Tax exempt gear purchases for the "hobbyist"???

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Cheeto
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2009/03/12 07:06:04 (permalink)

Tax exempt gear purchases for the "hobbyist"???

ORIGINAL:MemphisJo:

Even if you are a hobbyist I recommend that get a business license and set up a small business, all your gear will be much cheaper....


ORIGINAL Cheeto:

Really? Could you expand on how that is possible in the hobbyist sense?


ORIGINAL: CJaysMusic:

Cheeto, you incorporate yourself and then you apply for a business licence with the state you live in. Then for the next 3 years 93 years is the limit to claim losses) you can claim all you overhead as loses...LOL and all your equipment is tax deductible. Even stuff you bought before you became incorporated.


CJ, I was asking the question in the “hobbyist” sense, not the professional. In the professional situation what you and MemphisJo makes perfect sense. However your equipment is treated not as a loss, rather a business expense that offsets net revenue and thus taxable income. A company as such still has to pay for expenses up front and must have all receipts to prove such if it came down to being audited. Now if a company is operating ”in the red” then their taxable income is effectively going to be $0.00. Taxable income can’t be a negative figure, and the government is not going to send a tax refund to an upside down entity. So this does not equate to gear being discounted in any way. For a professional business turning a profit, then yes I agree with what you said.

So when I think of the “hobbyist” odds the average person isn’t making dime one from their music. If they are (such as playing a bar gig or selling some cd’s on the side) hopefully they are wise enough to deal in cash so as not to have to declare petty amounts. So let’s continue the discussion keeping the “hobbyist’ frame of mind.

Ok, I can see incorporating on the basis of excluding one’s self of personal liability. However said person will now have to more than likely pay an attorney to setup the corporation for them, and then pay the nominal fee for the business license up front as well. Not to mention more than likely paying a CPA to do their corporate return, and the added cost of some form of insurance. This will all cost a significant chunk of change and would seem like an enormous hassle for a hobbyist, once again if the hobbyist is not making profit to at least offset all these startup fees we can forget about them saving even a penny on gear purchases. The net effect is quite the opposite and a gross waste of time and money.

Also, once anyone opens their door to the public and becomes a commercial operation, it’s really in their best interest to have some form of liability insurance or umbrella coverage otherwise all said business assets are at risk. Once a hobbyist accepts compensation for work done they can essentially be treated as a commercial venture, and if that work is being performed in a private residence where others are invited in, this can really open up a can of worms. Say some freak occurrence occurs on a homeowners property, like a band comes over to record and whilst unloading their equipment the drummer accidentally put their party van in reverse and runs over the singer seriously crippling him. Is the business insurance going to pay for that? Will your homeowners cover it? If the answer is no or only partially, you the homeowner may sued and could potentially loose everything you own.

ORIGINAL: MemphisJo

I think Cj covered it for ya... do some research on line as to how to set up a small business in your State / City. Just having a business license will save you sales tax on items purchased at Costco.


MJ, perhaps ya need to do your research and call Costco up and ask them what they need in order to complete a tax-exempt transaction at their store, I can guarantee you just having a business license is not enough

While I don’t claim to be a paid expert in this arena, you guys don’t give me the impression that you fully understand what it encompasses to do what you have stated or have not done so. Please, if you guys or anyone else can enlighten me in my misguided thinking here, it would be very welcomed.
#1

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    The Maillard Reaction
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/12 08:18:36 (permalink)
    For starters, business entities pay sales tax on items they are the end users of... paper clips, office paper etc.

    So there may less need to do paperwork at Costco than you are imagining.

    I don't think that was what was being suggested in the quotes you provided.


    best regards,
    mike


    #2
    CJaysMusic
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/12 08:25:29 (permalink)
    CJ, I was asking the question in the “hobbyist” sense, not the professional

    Im a hobbyist but in case the irs is reading im a professional...wink wink. After you incorporate yourself you automatically become a professional. The name professional means nothing. Its semantics
    Also, once anyone opens their door to the public and becomes a commercial operation,

    Dont open it.. You dont have to..just keep doing your hobbyist recording.... Ive said enough. There black helicopters hovering over my house now...Im going underground. Damn
    Cj

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    #3
    tarsier
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/12 10:29:20 (permalink)
    A friend of mine who is a video editor had both a business office and home office. He had all sorts of expensive video gear in both locations. He is a pro. He very legitimately deducted all the gear in his home as business expense. He got audited by the IRS. They felt differently about the gear in his home. They made him un-deduct it and thus pay a LOT more in taxes.

    I'm just saying, if you get audited, all bets are off.
    #4
    AT
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/12 10:48:22 (permalink)

    ORIGINAL: Cheeto

    Taxable income can’t be a negative figure, and the government is not going to send a tax refund to an upside down entity.


    This is no longer true, if you are too big to fail. I suggest taking out several hundred billions in loans and then apply for government money.

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    bapu
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/12 10:56:25 (permalink)
    Im a hobbyist but in case the irs is reading im a professional...


    I've got you over a barrel now CJ.

    Blackmail is illegal, but if you choose to make chariable donations to the Bapu Society on a consistant monthly basis......
    #6
    MemphisJo
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/13 00:05:33 (permalink)
    Again, I think Cj and Mike have covered it for ya...


    "MJ, perhaps ya need to do your research and call Costco up and ask them what they need in order to complete a tax-exempt transaction at their store, I can guarantee you just having a business license is not enough"

    I don't need to call Costco up, I have a Costco business card and when I check out I say it's for re sale... no tax charged, end of story. What we do after that is up to us (my wife is a CPA and corporate tax auditor).

    PS you can have a consultation if you want but she's not cheap... I can't afford her!
    post edited by MemphisJo - 2009/03/13 00:13:32

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    #7
    Guitarhacker
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/13 16:13:14 (permalink)
    Y'all are asking for trouble.... The IRS don't play...specially now with the need to collect more taxes....

    You can depreciate items used in a business, but you need to be making money some how....some way. You can have more expenses than income but you need to have the appearance of being in a business. You also have to show a profit..(even if it's only $1) every three or five years...I don't remember which or the biz gets relegated to "hobby" status and you can't deduct it.

    I run a business that supports me in decent fashion... Last year... my profit on my corporate forms was less than $5. My company pays out or spends every dollar it takes in... and yeas... that's totally legal. I also was in a band many years back that made really good money and we had to file returns. I deducted my equipment and depreciated the stuff to. It was a biz expense but I also had income to show that it was a business.

    If you're running a business from your home...yeah..all that stuff about incorporating and insurance is needed..... but to deduct your DAW and software and guitars.... you really need to have income to put on the forms too. If you have No income and lots of business expenses.... the IRS will audit you just as sure as the sun will rise tomorrow.

    Just my 2 cents.... slightly less than I earn.
    post edited by Guitarhacker - 2009/03/13 16:20:23

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    #8
    Cheeto
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/14 05:48:58 (permalink)

    ORIGINAL: CJaysMusic

    CJ, I was asking the question in the “hobbyist” sense, not the professional

    Im a hobbyist but in case the irs is reading im a professional...wink wink. After you incorporate yourself you automatically become a professional. The name professional means nothing. Its semantics
    Also, once anyone opens their door to the public and becomes a commercial operation,

    Dont open it.. You dont have to..just keep doing your hobbyist recording.... Ive said enough. There black helicopters hovering over my house now...Im going underground. Damn
    Cj



    Cj,

    I've got an idea for you. Here’s how you can make all your gear purchases 100% tax deductible. Since you’re well versed in computer recording and enjoy giving plentiful and helpful advice here on the forum why don’t you do this. Set yourself up as a sole-proprietor or S-corp subcontractor for some outfit (let’s use that Cake place as an example) and be hired on as a remote TS advisor. That way you’d get paid to do what you love, record tunes all day, and have legit tax deductible gear purchases! Wouldn’t that be a suhweeet gig? All perfectly legal in terms of the eye-R-ess too! Although if that happened, you’d of course lose your “hobbyist” status as a forum member. Alas, a small price to pay for being “paid”.

    And no need to worry about choppas being deployed.
    #9
    Cheeto
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/14 05:54:16 (permalink)

    ORIGINAL: tarsier

    A friend of mine who is a video editor had both a business office and home office. He had all sorts of expensive video gear in both locations. He is a pro. He very legitimately deducted all the gear in his home as business expense. He got audited by the IRS. They felt differently about the gear in his home. They made him un-deduct it and thus pay a LOT more in taxes.

    I'm just saying, if you get audited, all bets are off.


    Tarsier, Now that’s an upsetting and unfortunate situation. In your example, here’s a working fella going by the book, and then gets the book thrown at em’! At the very least he as a working professional should be able deduct for a dedicated studio/office space based on square footage vs. overall rent/mortgage. However, it becomes an iffy “gray area” when one tries to prove that all said expenses are strictly for business and not personal use. Goes to show even the legitimate guy can be “rooked”. Thanks for your input, and words to the wise. In lieu of this, I must now retract my previous advice to CJ. (don’t do it CJ, remember choppas! )
    #10
    Cheeto
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/14 05:58:56 (permalink)

    ORIGINAL: MemphisJo

    Again, I think Cj and Mike have covered it for ya...


    "MJ, perhaps ya need to do your research and call Costco up and ask them what they need in order to complete a tax-exempt transaction at their store, I can guarantee you just having a business license is not enough"

    I don't need to call Costco up, I have a Costco business card and when I check out I say it's for re sale... no tax charged, end of story. What we do after that is up to us (my wife is a CPA and corporate tax auditor).

    PS you can have a consultation if you want but she's not cheap... I can't afford her!


    So, in other words ya wife is unavailable for comment....even for a few simple questions?…Ok I see, she wants a consulting fee…will she accept a 3rd party personal checque?
    #11
    Cheeto
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/14 06:07:28 (permalink)
    Guitarhacker, I applaud you for shedding some light on this Pyrite of a thread. You are very wise with the advice you have given. I agree, if anyone thinks that they can offset income with a hobby taxwise, they are more than likely headed towards a world of hurt in the future. Some may still do so and never be caught, but if they are caught Uncle Sam will make you pay it back, and with interest to boot! The only point I slightly differ on is this. If one’s services are e-based and behind closed doors, being a sole proprietor may do the trick unless a S-Corp would provide beneficial tax benefits over the former. Also, liability insurance is probably not necessary at all, but some form of property insurance should be definitely considered.
    #12
    spacey
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/14 08:19:01 (permalink)
    As long as I have at least 2 cells of gray matter bumping into each other I will never be heard saying " I followed financial advice I got from an on-line music forum".
    If it were not for the fact that I laughed so hard my eyes wet so bad I couldn't type, especially after " I applaud you for shedding some light" I would consider this thread the most worthless I've ever read.

    It sure is funny sh** though.



    #13
    bapu
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/14 12:09:10 (permalink)

    ORIGINAL: spacey

    As long as I have at least 2 cells of gray matter bumping into each other I will never be heard saying " I followed financial advice I got from an on-line music forum".
    If it were not for the fact that I laughed so hard my eyes wet so bad I couldn't type, especially after " I applaud you for shedding some light" I would consider this thread the most worthless I've ever read.

    It sure is funny sh** though.






    So then what is your advice about my 401K?
    #14
    spacey
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/14 13:00:03 (permalink)

    ORIGINAL: bapu


    ORIGINAL: spacey

    As long as I have at least 2 cells of gray matter bumping into each other I will never be heard saying " I followed financial advice I got from an on-line music forum".
    If it were not for the fact that I laughed so hard my eyes wet so bad I couldn't type, especially after " I applaud you for shedding some light" I would consider this thread the most worthless I've ever read.

    It sure is funny sh** though.






    So then what is your advice about my 401K?



    LOL Bapu...if you still have one you don't need advice! I like to fish too Bapu. Very nice Crappie and Bass just down the road. You ever down south in my neck of woods we'll throw a line. And you know there's a fine line between fishing and just sittin' on the bank.
    #15
    Guitarhacker
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/14 17:35:32 (permalink)
    The only point I slightly differ on is this. If one’s services are e-based and behind closed doors, being a sole proprietor may do the trick unless a S-Corp would provide beneficial tax benefits over the former.


    sole prop is cool... much easier to do the taxes since it is treated on your personal tax schedules.

    A corp (S or C) is a legal entity designed to protect you...the "owners" from civil lawsuits and such. An e-biz might not need that protection... but in today's "I'll sue you cause I did something stupid" world... that legal protection is worth it.

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    #16
    pistolpete
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/14 17:40:29 (permalink)
    Buy your stuff online where possible to avoid local sales tax.
    Hire a tax accountant to deal with the other stuff.
    Simple.
    #17
    Fog
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/15 09:14:06 (permalink)
    here's an oldie but a goodie and there have been plenty more over the years.

    http://www.independent.co.uk/news/sting-failed-to-notice-pounds-6m-was-missing-1602237.html

    maybe it was lost down the back of the sofa

    #18
    F@KKER
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/15 11:50:51 (permalink)

    ORIGINAL: CJaysMusic

    ... The name professional means nothing. Its semantics...

    ...lately, so is "Producer"...

    F@KKER

    Someone said:
    I've had more time to play with this, and am withdrawing the bug remarks.
    This appears to work as designed and is actually a pretty cool feature.
    #19
    Fog
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/15 13:31:45 (permalink)
    F@KKER,

    I think that's always been the case.. I used to sit in with a friend who used to engineer others work. Ok so it's using samplers but no different..

    the other guys contribution to doing the tune.... working on a crossword.

    #20
    Cheeto
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/16 03:33:30 (permalink)
    ORIGINAL: spacey


    ORIGINAL: bapu


    ORIGINAL: spacey

    As long as I have at least 2 cells of gray matter bumping into each other I will never be heard saying " I followed financial advice I got from an on-line music forum".
    If it were not for the fact that I laughed so hard my eyes wet so bad I couldn't type, especially after " I applaud you for shedding some light" I would consider this thread the most worthless I've ever read.

    It sure is funny sh** though.








    So then what is your advice about my 401K?



    LOL Bapu...if you still have one you don't need advice! I like to fish too Bapu. Very nice Crappie and Bass just down the road. You ever down south in my neck of woods we'll throw a line. And you know there's a fine line between fishing and just sittin' on the bank.


    Yeah, I’ll agree the whole topic is a rather bogus venture. I guess both of you missed some of my subtle notions intertwined with directness. But most worthless thread? On the contrary, at least it is something music related and there are few contributors here who have shared some on point advice. However I’m pretty certain there are a couple “other” peeps who regularly contribute and/or initiate much, much more trivial thread topics than this.

    And funny you guys should mention fishing. You know I really like that book “Old Man and the Sea”. Makes you wonder who actually is the fish and who is the fisherman. Such a wonderful read. Nothing like words bringing a tear to your eye. Can I offer you a Hankey, Mr.?

    post edited by Cheeto - 2009/03/16 03:48:26
    #21
    spacey
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/16 10:24:13 (permalink)
    Your right it's not worthless.





    post edited by spacey - 2009/03/16 13:26:56
    #22
    Cheeto
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/17 07:21:09 (permalink)
    #23
    space_cowboy
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    RE: Tax exempt gear purchases for the "hobbyist"??? 2009/03/17 09:39:47 (permalink)
    I make enough from my gear to have a tax id. Since I already pay too much taxes, I take advantage of the law.


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