JohnMcD348 said:
That's a question I was wondering about the other day when I was doing my taxes. Now that I'm gearing up to start doing comps, would any of my purchases and such become deductible as a hobby expense since there is some chance of winning prize money? I'm far from being a tax whiz or an accountant so what do you guys do?
NOTE:
I am NOT a tax professional nor do I even begin to pretend to warrant what I say here regarding tax law . . .
BUT - I do have quite an extensive background in starting small companies, geting stuck in tight places and managing to work my way out of them legally and ethically. I have a few ideas that you might want to use . . . or not.
My experience is that before you can begin declaring expenses, you must have some income.
This keeps every basement shotgun shell reloader and weekend wood turner from declaring their hobby expenses. Heckster, if declaring hobby expenses were legal, we might be able to claim HD TV sets as an expense towards our NASCAR race viewing hobby! :wink:
You must show intent to run your competition team as a business . . . and the IRS' acid test for this (in my experience) is if you receive income in direct relation to your activities as a competition Q'r.
You must also show that you are actively seeking out funding (revenues) for your competition Q team. You don't have to be profitable, but you must be able to demonstrate serious intent to profit from your activities.
There are two books that I've read. (And not because I wanted to but because I found myself in a postition where I thought I should.)
1) Accounting for Dummies. Chapter 3 is all about taxes and how to look at them and consider them.
2) The McGraw-Hill 36-Hour Accounting Course. Chapter 16 is all about taxes.
Both of these are well written, although you can probably guess that the For Dummies book is much more fun to read. On the other hand by the end of the Accounting Course book, after I took the final exam, I felt like my knowledge of business accounting was pretty solid.
So take these thoughts for what they're worth. (
"But Mr./Ms. IRS Field Agent Smith, I was just following advice I received from some guy I don't even know on an Internet forum" is NOT going to fly!) At least maybe these thoughts will give you some ideas of where you need to head in conversations with your accountant. And yes, you need an accountant. It's one of the ways you're going to be able to demonstrate seriousness in running a business. Besides, it's the best money you'll ever spend. That and a lawyer. :wink:
/Brother Dave
[edit] P.S. To answer Mark and Becky's question, if you "take possesion" of the funds in a state other than the one you live in, then most states expect you to pay them tax on that income. However, your home state often takes consideration of the fact that you received the income in another state and your tax rate on that income can be at a lower rate than your regular rate. At least this is how it was when I was working in Missouri and living in Kansas for a while. At the very least both states expect to hear about your income. Of course most states have some differences in their tax laws - and once again, this is a great reason to hire an accountant. /B.D.