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Spencermm
March 29th, 2008, 02:50 PM
Given my ignorance of taxes, coupled with my relative ignorance of diving, these may be stupid questions:
1. If you become a dive master, can you write gear off on your taxes?
2. WHat if you are a working DM, but not making any money at it- volunteering?
3. Other than owning a business, is there any way to write gear off?
Thanks for any input,
Spencer

RAWalker
March 29th, 2008, 03:25 PM
I asked this of my accountant just this year since I've decided I want to progress to DM.
The answer I was given is that once you attain professional status and show an income from it you can write off your training and equipment.
If you are required to have your own gear for work that's a write off as long as gear isn't provided for you at no cost to you. If to conduct your business you need gear to lend or rent clients then you could also write it off or depresiate it.
As a DM you are probably going to be considered a independant contractor working for a shop. (unless you get a regular full time wage with benefits) This for all intents and purposes is self employment and allows you to file as such.

NancyLynn
March 29th, 2008, 03:54 PM
I asked this of my accountant just this year since I've decided I want to progress to DM.
The answer I was given is that once you attain professional status and show an income from it you can write off your training and equipment.
If you are required to have your own gear for work that's a write off as long as gear isn't provided for you at no cost to you. If to conduct your business you need gear to lend or rent clients then you could also write it off or depresiate it.
As a DM you are probably going to be considered a independant contractor working for a shop. (unless you get a regular full time wage with benefits) This for all intents and purposes is self employment and allows you to file as such.

As a generalization, that's close enough. Find an enrolled agent or an accountant who specializes in taxes to help you (or take an H&R Block tax course* - the full blown basic preparation class will answer most of your questions, used to be extremely good, and is deductible if you itemize).

There are advantages and disadvantages to writing gear off v. depreciating it (in most cases you can't just deduct it from income without potential consequences down the road). When you can start treating costs as business expenses isn't quite a simple as when you start having income.

*Disclaimer - at the time when I was a stay at home mom in the early 90s, I both took and taught H&R Block classes. Their introductory through intermediate classes are excellent. Beyond that, not enough people take them on a regular basis to work out all the kinks. Now, if you want to know what I think about working there . . . that's a more complex story.

Tom Winters
March 29th, 2008, 04:20 PM
Spencermm, if you look remotely like your avatar, don't ever worry about your taxes, or anything else for that matter. If you ever run afoul of any legal authorities, be it IRS, Texas Rangers, whomever - you have nothing to fear. Before any hearing, just watch Slingblade at least three times to get it right in your head.
The magistrate/hearing officer/hanging judge - whatever they throw at you is going to have something to eat on his desk. It may be food, it may be erasers, but whatever it is, while they're getting ready to do whatever after a fair trial, just point at those objects, and in your best BillyBob intone, "You gonna eat all them biscuits?" and then ask for some mustard.
You'll walk every time, although you might up with a lot of extra thorazine.
By the way, the writeoffs on single sets of DM gear are not worth the effort of tax computation. When I dived for a living, I had a zillion other expenses to deduct to make gear depreciation worth the trouble.

Spencermm
March 29th, 2008, 05:05 PM
Too funny Dude :)


Spencermm, if you look remotely like your avatar, don't ever worry about your taxes, or anything else for that matter. If you ever run afoul of any legal authorities, be it IRS, Texas Rangers, whomever - you have nothing to fear. Before any hearing, just watch Slingblade at least three times to get it right in your head.
The magistrate/hearing officer/hanging judge - whatever they throw at you is going to have something to eat on his desk. It may be food, it may be erasers, but whatever it is, while they're getting ready to do whatever after a fair trial, just point at those objects, and in your best BillyBob intone, "You gonna eat all them biscuits?" and then ask for some mustard.
You'll walk every time, although you might up with a lot of extra thorazine.
By the way, the writeoffs on single sets of DM gear are not worth the effort of tax computation. When I dived for a living, I had a zillion other expenses to deduct to make gear depreciation worth the trouble.

fisherdvm
March 29th, 2008, 05:15 PM
I think you have to be careful of an audit. From what I understand, expenses in EXCEED of your income can not be written off. So you actually have to make more money than you spend on your "hobby" profession.

I guess that means you must pay some tax on that income, otherwise it is considered to be a hobby. So you need to write off just a little less than what you earned as a divemaster.

BUTTTTT ..... If you can incorporate that hobby into your primary profession.... Maybe you can write it off as advertising? I am planning to silk screen my business logo on my wetsuit, scuba tank, and fins.... Advertising to potential clients at the dive site.

Jim Lapenta
March 29th, 2008, 05:35 PM
I take a depreciation on my gear. Deduct courses I take, mileage to and from dive sites, training areas(pool), office expenses, and alot of other little stuff. I also declare as income, discounts I get for being a pro, air fills that I don't pay for but are needed to do the job, any tips, and services I receive. Now being that I don't do this for a living I have a window to try and show a profit (believe it's 5 yrs). Even then as long as I'm operating with the intention of making a profit I'm generally good since I have two other jobs to pay the bills. I'm allowed to put some of that into my business to support it and keep it afloat. Face it not alot of independent DM's or Instructors make a living at this. But we do try. Small businesses right now if you are willing to do the research and find them get alot of support and breaks. I'm also looking into some other areas of resources such as grants and the like for when I actually get my OWSI in a month or so. The thing again is to genuinely try to make a success of it and show that through good records. If you can back up on paper what you are trying to do then it's most likely you'll not encounter problems. And I'd also advise getting a good tax person who knows the rules and backs up their work with a guarantee. If the crap does come down they share some of the burden.

ianr33
March 29th, 2008, 06:12 PM
This comes under the "Hobby Loss" rules. Basically if you make a profit 3 years out of 5 you are in the clear.Lose money more often than that and you will be O.K. IF you can prove that you are trying to make money

<<There are two ways to avoid the hobby loss rules. The first way is to show a profit in at least three out of five consecutive years (two out of seven years for breeding, training, showing, or racing horses). The second way is to run the venture in such a way as to show that you intend to turn it into a profit-maker, rather than operate it as a mere hobby. The IRS regs themselves say that the hobby loss rules won't apply if the facts and circumstances show that you have a profit-making objective.>>
From Hobby Loss Rules (http://www.irs-tax-debt-relief-offer-in-compromise.com/hobby_loss_rules.htm)

The way I would approach it would be to spend a ton of money in the first 2 years,including taking instructor courses then realise it is not a going business and close it down (at least for tax purposes)

ronbeau
March 29th, 2008, 08:04 PM
I asked this of my accountant just this year since I've decided I want to progress to DM.
The answer I was given is that once you attain professional status and show an income from it you can write off your training and equipment.
If you are required to have your own gear for work that's a write off as long as gear isn't provided for you at no cost to you. If to conduct your business you need gear to lend or rent clients then you could also write it off or depreciate it.
As a DM you are probably going to be considered a independent contractor working for a shop. (unless you get a regular full time wage with benefits) This for all intents and purposes is self employment and allows you to file as such.

The IRS has very tight rules on who can and cannot be considered an independent contractor.

Also, the IRS tends to want you to prove an intent to make a profit. Absent that proof the IRS might consider any income from working a a DM "hobby income". I believe that you can only write off expenses up the the amount of your "hobby income".

You should probably consult with a qualified tax professional prior to deciding to write off your dive equipment and other expenses. As another forum member mentioned there a a difference between deducting the equipment as an expense versus depreciating it.

I am not a tax professional and I did not stay at Holiday Inn Express last night:rofl3:.

RAWalker
March 29th, 2008, 08:13 PM
The way I would approach it would be to spend a ton of money in the first 2 years,including taking instructor courses then realise it is not a going business and close it down (at least for tax purposes)
Unless what you want is to truely end up diving for a living. The above is the way to go. Basically you are investing in your business with intent to grow the business but then realize for whatever reason the business isn't for you. The business dissolves and the equipment doesn't go anywhere. there really isn't anything that the IRS has to say about it. Just make sure the business doesn't have any bills to pay at the end or it can get much more complicated.

Garrobo
March 29th, 2008, 09:43 PM
I would think that you would have to make at least 50% of your income to qualify your DM work as your primary income with the IRS. Then you would be able to claim expenses.

RAWalker
March 29th, 2008, 09:57 PM
I would think that you would have to make at least 50% of your income to qualify your DM work as your primary income with the IRS. Then you would be able to claim expenses.
There is no requirement for it to be your "primary income" for that matter the business doesn't need to show a profit just an income.

NancyLynn
March 29th, 2008, 10:09 PM
The IRS has very tight rules on who can and cannot be considered an independent contractor.

Actually quite a few people end acquiescing to treatment as independent contractors for tax purposes because their "employer" reported their "wages" on a 1099-MISC, rather than a W-2. The IRS loves it, since they have to pay double the social security taxes (both the employer and employee share). You can challenge it, but very few do since it means ratting out your "employer" and will likely mean the end of your "job."

As long as you don't go beyond the hobby test (showing a profit 3 out of 5 years) it is rarely challenged. Even if you go into the third year without a profit, your chances of being asked to explain increase, but even not having a profit in the third year can be permissible.

[QUOTE=Garrobo;3464585]I would think that you would have to make at least 50% of your income to qualify your DM work as your primary income with the IRS. Then you would be able to claim expenses.

There have been years I have filed multiple Schedule Cs - all for pitifully small amounts. Doesn't matter how much you make, only that you intend it to be a source of income rather than a hobby.

Peter Guy
March 30th, 2008, 11:59 AM
This is A key answer to the OP's question:
Doesn't matter how much you make, only that you intend it to be a source of income rather than a hobby.

The other key is -- How much "audit risk" are you willing to take? (As I wrote on another very similar thread....) there are two key issues when deciding what to deduct: a. Is there a "colorable claim" that the deduction is legit? and b. What are the odds I'll be audited?

To be a "colorable claim" there needs to be some relation between the claimed expense and your "activity." The idea is to make sure you are not taking a claim fraudulently which gets it out of the criminal side.

The other issue relates to how much risk are you willing to take? If memory serves me correctly, approximately 5% of the tax returns are audited -- about half of those are "special returns" meaning the high flyers who get audited every year. A significant number are people who have "abnormal" deductions (like 25 "dependents"). As I recall, only about 1% of all "normal" returns are audited -- and then not all of them are full audits. So, do you feel lucky? Well, do you?

Alex777
March 30th, 2008, 09:39 PM
What is this thing called "tax"? :D


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