Diving and taxes (US taxes) questions

[Garrobo]

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]

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]

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.

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]

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]

What is this thing called "tax"?