Tax ??? For the weekend warriors/noobs?

R

REX-RACER

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This is mostly for the weekend warrior type guys or the, "I just do it on the side to make a little extra $$$" people rather than the pros, but all input is welcome.



I was talking w/ a co-worker about how I plan to start doing some detailing on the side when the weather gets agreeable and she was telling me that I should consider writting of my expenses on my taxes. She was telling me that I could write off the cost of my supplies ( listen up all you product junkies ) as well as the use of my vehicle ( milage, gas, etc. ) and even my computer if I ued in conjunction w/ my "business".



The downside would of course be that I would have to declare everything that I earned doing the detailing and then possibly pay taxes agains it at the end of the year!



So my question is of course, how many people actually report their "side gig" or weekend warrior activity and try to take advantage of the tax write offs? How do you handle this in terms of book keeping and how do you report the income?



Thanx in advance!
 
It depends on how much you're making and how much you're trying to claim. Remember, if you get audited and it's not quite on the up & up, you'll be in a lot more trouble than it's worth. If you're making a decent sum of money off it and you plan on PAYING taxes on your earnings, then by all means claim it. But if you're making only a couple hundred throughout the year, it's probably more trouble than it's worth. Also, do you normally itemize your taxes? If not, again it's probably not worth it.
 
I was thinking the same thing my wife is donig pamper chef out of the house and she has to claim a ton of things and she gets deductions so I thought with the new garage and all i could write off someof that if i begain a bussness..
 
JBM said:
Dont do it.
Click to expand...



Could you elaborate please. I'm lookin' for a little discussion and insight.



zzyyzx, I was kind of thinkin' it may be more hassle than it's worth for just a few hundred bucks a year, but my co-worker who brought it up mentioned that if you showed it as a loss you can write that off too. Most of us at autopia are going to detail cars anyways, and most of us probably don't show any real profit from it so why not write off the cot of materials and travle and essentially get that stuff for free?



It probably isn't that simple, but it's a thought.



I've also heard that you can get into trouble on the flip side also where as if you're "business" really takes off and you do pretty well, you can get into trouble for not reporting the extra income. Sam wants his cut ya know . . . :nixweiss
 
When you claim the income it does open the window to write-offs. I used to write off my laundry detergent! For mileage, you figure what percentage of the miles were detailing. You can then take that percent and apply it to car maintenance- oil changes, tires, brakes, etc. It's best IMO, to have a book keeper do your annual taxes. Keep receipts! You mentioned a few hundred bucks...I bet it turns into much more than that. Figure one detail each Sat. at 100-180 each is around 480 per month x 12.

I've done around 1200-1900 per month only working Saturdays. You will have to take into consideration to do more details means more product. Do some good figuring of how much you are spending per detail and take that into consideration when charging customers. New guys here come out with $15 washes, or $40 waxes and after a few months you don't see them anymore.

The write-offs are good because it lowers your taxes on the income dramatically. You should obtain a business license for your city- $100 per year here.





Rob Regan
 
WCD said:
When you claim the income it does open the window to write-offs. I used to write off my laundry detergent! For mileage, you figure what percentage of the miles were detailing. You can then take that percent and apply it to car maintenance- oil changes, tires, brakes, etc. It's best IMO, to have a book keeper do your annual taxes. Keep receipts! You mentioned a few hundred bucks...I bet it turns into much more than that. Figure one detail each Sat. at 100-180 each is around 480 per month x 12.

I've done around 1200-1900 per month only working Saturdays. You will have to take into consideration to do more details means more product. Do some good figuring of how much you are spending per detail and take that into consideration when charging customers. New guys here come out with $15 washes, or $40 waxes and after a few months you don't see them anymore.

The write-offs are good because it lowers your taxes on the income dramatically. You should obtain a business license for your city- $100 per year here.





Rob Regan
Click to expand...



This is exactly the kind of input I am looking for, thanx for the the advice! So at what point would you say that it's feasable to start itemizing this income?
 
I'm making money on weekends doing detailing. I was wondering about taxes also. I know alittle about this because I fished in tournaments and made some money in years gone by. My CPA told me there are two ways of doing it, as a business or as a money making hobby. With my fishing he recommended claiming it as a money making hobby and that seemed right to me. I was not trying to make fishing my main means of support. With a money making hobby you can write off everything up to the amount you made for that year, so you cannot show a loss this way. I don't all the details with a business but if you claim a business you have to make sure you have everything right if you are audited. Maybe right is not the correct word, but you need a business license, and all the other stuff to correctly setup a business. When I do taxes next year I will do it as a money making hobby. I am saving every receit and mileage. I am no expert but I hope this helps, Wes
 
When giving advice here, keep in mind that it is illegal to not declare side income. It would probably not be wise to advise that, and it would be wise to keep silent if you do not declare it.
 
Auditing- It's not that easy to be audited. I know there are horror stories, but statistically, it's near zero.

I wasn't aware of a money making hobby category, but you can't show a loss. If you add up everything that you are allowed to deduct, I am confident it will show a loss your first year, but you won't be losing money. Product costs are on your shelf along with other purchases. You could buy $200 in chemicals on Friday, do a $65 wax on Saturday and if it was tax day, you would show a $135 loss. However, you have enough products to do many more jobs.

It will also allow you to justify to your wife if you buy an extractor, a polisher or two, and buy in bulk (gallons). You'll need to know what is legitiment for write-offs. My brother is an engineer (firefighter), and told me that some guys write off their gym memberships as a necessity for the job. His accountant told him that that is a red flag for the IRS. You can't write off, nor justify, every expense-these guys are stretching it a bit. Just be sure you stick to common detailing needs.



I would talk with an accountant, or business book keeper to get more advice and information.



Rob
 
I am going to quote from the 2005 U.S. Master Tax Guide, paragraph 1195:



"Losses incurred by individuals, S Corporations, partnerships, and estates and trusts that are attributable to an activity not engaged in for profit---so-called hobby losses---are generally deductible only to the extent of income produced by the activity (Code Sec. 183; Reg 1.183-1---Reg 1.183-4) "



Skipping on down in the same paragraph it says "The itemized deduction for hobby expenses to the extent of income derived from the activity is subject to the 2% floor on miscellaneous itemized deductions."



"An activity is presumed not to be a hobby if profits result in any three of five consecutive years ending with the tax year in question, unless the IRS proves otherwise."



I am an accountant but I don't do any individual tax returns other than my family and I am not qualified to give proper advice. However, I think it is pretty easy to see that there are not many scenarios where claiming deductions meeting all of the above criteria are likely to occur. IMO you are more likely to raise a red flag asking to be audited than you are likely to get any legal tax relief. I would tread lightly and be very careful who I listened to when it comes to the IRS.
 
Skipping on down in the same paragraph it says "The itemized deduction for hobby expenses to the extent of income derived from the activity is subject to the 2% floor on miscellaneous itemized deductions."



OutlawTitan, what does the above paragraph mean? Maybe when I do my taxes next year I need to start a business instead of doing it as a money making hobby. I will talk to my CPA about it. I just started detailing for money January 2005 so I don't have to worry about it this year. But I sure would like to know what that paragraph means especially the 2% part. Thanks, Wes
 
This is exactly the kind of thing I was hoping to find out guys so thanx a heap for the input.



I'm a little in the fog about what OutlawTitan is saying much like Fryebaby is :confused: Could we possible get you to clarify the "legaleeze" for us Titan?



I had heard about the money-making hobby deal also but I am wondering, beyond the write offs for equipment, expenses, etc. what happens if you actually make money at your hobby? I.e., no loss but actual gain? Do you then have to declare that as income like Mosca is suggesting and pay taxes against it???



The more I think about this, the more I think I'd just like it to just be a "cash and carry" kind of thing . . . nobody knows, nobody gets hurt. ;)
 
Taxes are a difficult thing to learn. I'm actually about to start taking a class on it later this year. I do remember though my aunts old landlord would have everyone write the rents checks as "money due" instead of rent so she didn't have to pay taxes for it, so quite a bit of this sounds easy but is actually hard. The whole thing is pretty confusing sometimes. :nixweiss Oh, and great thread, I'm sure that lots of people on here have wondered about this subject.
 
Here is the deal on the 2% rule.



Your itemized miscellaneous deduction (your hobby related expenses) must exceed 2% of your adjusted gross income on line 36 of Form 1040.



If your adjusted gross income is $50,000 then your hobby related expenses that you could claim on your return as micellaneous itemized deductions would be only those expenses OVER $1,000 (50,000*.02=1,000). If you are not itemizing on your return then none of this is applicable.
 
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