Ways to write off scuba trip as business expense?

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If you earn points legitimately from a legitimate business expense and use the points to pay for a business expense, you do not need to count them. If, however, you earn the points as a business expense and then choose to use them on your vacation, you must count them as income. Let's say your business buys you a car to use on business. And let's say you do so. You have to separate business miles from personal miles and then count the personal miles as income as you would if you had a personal car you used for business.

Thank you. I'm all for taking all of my deductions as long as they are legitimate but I prefer to be pretty danged sure that they are before I take them. I've known people that were so afraid of the IRS that they didn't take deductions that they had coming. If I ever do get audited I want to be able to look them in the eye and have evidence that I at least thought it was OK. I've had both the California SBE and the IRS say that I owed them money (in letters, not audits) and I always wriggled my way out of it. So far. Sometimes I think they just send out tax bills to see if someone will pay it without questioning it. At this point I believe that as long as you are running a legitimate, legal business and make every effort to abide by the tax laws then you shouldn't have very much to worry about. There are so many deductions that are allowed that sometimes you have to be careful not to take too many so it won't look like you are operating at a loss. I can hardly believe that they allow us to have a LLC and that it's legal to register it in another state. If I understand correctly (Wookie) then using the points would be just like any other income in a LLC--you don't pay income taxes on it until you use it as income.

Meanwhile, I'm off to Hawai'i to look at some vacation rentals and sell Chinese wetsuits to the dive shops. Just kidding. Airfare is too high right now and I have not yet formed my LLC in Montana. But I'll bet there is a way to do rentals and sell dive gear in the same business. I'll have to ponder that one.
 
Lots of good feedback here and it mostly hinges on the concept of "do you have a (real) business?". Once that is answered the next question is "is this a real business expense for your business?".

Well maybe the first question is: "are you willing to risk trying to fool the IRS (CRA in Canada)?" Or are you just looking to minimize your tax as you are legally entitled to do? I am very happy to legally avoid tax.

In my world the CRA is very vague about providing examples of valid business expenses (hence the advice to consult a tax expert). They have the "rules" (that are very obtuse). They also have "interpretation bulletins" (that are just as obtuse). This one should help to put you to sleep: ARCHIVED - Interest on debts owing to specified non-residents (Thin Capitalization)

If you do have a business and can incur a real business expense, one thing to remember is that there are no rules about "good businessmen" vs "bad businessmen". A $50 hammer vs $500 hammer. If you are a carpenter both are valid claims. A $500 hammer is stupid, not illegal.

The other grey area is on "shared use" expenses. The example provided in a post above of doing a charity trip raises the question of how much was charity vs how much was pleasure (personal). The tax guys are very clear that they like to prorate expenses based upon business vs personal use. I have a similar issue with claiming a home office in my house. My home office room has no personal contents. It is used solely used for business purposes, nothing else. If I am not working I am not in that room. No big screen tv, no couch, no storage of dive gear in the empty closest. It is 100% business.
 
Im in construction and once built a house fro a tax inspector - had some great dicussions but to give s few insights he said that when comparing a business they take 20-30 similar business and break down the expenses and incomes into categories as long as you inc/exp fall in a mean range then no problem if an expense falls out of that range they look closer.
The first thing they do if they want to check on you is to get to your home - they will call you to make an appointment, to see you and offer to come to your place after hours ( because they appreciate your so busy) the SOLE purpose is to do a visual check of your assets and standard of living

then they break down month by month and check your income/expenses to check your cashflow to see if its realistic and liveable if not they'll want to know how you survived - dont tell them you sold stuff on eBay - they have meticulous records of that too

as Giffenk said they make rules but the last word is on them and is based on intent e.g.i started a dive business and bought all this gear but it didn't go well now i have all this gear - as long as you've advertised and taken few clients out then it can be argued of your intent but if you've done nothing to build your business then its obvious your trying a scam

travel around the country diving and organise with a few dive clubs to give a free lecture along the way - it all about promoting your business
my business used to sponsor motorcycle races - I bought trophies paid for printing programs all with my name on but of course i also bought mortorcyle parts to keep my bike ruining and maintain a presence a the track- its adverting /sponsorship the issue of my bike parts being way more than the sponsorship was just bad business model by me :)
 
Yep. As I see it, trying in good faith to make a profit takes much of the fun out of whatever you're doing. There's an adage along the lines of "the best way to ruin the fun of a hobby is to try to turn it into a business."

Yep, there's that way too often way too valid thought...
 
Wokie, Bob, All:
Read a your replies. Really great place this forum and all of you. Petering out a bit, need to catch some Zs...

Thus the generic thanks to all. Really, thanks!

Not completely uninitiated to the topic, yet quite clueless... While I just work for a living, my wife, the smart one, has her own travel business. Nothing to do with diving (she's quite scared of depth but working on it). I am sure if she was a diver (seems hopless, but keep trying and hoping...) she'd be an expert on that sort of thing in no time. Anyway got a couple more years I must work, probably a few more that I really should work fulltime... unless I smarten up in the meantime... so it's time to start thinking... Maybe....

Jeez, what's up with this diving stuff... I had not much of a problem going for a decade, trice without enjoying the ocean. Ever since the short period of time I started diving the darn seas are taking over my head and won't let up ...

and an admission that yeah I did sneak a cheap snarky sideshot at wondering about the motivations of the main person in the thread I linked to in the OP. Not proud of it...
 
Frank-
Not lore, but advice from a long time (now long retired) IRS agent, confirmed by a second one co-incidentally some years later, as to what their policies were. Not a hard rule, but a definite policy. One of these guys was an agent in charge of doing "sniff tests" on various small businesses and validating their claims and figures Both said, this was their rule of thumb: Show a profit in 3 years out of 5, or have a damned good reason not to have a profit, and a second reason showing that this was an actual business, i.e. your means of earning a living not just something you did on sunny weekends.
The IRS, and many tax departments at lower levels, do many things by "policy", not by formal rule and regulation. For instance, James mentions using credit card points. The IRS "policy" is to simply ignore credit card points in ordinary use, because trying to account for them can be a lot of accounting with little to be shown in the end. Odds are if someone is cheating on points (and who doesn't) then there's something bigger that they can be caught on.
Sometimes people think they are clever with taxes. Agent #2 caught a corner fruit store because he knew that they (like many big city fruit stores) were a cash business, sold every 3-5 years to a new crop of immigrants. He'd done an audit on the same store when the previous owners had it, and something about the receipts from the new owners just irked him. So he looked up the last audit records (still on file) and found that receipts for major equipment, like the cooler rooms, were in fact just photocopies of the ones the last owners had submitted. Busted, big time.
Or the local deli owner who paid ten grand (then a big amount) for his new car, explaining the cash was because every 5th sandwich he sold at lunch went under the table. (The cash, not the food.) Agent #1 said that really wouldn't help if he was audited, because the IRS would literally send an agent in every day for a week to buy lunch "for the office" and they would literally count every slice of meat, every pickle, napkin, foil wrapper, slice of tomato, slice of bread, and calculate how much of each item the shop really was using. Then they'd look at their purchase expenses, and inevitably the ratio of napkins to pickles, or bread slices to meat slices, would be off, even allowing for spoilage and mice, because the guy was deducting all of the purchases--but not showing the income from them. And they'd busted many shops exactly that way before.
Rule? Regulation? Nope. Just policy and procedure. The "3 out of 5" policy would be an easy one to simply program into the top-secret algorithm that the IRS uses to kick out returns for examination and audit. If that's all it is--it still is an extra way to get red-flagged.
Like all the folks who had their paychecks or receivables sent to an offshore bank account, and used an offshore credit card to spend that money, saying "There's no paper trail in the US, the IRS will never find out" until the IRS forced a deal to access those offshore records. Oopsie.
They can be persistent folks. Sometimes stubborn and wrong-minded, but always persistent.

So, write-offs that sound like vacations on a Schedule C? Red flag, unless you're in a "vacation" business.
 
I believe you. But I'd be shocked if the IRS could care about skimming cash off of a sandwich shop. Maybe I'm naive. I was looking at buying a business the other day, so I was googling how much the average small business was worth. A mostly cash business was worth more than a retail store where credit cards were taken because of the amount you could skim. Maybe stealing from the government is big business. The defense contractors don't seem to have a problem with it.
 
I believe you. But I'd be shocked if the IRS could care about skimming cash off of a sandwich shop. Maybe I'm naive. I was looking at buying a business the other day, so I was googling how much the average small business was worth. A mostly cash business was worth more than a retail store where credit cards were taken because of the amount you could skim. Maybe stealing from the government is big business. The defense contractors don't seem to have a problem with it.
dont underestimate the tax mans attention to detail- I kew a bricklayer who had an audit and had done some cash jobs - they broke it down month by month and showed him he didn't have enough to live on in a few months, he told them hed sold stuff through newspaper adverts. they asked him to come in for an interview at the tax dept and when he went in they had ALL the newspapers of those months spread out on tables and they asked him to point out his adverts
 

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