will accept other evidence also of profit motive, though I do not know examples.
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Old 10-20-2012, 03:27 PM   #27
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Yes I just discovered that on their website:

"The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year"


From:
Business or Hobby? Answer Has Implications for Deductions

I will report back next week when I find out from my CPA how this applies to my trying to break even doing non-profit videos in "retirement" and if the IRS would let me deduct. If it's not possible, or I lose money, then I might as well just fold up the tent and be truly retired.
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Old 10-20-2012, 04:02 PM   #28
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Yes I just discovered that on their website:

"The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year"


From:
Business or Hobby? Answer Has Implications for Deductions

I will report back next week when I find out from my CPA how this applies to my trying to break even doing non-profit videos in "retirement" and if the IRS would let me deduct. If it's not possible, or I lose money, then I might as well just fold up the tent and be truly retired.
There are two possibilities when you do work for a charity. It sounds to me like you do this work for a reduced rate, or none at all. If you submit a bill and receive payment, you are still in business. I have one client, a smallish charity, for which I perform work. I submit a bill and receive a check. All expenses are counted in my small business.

If you do not bill the charity, then you cannot write off the value of your work. However, you could officially donate your work to the charity, and receive acknowledgment. The value of this donation is where you might set off triggers in the IRS computers.

One very important facet is whether they are indeed a charity. If they are not in the IRS list...

In your case, it sounds like you will do substantial charitable work for some real charities. Getting a read from your CPA is a very good start.
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Old 10-20-2012, 04:10 PM   #29
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I have a killer resume after 33 years in the biz, now I am working on my obituary!
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Old 10-20-2012, 04:16 PM   #30
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My understanding of the tax law is a non-hobby business must have a "profit motive". AFAIK the simplest way to demonstrate a profit motive is by showing profits in 3 of every 5 years. I believe the IRS will accept other evidence also of profit motive, though I do not know examples.
+1

IRS is o.k. if you can show you are trying to make a profit. I know a business that has been trying to make a profit for over 10 years. They have employees, sales...etc.
The problem comes in with home based businesses....that don't show any employees...or other overhead associated with non home based businesses.
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Old 10-20-2012, 08:37 PM   #31
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My understanding of the tax law is a non-hobby business must have a "profit motive". AFAIK the simplest way to demonstrate a profit motive is by showing profits in 3 of every 5 years. I believe the IRS will accept other evidence also of profit motive, though I do not know examples
.
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The fact that the taxpayer carries on the activity in a businesslike manner and maintains complete and accurate books and records may indicate that the activity is engaged in for profit. Similarly, where an activity is carried on in a manner substantially similar to other activities of the same nature that are profitable, a profit motive may be indicated. A change of operating methods, adoption of new techniques, or abandonment of unprofitable methods in a manner consistent with an intent to improve profitability may also indicate a profit motive.
Example: The court ruled a taxpayer's model railroad activity was not entered into for profit. The taxpayer commingled personal and business funds in his checking account and the business records were not separate from his personal records. (Lencke, TC Memo 1997-284)

A series of losses during the initial or start-up stage of an activity may not necessarily be an indication that the activity is not engaged in for profit. However, where losses continue to be sustained beyond the period that customarily is necessary to bring the operation to profitable status, such continued losses, if not explainable as due to customary business risks or reverses, may be indicative that the activity is not being engaged in for profit. If losses are sustained because of unforeseen or fortuitous circumstances that are beyond the control of the taxpayer, such as drought, disease, fire, theft, weather damages, other involuntary conversions, or depressed market conditions, such losses would not be an indication that the activity is not engaged in for profit.
Appropriate losses in the start-up phase of a business do not necessarily indicate a lack of profit motive. The amount of time necessary to reach profitability varies with the type of activity. Farming, inventing, and artistic activities are some examples of enterprises where diligent effort over a long period of time is often necessary before profits are made.
Example: A taxpayer spent considerable time promoting her musical career. Her efforts to secure contracts were consistent, with a profit motive. The court ruled that losses were incurred in the start-up stage of a speculative business and were not sustained beyond a reasonable period of time. (Krebs, TC Memo 1992-154)
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Old 10-20-2012, 09:23 PM   #32
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Hi Texas Proud,

The car I write off is a van that carries equipment, totally business, beat to hell, I keep a mileage log of what job uses what miles. We have a separate car for our personal use. Parking downtown is $30 at least. We have a regular cell phone, the smart phones are all biz. Since I am in an electronics business most everything I get at Radio Shack is for work and justifiable. I need to build a lot of rigs and supports so I am in Lowes a lot. I keep meticulous receipts.

That's why I wanted just small business owners to respond...
Thanks for saying....


OK, then if all expenses are for business.... then they all go away if you stop working... so keeping a business going so you can keep expenses going seems a bit strange.... that is if you want to retire...
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Old 10-20-2012, 09:25 PM   #33
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Jeez, you think you could make any more assumptions and accusations against the OP? Not only do you have a lot of "if you do this" statements, but you conclude for yourself that he does indeed do some or all of these things and is cheating on taxes. Nice. How can you possibly know these aren't all legit?

To the OP, sounds like you can pick and choose more worthwhile and low-stress projects and keep doing what you love. Maybe take enough paying jobs with the charity work to break even. Why give up something you love doing?

Most all the people I know that run their own business who talk like the OP is taking personal expenses as business.... and he seemed to be saying as much... he has since said it is not... so I believe him....

See my post to him for my answer....
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Old 10-20-2012, 09:34 PM   #34
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I think it has been addressed concerning a profit motive.... but let me give an example (even though it was a long time ago)....


One of my clients was very very rich.... he bred animals... he had workers etc... he had income in the $5 million range.... but his expenses were close to $10 million per year.... when he was audited, they said he was not doing the activity as a business as he was not trying to make a profit...

However, as someone else has mentioned, there have been many examples of a company losing money for many years, but they were being run to try and make a profit... an example of this would be Amazon.... it lost money for a long time, but nobody would have ever said it was a hobby....
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Old 10-21-2012, 03:55 PM   #35
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Sounds to me that you got lucky in your audit....

IOW, having a car for business and using it for anything else means you do not get to write off the personal use...

Having a cell phone and using it for anything but business means you do not write off personal use...

If you go downtown and park for personal business.... guess what, you are not supposed to write it off...

I have no idea what you are writing off from Radio Shack and Lowes, but if it if for personal use, again, not supposed to write it off....


So, I do not think you are as legal as you claim...



As far as your original question.... why do something that is high stress to take tax write off you should not.... why not start a low stress business and do the same thing....


I am going on a cruise , along with my wife, my accountant, and his wife. Is it a write off if we talk about my taxes?
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Old 10-21-2012, 04:07 PM   #36
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I am going on a cruise , along with my wife, my accountant, and his wife. Is it a write off if we talk about my taxes?
Sure- as long as IRS does not audit you.
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Old 10-21-2012, 05:40 PM   #37
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I am going on a cruise , along with my wife, my accountant, and his wife. Is it a write off if we talk about my taxes?
Not if he pays. If he doesn't, why is he there?
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Old 10-21-2012, 07:01 PM   #38
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OK, then if all expenses are for business.... then they all go away if you stop working... so keeping a business going so you can keep expenses going seems a bit strange.... that is if you want to retire...
Which leads one to believe that not all the expenses are truly business expenses.
Bruce
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Old 10-21-2012, 07:49 PM   #39
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The OP has described some of his expenses. He uses a CPA, and has been audited by the IRS. He understands the bounds.
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Old 10-21-2012, 10:00 PM   #40
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Running a business to get write-offs is unacceptable to me. I run the business for the ROI and intend to run it until I retire in 5 years. At that time I will sell it because I would not want any opeartional headaches of operating the business and then go on to enjoy my retirement. Having a hotel, I do get to write off a lot of expenses and also have the advantage of depreciation that comes with owning real estate, but once I retire I want to be free and that's the reason I will sell it.
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