Tax Time - Expenses for BBQ Contests

[Jeff_in_KC]

Question... been working on my taxes finally using "TaxCut". Got to the part about deductions and came across hobby expenses. Here's what it said about hobby expenses:

Enter the amount of any expenses you incurred in 2005 in the course of your not-for-profit activities, but only to the extent you reported income from those activities.


In counting "total expenses" for this purpose, you must include items such as interest that would be deductible in any event.

If you have expenses in excess of income from an activity, your tax benefit would be greater if you could deduct them. To deduct expenses in excess of income, you must prove that you had a profit motive in engaging in the activity.

You will be presumed to have the needed profit motive if the activity actually showed a profit in 3 of the past 5 years (including 2005). (If the activity consists of breeding, training, showing or racing of horses, the reference is 2 of the last 7 years.)

If you can show the needed profit motive, either using this presumption or otherwise, you should report all of your income and expenses for that activity on Schedule C, not here.

Given the fact I don't know squat about this area of taxes, can anyone help me with this? Can I deduct my expenses in buying all my start up equipment for BBQ contest last year, including entry fees and meats?

[MrsMista]

What it's saying is that if you only made $500 at your hobby you can only claim $500 in expenses. However, if you want to do it as a schedule C then you can claim $500 in income and $5,000 in expense or what ever your numbers may be. Any you don't have to have an EIN number to do so.

To put your mind at ease I work for H&R Block during the tax season.

[Jeff_in_KC]

LOL! Well, I made ZERO in income and had probably $3000 in expenses!

[MrsMista]

Then business it is. IRS only expects you to turn a profit 2 out of 5 years for a small business. And even if you don't make money but your intention is to make money you can still declare it a business. Once you had your fun for a while walk away from it for a year and then revive it later when you need the tax break.

[chad]

I'm fighting a similar battle!

The "team" only made about $215 or so, but I made some profit from the catering side (probably less than $1000) and have the capital expense of the cooker...I'm filing Schedule C because I need some protection from the IRAs that I closed to finance the startup.

I do have the EIN and my state tax number, so my "intention" is well covered and documented.

Should be interesting!!

[Jeff_in_KC]

Dave, since I didn't cater, I'm kinda scared about making the claim even though it does say "hobbies". I dunno. Not sure I can document it. May just wait til next year and save everything this year, including the smoker.

[Smoker]

MrsMista,

Can Jeff claim all his BBQ expenses including the new smoker as a startup business and include all the competitions as "advertising" since he gives away his business cards and free samples? (You DO do that Jeff)I ask this cause thats my plan for next year.

[Jeff_in_KC]

Even though I have no permit from the health department to cater? I don't suppose the IRS is gonna go check with them.

[The_Kapn]

The IRS has lots of info on-line about hobby vs business income and expenses. Here is just one sample quote:

"In determining whether you are carrying on an activity for profit, all the facts are taken into account. No one factor alone is decisive. Among the factors to consider are whether:

1. You carry on the activity in a business-like manner,
2. The time and effort you put into the activity indicate you intend to make it profitable,
3. You depend on income from the activity for your livelihood,
4. Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business),
5. You change your methods of operation in an attempt to improve profitability,
6. You, or your advisors, have the knowledge needed to carry on the activity as a successful business,
7. You were successful in making a profit in similar activities in the past,
8. The activity makes a profit in some years and the amount of profit it makes, and
9. You can expect to make a future profit from the appreciation of the assets used in the activity. "

It is from:
http://www.irs.gov/businesses/small/...=99239,00.html

Explore all the info available and decide the level of "adventure" you are comfortable with.

FWIW.

TIM

[Jeff_in_KC]

Thanks Tim... #3 and #7 are stretching it. #9 MAYBE also.

Originally Posted by The_Kapn

The IRS has lots of info on-line about hobby vs business income and expenses. Here is just one sample quote:

"In determining whether you are carrying on an activity for profit, all the facts are taken into account. No one factor alone is decisive. Among the factors to consider are whether:

1. You carry on the activity in a business-like manner,
2. The time and effort you put into the activity indicate you intend to make it profitable,
3. You depend on income from the activity for your livelihood,
4. Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business),
5. You change your methods of operation in an attempt to improve profitability,
6. You, or your advisors, have the knowledge needed to carry on the activity as a successful business,
7. You were successful in making a profit in similar activities in the past,
8. The activity makes a profit in some years and the amount of profit it makes, and
9. You can expect to make a future profit from the appreciation of the assets used in the activity. "

It is from:
http://www.irs.gov/businesses/small/...=99239,00.html

Explore all the info available and decide the level of "adventure" you are comfortable with.

FWIW.

TIM

[kickassbbq]

I thought you had to be an actual business (incorporated, tax ID, etc) before you could deduct anything. Heh, if I can have a tax deduction from a HOBBY, I should be able to deducy my alcohol consumption from last year, about $4,000.00.

[MrsMista]

Originally Posted by Smoker

MrsMista,

Can Jeff claim all his BBQ expenses including the new smoker as a startup business and include all the competitions as "advertising" since he gives away his business cards and free samples? (You DO do that Jeff)I ask this cause thats my plan for next year.

All of that is true and then some. EIN are not a requirement for filing especially for sole proprietorships. I claimed Neil's experiments as a loss for his catering (no ein) business because he's working on his recipes for competitions and catering jobs.

[kickassbbq]

So, what you all are saying is I can deduct my new truck that I use to pull my new smoker and all the comp equip (about 40,000.00) from income taxes?
It's an IRS Party.
Smoke On!!!!!
ed

[MrsMista]

Originally Posted by kickassbbq

So, what you all are saying is I can deduct my new truck that I use to pull my new smoker and all the comp equip (about 40,000.00) from income taxes?
It's an IRS Party.
Smoke On!!!!!
ed

You can deduct a percentage (percent used for business) of the cost (insurance, gas, monthly payments) or standard mileage for the exact amount of business miles.

[Jorge]

Best free advice I ever got was from my Grandpa. "Son, don't ever piss off God or the IRS. They remember everything and hold all the high cards." If I have a deduction I can back up I take it. If it's a grey area I'll pay my share and save the cash and hassle of an audit. I was audited once anyway, luck of the draw, and it was a royal pain in the butt. Spending an hour with a GOOD CPA now is cheeper than some of the possible consequences later If nothing else it should produce a gameplan for the future to maximize deductions.