Ignoramus29361 wrote:

That means that it is tax deductible and you can deduct it from your
taxes.

Possibly.

..... Your reported net income is zero.

Most probably not. Usually, for a business, the first purchase of an
item must be depreciated over the probable working life of the item and
IRS would have agreed standards. If it breaks and you have to buy a
replacement, then you may be able to claim the replacement as a direct
expense.

You might get away with doing a "contract job" where you have to buy
disposable tools for the job. e.g. if it costs under $AUS500(?), you do
not have to depreciate it here now.

The caveat is that there are lots of gotchas, which is why you pay an
accountant, because hopefully they know how to write your stuff off best
and reduce the tax payable.

Most probably your IRS is just after the "regular traders". The trick
will be to work out what they classify as regular traders; sell 5
machine tools in a year? or something like that.

In Australia, they have two gotchas, if you make and sell something
(like birdcages), then you have to treat that as one line of business to
something different (trading in cars). Which means it is harder now to
use your business to fund your hobby {:-(.

And if you business is patchy (under $20K income), you can not use the
loss there to reduce your personal income tax (personal exertion
income). This was a situation they changed a few years ago.

YMMV.

my understanding is much simpler - "hobby expenses are deductible to the
extent that there is hobby income" - for example, one year I had income
from renting a collector car - so I totaled up some expenses (auto tools,
restoration costs, tires, insurance, whatever) until I had more than the
income (acutual expenditures were of course a lot greater than that income,
that's what makes it a hobby) - while I'm not a tax lawyer, the accountant I
used had no problem, and felt this approach was legit


"Ignoramus29361" wrote in message
...
I want to expand on what I said a little bit. The downside of taking
ebay trading seriously from tax spandpoint, if you wish, is that ebay
profits would have to be reported.

On 29 Mar 2005 04:26:03 GMT, Ignoramus29361
wrote:

I want to expand on what I said a little bit. The downside of taking
ebay trading seriously from tax spandpoint, if you wish, is that ebay
profits would have to be reported.

The upside, is that a lot of hobby stuff that we love in this
newsgroup, becomes tax deductible. (I am aware that there are quite a
few professionals here who would become offended at being called
hobbyists, but let's concentrate on those whose tools are not their
primary way of earning money, not their "day job").

If you wheel and deal in industrial stuff, buy, fix up and sell
machinery and equipment (including test equipment), then, quite
conceivably, our own purchases of tools that can be used to repair
said machinery, are in fact investments or business expenses.

That means that it is tax deductible and you can deduct it from your
taxes.

Let's say that you buy a military surplus Onan generator head for
$130, a power washer for $130, and a industrial compressor for $350 (a
fictitious example). Let's further say that you sell the head for
$661.66, keep the power washer and the compressor. What's the result?
Your profit on the head is $530, your expenses on the compressor and
power washer are $480 (they may need to be capitalized), after bying
$50 worth of air tools the profit becomes $530-$480-50 = 0. Your
reported net income is zero. And yet, you acquired valuable tools for
free, tools which you will use for your wheeling and dealing business.

Again, the example is purely fictitious and any resemblance to real
life characters is unintentional.

Of course, the tools should be intended for the business. Here, the
compressor and power washer will be, no doubt, used primarily for
cleaning and repair of future stuff to be sold.

To someone who does not value tools, this is a waste of time, a zero
profit activity. To someone who does value these tools, this is time
very well spent.

I am not a tax professional, but what I said should, hopefully, make
some sense.

The rules don't have to make sense because they are rules. The
taxman doesn't get to agree or disagree about what makes sense or
not. Rules cut both ways.

You might consider setting up a sub-S corp for your wheeling and
dealing. There can be tax advantages to doing so. Talk to a pro,
and read between the lines of what she tells you.

There is no rule requiring a bidness to be well-managed in the
generally-accepted sense, as long as it sends the various forms and
checks on time according to the rules.

I think anything under $1500 is an unquestioned expense item, more for
'puters .... but ask a pro.

"Ignoramus29361" wrote in message
...

To someone who does not value tools, this is a waste of time, a zero
profit activity. To someone who does value these tools, this is time
very well spent.


Tools have only the value you can sell them for at any given moment unless
you are to use them to conduct a business, adding value to raw
materials.....

IOW, they are generally next to worthless except for their salvage or
"collector items" value unless they are being used to turn a profit via
their utility in skilled hands..........

IF you are sheltering your "tool collecting habits" via exploitiation of the
tax codes, then you deserve every bit of wrath the IRS can cast upon you
should you ever get caught.

Every****ingthingthatIbuy *has* to be categorized as to intended
usage....in order to meet local, State, and Federal tax code...and this
needs to be done at the time of purchase...NOT at some point in time when it
is convenient for _me_ to decide how to dispose of it....

Just a whole different ballgame is all Im saying....its not a matter of me
buying something cause it might come in handy....more one of like "what job
do I have can I charge this purchase to"???

And also when it actually does come time to sell something.......I get to
pay taxes on the differense on what it cost, v/s the "recovery"...

Hopefully, this might make some sense.....most of the **** you find for sale
isnt something your gonna be able to retire offa...regardless of whether you
save tons of it over many years...or whether your trying to compete with
Chinese labor in running an old engine lathe in your garage...

And even if it IS profitable...there's alwayses ole Uncle Sam with his hand
out....wanting HIS share....something about a war on drugs or terrorism or
somesuch....

Your mileage may vary, so suggest get an accountant and have *him* sign the
bottom line..........thats about all I pay mine for, after all.

--

SVL

A serious drawback of consistently showing a loss is that sooner or
later you get audited.
One audit will make you regret every penny saved.

Steve

william_b_noble wrote:

my understanding is much simpler - "hobby expenses are deductible to the
extent that there is hobby income" - for example, one year I had income
from renting a collector car - so I totaled up some expenses (auto tools,
restoration costs, tires, insurance, whatever) until I had more than the
income (acutual expenditures were of course a lot greater than that income,
that's what makes it a hobby) - while I'm not a tax lawyer, the accountant I
used had no problem, and felt this approach was legit


"Ignoramus29361" wrote in message
...


I want to expand on what I said a little bit. The downside of taking
ebay trading seriously from tax spandpoint, if you wish, is that ebay
profits would have to be reported.

....
That means that it is tax deductible and you can deduct it from your
taxes.

Possibly.

..... Your reported net income is zero.

Most probably not. Usually, for a business, the first purchase of an
item must be depreciated over the probable working life of the item and

Depreciation does not change the fact that the item is written off, it
only changes the timing of the writeoff.

....

You're forgetting my personal favorite tax rule, Section 179. This allows
you to expense up to the first $20,000 in capital equipment the year of
purchase. This one allows you to "balance" your income right at year end.
Got a good year? Take 179 to the max. Bad year? Depreciate and have
deduction next year.

For business/self employed taxes ain't no joke. You pay 15% to uncle as
income, another 15% as self employment, then 8% to the state. If you had a
real good year, pay another 10% to Uncle and another 3% to state. That's 1/2
your income in taxes! Now should I buy another shop machine and expense it,
or send it all in to Uncle???

Karl

To someone who does not value tools

In most countries/states/counties (sometimes all three!), you'll have
to pay property tax on the value of business tools. If you're "dealing"
in used tools there's a subcategory for inventory tax. Depreciation
figures into the value for property/inventory tax, but it still often
hurts to have anything for more than a year. (See the other messages
in this thread about the "instant" $20000 depreciation for certain
capital purchases if you aren't doing this big-time!) There are
certain liberties that scrap dealers often take when they buy a buncha
junk for little and then pick a couple things which they refurbish and
sell for big bucks - they almost certainly didn't pay property tax on
their selling price, but only on their purchase price - but accounting
methods come into play if you want to do this.

Tim.

Most probably not. Usually, for a business, the first purchase of an
item must be depreciated over the probable working life of the item and
IRS would have agreed standards. If it breaks and you have to buy a
replacement, then you may be able to claim the replacement as a direct
expense.


In the US, there is no reason to depreciate low dollar items unless you
want to. It is an advantage if writing it off this year would put you
below zero. The IRS does not require you to run your business well, but
you must be able to explain how you run it without laughing...

What is your Ebay seller id and have you filed yet this year ? ;)

My message won't disappear in X number of days either.

TMT

I operate two businesses, a C-corp since '87, and an S-corp since '96.
Neither has ever been audited, and my accountant says the odds of an IRS
audit these days for any business under $1M are hundreds to one. The
same goes for state tax agencies as most are woefully understaffed. They
apply resources where they expect to get the most revenue.



Steve Smith wrote:

A serious drawback of consistently showing a loss is that sooner or
later you get audited.
One audit will make you regret every penny saved.

Steve

Karl Townsend wrote:

...


That means that it is tax deductible and you can deduct it from your
taxes.


Possibly.



..... Your reported net income is zero.


Most probably not. Usually, for a business, the first purchase of an
item must be depreciated over the probable working life of the item and


Depreciation does not change the fact that the item is written off, it
only changes the timing of the writeoff.



...

You're forgetting my personal favorite tax rule, Section 179. This allows
you to expense up to the first $20,000 in capital equipment the year of
purchase. This one allows you to "balance" your income right at year end.
Got a good year? Take 179 to the max. Bad year? Depreciate and have
deduction next year.

For business/self employed taxes ain't no joke. You pay 15% to uncle as
income, another 15% as self employment, then 8% to the state. If you had a
real good year, pay another 10% to Uncle and another 3% to state. That's 1/2
your income in taxes! Now should I buy another shop machine and expense it,
or send it all in to Uncle???


Don't forget that home office deduction! That is worth a MINT! It
drastically
reduces my taxes every year I make significant money. A home shop is
certainly
deductable if you run a business out of it.

Jon

Ignoramus6685 wrote:

On Tue, 29 Mar 2005 14:51:33 -0700, Tim Killian wrote:

I operate two businesses, a C-corp since '87, and an S-corp since '96.
Neither has ever been audited, and my accountant says the odds of an IRS
audit these days for any business under $1M are hundreds to one. The
same goes for state tax agencies as most are woefully understaffed. They
apply resources where they expect to get the most revenue.


As far as I am concerned, by main concern is not a risk of random
audit, but wanting to know that there is nothing in what I do that
could make me an object of blackmail.

Make a lot of enemies in your line of work?

Ignoramus6685 wrote:

Most probably not. Usually, for a business, the first purchase of an
item must be depreciated over the probable working life of the item and

Depreciation does not change the fact that the item is written off, it
only changes the timing of the writeoff.

Someone else has answered with info to what my response would have been.
Interesting #179. They seem to be bringing in something similar here.

Karl Townsend wrote:

You're forgetting my personal favorite tax rule, Section 179. This allows
you to expense up to the first $20,000 in capital equipment the year of
purchase. This one allows you to "balance" your income right at year end.
Got a good year? Take 179 to the max. Bad year? Depreciate and have
deduction next year.

We must have something similar in this country. I've met a few "self
employed" blokes recently who have changed/looking to change accountants
because they suddenly found they were making "contributions" to
consolidated revenue. As one said, I can always spend it on more tools
or something.

Steve Smith wrote:

A serious drawback of consistently showing a loss is that sooner or
later you get audited.
One audit will make you regret every penny saved.

1) not if you have been claiming honest deductions.

2) not if you are within the industry norms.

3) Not if you are making a loss on a reasonable turnover. In this
country, the Feds gets 10% of everything sold/serviced/provided (GST).
So they are making money anyway.

Yes, the Feds on this side of the pond are eying a retail sales tax too.
They call it the "Fair Tax" and as originally designed, it was supposed
to replace our federal income tax. But now the politicians are calling
for a compromise (bend over boys!) where they would have _both_ the
income tax and the "Fair Tax" in place during a "transition period". The
net to the government would be around 30% from working stiffs, and
somewhat less for the indigent a$$holes and illegal aliens.

To think we started a revolution 229 years ago over a 5% tax on tea...

Terry Collins wrote:

Steve Smith wrote:

A serious drawback of consistently showing a loss is that sooner or
later you get audited.
One audit will make you regret every penny saved.


1) not if you have been claiming honest deductions.

2) not if you are within the industry norms.

3) Not if you are making a loss on a reasonable turnover. In this
country, the Feds gets 10% of everything sold/serviced/provided (GST).
So they are making money anyway.

"Jon Elson" wrote in message
...


Karl Townsend wrote:

...





Don't forget that home office deduction! That is worth a MINT! It
drastically
reduces my taxes every year I make significant money. A home shop is
certainly
deductable if you run a business out of it.

Jon


And don't forget to deduct ALL the mileage for that second, AWAY from home
job.

C

On Tue, 29 Mar 2005 17:20:53 -0700, Tim Killian
wrote:

Yes, the Feds on this side of the pond are eying a retail sales tax too.
They call it the "Fair Tax" and as originally designed, it was supposed
to replace our federal income tax. But now the politicians are calling
for a compromise (bend over boys!) where they would have _both_ the
income tax and the "Fair Tax" in place during a "transition period". The
net to the government would be around 30% from working stiffs, and
somewhat less for the indigent a$$holes and illegal aliens.

To think we started a revolution 229 years ago over a 5% tax on tea...

Terry Collins wrote:

There is a great bar just across the channel.


Steve Smith wrote:

A serious drawback of consistently showing a loss is that sooner or
later you get audited.
One audit will make you regret every penny saved.


1) not if you have been claiming honest deductions.

2) not if you are within the industry norms.

3) Not if you are making a loss on a reasonable turnover. In this
country, the Feds gets 10% of everything sold/serviced/provided (GST).
So they are making money anyway.

"Jon Elson" wrote in message
...


Karl Townsend wrote:

...

That means that it is tax deductible and you can deduct it from your
taxes.

Possibly.


..... Your reported net income is zero.

Most probably not. Usually, for a business, the first purchase of an
item must be depreciated over the probable working life of the item and

Depreciation does not change the fact that the item is written off, it
only changes the timing of the writeoff.


...

You're forgetting my personal favorite tax rule, Section 179. This allows
you to expense up to the first $20,000 in capital equipment the year of
purchase. This one allows you to "balance" your income right at year end.
Got a good year? Take 179 to the max. Bad year? Depreciate and have
deduction next year.

For business/self employed taxes ain't no joke. You pay 15% to uncle as
income, another 15% as self employment, then 8% to the state. If you had a
real good year, pay another 10% to Uncle and another 3% to state. That's
1/2 your income in taxes! Now should I buy another shop machine and
expense it, or send it all in to Uncle???

Don't forget that home office deduction! That is worth a MINT! It
drastically
reduces my taxes every year I make significant money. A home shop is
certainly
deductable if you run a business out of it.

Jon

You really must consult a tax expert before doing this.

When you go to sell the house, you may lose the one time exemption on
capitol gains.

Or so I have been told.

T

Even if you pass the audit with flying colors, you won't enjoy the
process. They will only know your deductions are honest if they audit you.

Steve

Terry Collins wrote:

Steve Smith wrote:


A serious drawback of consistently showing a loss is that sooner or
later you get audited.
One audit will make you regret every penny saved.



1) not if you have been claiming honest deductions.

2) not if you are within the industry norms.

3) Not if you are making a loss on a reasonable turnover. In this
country, the Feds gets 10% of everything sold/serviced/provided (GST).
So they are making money anyway.