Not sure where to post this so I'll play it safe and post it here.

Hobby or for Profit?

The IRS has developed Fact Sheet 2008-23 that helps explain when an activity is a hobby or a for profit business. Section 183 limits deductions that can be claimed when an activity is not engaged in for profit. Taxpayers may need a clearer understanding of what constitutes an activity engaged in for profit and the tax implications of incorrectly treating hobby activities as activities engaged in for profit. This educational fact sheet provides information for determining if an activity qualifies as an activity engaged in for profit and what limitations apply if the activity was not engaged in for profit.

Just got this in one of my tax service announcements today so I thought I'd pass it on as a good number here have asked or discussed the topic and maybe this will be of some help.

http://www.natptax.com/irs_news_releases_and_fact_she.html

Here is the url where the document can be found.

Most of these sort of discussions are in the political forum since many cannot help but turn these in to political pissing matches.

I will warn anyone who cares to do that while this thread is in the public forums not to venture down that street. Thank you

Grumpy

Damn, when I saw this thread title, I thought it was going to be about high-end Infinity speakers :confused:.

Grumpy, hopefully it will not become political as I posted it as a public service announcement and not to stir up any political discussion. The whole concept of tax related to vintage equipment sales is at best gray and sometimes the best that can be done is to eliminate what categories you do not fall in and then look for added advice. The IRS is concentrating on the tax gap (difference between what the tax revenues should be under the law and the revenues received) and doing things like looking for records from eBay and others is a notice to persons that it recognizes this may be an area where many do not understand the tax implications and it is looking to increase compliance through audit and enforcement.

Many tax practitioners are as confused as Joe Average taxpayer as there are 4 categories a transaction and/or seller could fall in for sales: 1) occaisional seller of personal tangible property, 2) sale of a collectible, 3) hobby and 4) business. Each results in different reporting requirements and tax consequences. My purpose in only to pass on the latest information released by the IRS that may help the members who also may sell equipment.

FWIW, I flip and I report all sales on a Schedule C, along with any associated cost of doing business and mileage.

Some/most folks think I'm nuts, but I remind them that Al Capone died imprisoned for tax evasion

Didn't the Beatles do a song in this vein?.....:yes:

This is actually quite timely and relevant, and I learned something new from reading the document.

I was aware that in order for your business to be considered a "for-profit" and not a hobby, you need to show a profit for three of the last five years. In those other two years, you could show no profit, or losses.

If you don't meet that criteria, then your activity is considered to be a hobby.

What I didn't know was that if you don't meet the criteria for a for-profit, you can still deduct all your expenses up to the amount of revenue that you received. You just cannot show a loss. You are not permitted to use a loss from hobby activities to offset income from other sources.

So, if you receive $5,000 in sales from your "hobby", and you spent $6,000 over the year buying stuff, and parts, and various other costs, you can match $5,000 of the expenses against all $5,000 of your sales, and your taxable amount is zero. You're just not allowed to show the $1,000 loss.

Which is a heck of a lot better than paying taxes on the $5,000!!