Made first money off of the CNC milling machine

Thanks Wes...

i

Are banks and GM hobbies?

Since GM is not an individual nor an S corporation, the hobby income rule does not apply to it.

If GM was ran out of one person's garage, and was not profitable for several years in a row, arguably it could be classified as a hobby.

``The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year...''

i

In Illinois there are exemptions like this for certain industries, but not everything- I don't believe consumables like oil or drill bits count either, but I've not read the laws in a while, and not being a tax cop, my interpretation doesn't really count anyways.

People have tried to stretch this into weird stuff like like buying a digital camera and not paying tax if you claim you make money off it as somehow a camera is a graphics and printing equipment.

I'd be really wary of trying that, it's just as sketchy as trying to write off some computer and a desk in the dining room as an "office".

If you really want to write stuff off, form a s-corp and completely separate business from yourself. You don't have to prove anything with business expenses payed for by a business vs. trying to weird gimmicks as an individual.

No, this is much more relevant to upgrades and tooling, etc. for capital equipment. I had to read the tax court rulings several times to be sure I understood it properly. It seems to be a VERY broad exemption in Missouri.

Jon

Similar rules about business expenses apply to S corporations. Business expenses should be reasonable and necessary.

If you sell stuff on ebay as a business, a camera is a reasonable and necessary expense.

I know this because I have an S corporation since 1998, I plan with taxes in mind, and my corp has been profitable in all years except one. I never buy chocolates with corporate money, but I use corporate money for every business expense.

i

Well, you need to be careful of claiming the business exemption for occasional small jobs. But, I don't see a downside. You have to calculate the percentage area used for the business, it has to be mostly used for business (again, calculate percentage of time) and you need to have proper records. I am running a manufacturing business with two lines of products, one sold to end users (the CNC machine stuff) and another sold to national labs and universities. I have facilities to machine parts (CNC mill and manual lathe), sheet metal shear and brake, and assemble circuit boards, plus some gear used to make essentially fixtures for the circuit board assembly. So, this stuff doesn't look very hobby-like, I sell over the web and by purchase order.

I've been doing this, with several product lines, since 1986, and got professional advice when I set it up. There have been quite a number of years where I didn't make a "profit" the way the IRS calculates it. When you lop off ALL those exemptions, depreciation, home use, car mileage, advertising, shipping, phones, equipment upgrades, and so on, it is easy to turn what I would initially think was a profitable year into a loss year! Well, no taxes that year, who am I to complain!

So, they don't seem to be real strict at all with the 3 out of 5 years profit rule. There are limits to the deductions and such when you don't turn a profit that year, though. But, I've NEVER had the slightest hint of trouble doing this. The state audited me about ten years ago because I claimed a refund when the state supreme court ruled that the director of revenue was collecting a tax improperly. The auditor came out, reviewed my books, and told me that I had been paying tax on some stuff that I shouldn't have, mostly lumping shipping with parts ordered and consumed rather than sold.

So, at least so far, I think I'm doing it all right.

Jon

Mention was made that three out of five previous years had to be profitable. When I was in business, horse breeding and mining and a third, IIRC, were only two out of five. Of course the IRS codes change with the relative humidity, so who knows now.

But, knowing deductions, and knowing them well can be berry berry profitable to a taxpayer. You just have to know the ropes, tapdance inside the lines, and keep damn good records.

And stay away from the gray areas that they seem to be sensitive about.

We came out smelling like a rose this year.

Steve, no sig. You guys know where to get a book if you want one.

Welcome to the good ol' USA, where doing the right thing is punished, and being a deadbeat is rewarded.

That's the way we work here----it's a punitive system.

Harold

The rules really aren't similar. Business are favored for coming up with expenses. People trying to write stuff off aren't. You'll notice the IRS has some huge list of impossible to satisfy rules and checks on what an individual can write off, but there's no list saying what a separate business can or can't buy.

As a busines, it's not problem at all. Now if you try something like buy camera for yourself, and store it on you "office" desk in the dining room, you're really pushing it. If your company bought the camera, you can do whatever the hell you want with it, and you don't have to prove it was used for business.

You'd have a really hard time with this if you ran some "home office" type deal, as it would be virtually impossible to prove the stuff for your "business" is separate and distinct from your personal stuff.

I agree. As long as I am not pushing the envelope too much, I will be okay. I mean, I have a computer business (websites), so how can IRS disallow my corporation to write off, say, hard drives?

This is not true, and the expense needs to be reasonable and necessary. A camera would be such, if you sell stuff on ebay. Then it would be up to the IRA to try to prove that the camera was used for personal use, and they have better things to do.

But I do not, say, buy movie tickets or chocolates with corporate credit card, and otherwise do not push the envelope too much. Photo equipment, computer stuff, manufacturing stuff, etc is fair game though. I have income to offste it all.

This is why pretty much everyone who knows shit, recommends S corps or other forms of running a separate business entity, to people who have any kind of substantial side income.

i

Made? Or first cash offset to loss?

It's just like fusion reactors.. you have to have scientific break-even before you can have engineering break-even.

And at least one (or two) that have neither state income tax nor sales tax (but property taxes a little higher than average).

Sales tax pretty much qualifies. User fees may be the only thing higher on the fairness scale. Gasoline tax used for building/maintaining highways. That sort of thing.

Ayup.

Bullshit, the ultra rich will only continue to accumulate money--if for no other reason then because of mental illness and neurosis

Let too much fall into their hands and since they already have WAY more than enought to meet basic needs, they simply "re-invest" in a manner that "produces" more cash for themselves via the fractional reserve depostit bank system..the result is that government is starved of cash due to reduced revenue and inflation for the middle class keeps going up while their wages remain stagnant.

Put another way :

--if a decade worth of reducing taxes for the rich has indeed produced new jobs, then where exactly have all of these supposed newly-created jobs gone to then ?

Oregon has a nasty, gouging income tax but no sales tax.

Agreed.

-- Life is full of obstacle illusions. -- Grant Frazier

Tell me about it...

I spent nearly 2 decades working there but living in Wa.

What galled me especially was the ones that had moved to Wa to avoid paying taxes for their auto license and to escape property taxes and also always holding up the grocery line by claiming tax free status by presenting their oregon ID.

Put em all onto a bus back to California or mexico let them sort it out there is what I say.