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Hobby Expenses...

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bruno994

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Anybody out there claiming your BBQ comp expenses as "Hobby Expenses" on your taxes? My understanding is as long as you don't show a profit for more than 3 out of the next 5 years, you can continue to claim your 'Hobby".
 
This seems backwards to me. I always thought it was: if you don't show a profit in 3 out of 5 years the IRS could classify your business as a hobby and not allow your deductions?
 
http://www.irs.gov/uac/Business-or-Hobby?-Answer-Has-Implications-for-Deductions

Among other stuff there is this tidbit:

"If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations"

You need to talk to a tax person but I believe this means that you could offset any winnings with your comp expenses but not in excess of your winnings. You can not claim all of your comp expenses if this is not a business in which you have not been profitable in 3/5 years or have a reasonable expectation to be profitable.
 
Prepare to be audited and make sure you take your check book with you. Keith
 
speers90 said:
http://www.irs.gov/uac/Business-or-Hobby?-Answer-Has-Implications-for-Deductions

Among other stuff there is this tidbit:

"If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations"

You need to talk to a tax person but I believe this means that you could offset any winnings with your comp expenses but not in excess of your winnings. You can not claim all of your comp expenses if this is not a business in which you have not been profitable in 3/5 years or have a reasonable expectation to be profitable.
Click to expand...

thats what my tax lady said..up to but not over any winnings. cant show a loss just offset.
 
I'll worry about bringing in the winnings. Don't have a problem with expenses to offset.
 
I too had heard that you could deduct expenses up to and including winnings, I even bought 2 Gurus to ensure my expenses where more than my winnings but when I put it all into TurboTax it did not seem to make a difference in the taxes owed. Be curious how it works out for you.

Sent from my Transformer Prime TF201 using Tapatalk 2
 
Ryan (speers90) is correct, we do this. You should always double-check with your accountant though, as each person's situation may be different.
 
speers90 said:
http://www.irs.gov/uac/Business-or-Hobby?-Answer-Has-Implications-for-Deductions

Among other stuff there is this tidbit:

"If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations"

You need to talk to a tax person but I believe this means that you could offset any winnings with your comp expenses but not in excess of your winnings. You can not claim all of your comp expenses if this is not a business in which you have not been profitable in 3/5 years or have a reasonable expectation to be profitable.
Click to expand...

Ryan has quoted the source document.

The key is that hobby losses can not be used to offset other income.
For the vast majority of us, this simply means that if we are fortunate enough to bring in some winning, we can deduct our expenses to offset them, but no more than that.

As always, you need to consult a tax pro and not the WWW about your situation.

TIM
 
speers90 said:
This seems backwards to me. I always thought it was: if you don't show a profit in 3 out of 5 years the IRS could classify your business as a hobby and not allow your deductions?
Click to expand...
yes...thats exactly it
 
I bought some new tongs last week. That will certainly offset any winnings I have had so far....:wink:
 
You folks go ahead and claim you some expenses for a hobby to offset tax liability from any other income (capital gain, W-2, 1099 other than BBQ winnings, K-1) and see if you can get any tax software or any accountant worth paying to legitimize this.


You had better not be claiming a "home office" too....
 
Writes it all off here.. My welding business sponsors my bbq team...I build and sell ugly drum smokers and parts..the competitions are advertising for my business..gotta burn that money somewhere or uncle sam will snap it up.
 
Our winnings were reported on Form 1099-MISC Income...​

What is Form 1099-MISC Income?​

Income reported on Form 1099-Misc. Examples include:​

- Amounts you were paid for freelance or consulting services you provided
- Amounts you were paid as an independent contractor
- Money earned as a sole owner of your business
- Money received from rents or royalties
- Money received for providing health-care services
- Prize winnings
- Farming-related crop insurance proceeds
- Income from farming and fishing businesses​

I think it should have been reported on Miscellaneous Income...​

What is Miscellaneous Income?​

Miscellaneous income includes any of the following:​

- Wages not already reported
- Reimbursed deductions
- Bad debt recoveries
- Long-term care accounts
- Coverdell ESA and 529 QTPs (form 1099Q)
- Cancellation of debt
- Bartering income not already reported
- Income and expenses from a hobby
- Income from personal property rented
- Income from a U.S. possession
- Other reportable income​

What paperwork do I need?​

Miscellaneous income can be reported on lots of different income statements. A few examples include:​

- Form 1099-LTC
- Form 1099-Q
- Forms 1099-A or 1099-C​

More Information​

- 2012 General Instructions for Forms 1099, 1098, 3921, 3922, 5498, and W-2G.​

These publications are not included in this TurboTax product, you may request a copy.​

We have used Turbo Tax for the past few years with no issues in deducting our expenses up to $15,000.00. The reporting form has changed this year so now we're trying to figure out how to report the income from the 1099-MISC and still be able to deduct expenses...:twitch:​
 
Answers

Hi! Just for background I am a tax preparer from Alabama with one of the larger tax prep companies in the US. I also have nine years experience.

As for being " profitable 3 out of 5 years " that is in reguards to a full fleged business. Hobby income is reported each year as it is earned (on line 21 of the 1040 if anyone is irs form savvy)

The expenses for the hobby can be used up to the amount of income you earned. This is reported on schedule A (long form or itemized deductions) on line 21 and you can only take off the amount over 2% of your total income.

As for home office, that one is hard to justify. The IRS has cracked down on this deduction hard. You need a place that is used exclusively for the office WITHOUT things like TVs and radios (distractions) and this area has to be a place for administative activities (since good Q comes from outside). If you are doing this just as a hobby I don't see them even allowing a office but if you are selling as well that's another story.

Hope this helps. PM me if you need something else I will answer as fast as I can even if I have to research it. Thanks Adam
 
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