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.