Deductability of expenses?

[jchull]

I know that there is not much money to be made assisting and instructing, but with the amount of money I am spending on classes and trips and equipment, it sure would be nice to deduct that from my income at tax time. I did a search and came up with nothing, so I am wondering at what point you can start taking deductions. I think that since all these classes are on the path to a "new career" or at least secondary income, that those expenses, as well as mileage for internship trips, assisting, food, lodging, etc... and equipment would be deductable. And if not now, then once a DM, AI?

 

[rawls]

jchull,

I deducted all of my dm training costs...equipment, books...Any cost I incurred directly involved in obtaining my certification was deducted. I discussed this with my CPA and he said these costs were deductible. I would suggest you get an accountant to prepare your statements. If you have an accountant saying they are not deductible then PM me...I will get you in touch with someone who can answer these questions....

 

[Oceanus]

Assuming this isn't your livelihood, it falls under "Hobby"

http://www.hrblock.com/taxes/tax_tips/deductions_credits/hobby_expenses.html

 

[webjr]

One other angle to consider.
If they're PADI courses (I'm not sure about the other agencys) they are ACE acredited. So they MAY be deductable as education expences like any other college class.
You'de probably need a tax lawyer to say for sure.

 

[The_DivePirate]

Also your milage. That is if you are claiming the income from the DM position. Sure wouldn't make sense not too claim a couple "k" if lucky, too deduct say 5-10 k in gear and training. Definately go to an accountant and talk with them.

Good luck
Dive safe/Train hard,
Joe

 

[Ber Rabbit]

My accountant said I don't make enough money teaching compared to my regular work income to justify claiming what I spend on dive related stuff. I don't remember exactly what he said but the words "hobby and profit" were two of the more important ones. We have complicated taxes as it is so I have to go with following his advice.
Ber :lilbunny:

 

[rawls]

Hobby Expenses


Expenses from an activity conducted as a business (that is, for profit) are deductible even if they exceed the income from the business. If the IRS determines that your activity is not for profit, you cannot deduct expenses in excess of your income, and you can deduct the expenses only if you itemize deductions. In addition, the expenses are treated as miscellaneous itemized deductions subject to the 2-percent floor.


If your activity shows a profit in at least three of the last five tax years, including the current year, the law assumes you're trying to make money. Fail the three-of-five-year test, however, and it is assumed the activity is not for profit (that is, a hobby).


Your year-end planning needs to consider both where you stand on the profit-or-loss front and how you're doing on the three-out-of-five-year test. If you need to show a profit this year to avoid having your activity branded a hobby, you may want to press for collection of any income you're due and put off paying expenses or buying new equipment until the new year.

This is the reference that Oceanus refers to...It is correct and the deductibility is premised on whether or not you plan to make money doing it. It also states that you only need to show a profit in three out of 5 years...However...You are, during your educational process, considered as pursuing a professional licensure whereby the expenses incurred during this time are deductible, as per my CPA. Once you are certified, you will fall under the three-of 5 year rules. This is where you will need to determine whether or not you are pusuing this as a hobby or a money making endeavour. I have heard that there are also means by which to get around this rule by setting yourself up as some kind of limited corporation although I have not discussed this with my accountant. You also have to be considered an independent contractor. If you are paid based on being considered an employee of the dive shop you are working for, these expenses will have to be itemized and you will have to meet the itemization rules in order to get any benefit from those expenses. Unlesss you have enough expenses to itemize you will find no benefit from deducting these expenses...

I want to qualify my statements by making it clear that I am not giving any advice on this matter. I am simply relaying what my accountant has told me...

 

[Jim Lapenta]

I was able to deduct the bulk of my costs this year and take a 5 yr depreciation on my equipment. So for another 4yrs I have a large chunk coming off in addition to any new equipment. I do however claim all income from my activities including income in the form of air fills, gear discounts, course discounts as once i take the course it enables me to better assist in teaching it. I'm also going to be deducting my intro to tech and heliotrox courses as continuing education towards a technical DM rating. I am affiliated with a shop and also take trips to verify ops to recommend to students and customers. These expenses are also deductible to a point. I also work as a personal care aide and have a full time "real job". This allows me to operate at a loss for the 3/5 rule and at some point I will be showing a small profit but still have enough deductions from my other work to offset this and not get hit badly. Evcen though I work with the shop and at it, I'm not considered an employee and therefore an independant and for tax purposes this is nice. Mileage to the pool and lake to assist is deductible. Lodging expenses also if needed. I do have to declare however the services I receive in exchange as income as I previously stated in the form of air fills, and discounts.

 

[jchull]

thanks for the replies, I'll check with a CPA

 

[Dive-aholic]

The 3/5 rule is not actually a rule. It was a ruling in a court case at one point and for some reason has come around to being referred to as a rule. The actual law can be interpreted that if you can show you have a legitimate business that is trying to make a profit, you don't necessarily have to ever make a profit. Of course, that would be difficult to prove. The bottom line is that you don't have to make a profit 3 out of 5 years. If your accountant is telling you this, get a new one.

To answer the OP, you cannot deduct expenses in getting training for a new career. So, if you are pursuing your DM, you're out of luck. Once you become a DM, you can begin deducting expenses related to DM'ing - gear purchases, con ed (like the IDC), etc. Travel to the LDS is not deductible. Travel to a dive site over a certain distance can be, as can be lodging, food, etc. Best to check with your accountant on those expenses, though.