New Instructor and Taxes

[scubanerdnick]

Greetings. I'm finishing up my IE this weekend and will begin picking up work for a shop as an instructor. I was previously a DM with the same shop and insured under the shops insurance. So my question to anyone familiar with this type of situation is are there any new tax considerations that I can use to defray costs of being an instructor. Like many people this is not a full time job for me, part time only. Any professionals out there who can shed some light on this?


If this is covered elsewhere in the pages of these boards please forgive me and point me to the topic. The search function up above is a little lacking and I wasn't able to find anything answering my question. Thanks in advance.

 

[archer1960]

I see you're in the US, so it's probably somewhat similar to my side job refereeing soccer games. I fill out a Form C on my income tax, and am able to deduct my costs (mileage, uniforms, meals, etc) from my income, and only pay taxes on the difference. You do have to document your costs, but that's not difficult, and definitely pays off.

 

[genxweb]

With my shop I am considered a independent contractor so I get a 1099 from them and use a Form C to do the rest. When I first became an instructor I claimed all the training, travel, food, gear that I had incurred from the IE process. Though you also have to make money I believe that year doing instruction to be able to claim the items. Remember in the US though you can only show a loss for three years before the IRS considers your side job a hobby and not a job. So make sure to keep a good tack of money in and out.

 

[Lorenzoid]

. . . The search function up above is a little lacking and I wasn't able to find anything answering my question. Thanks in advance.

Google is better than the Search function of boards like this one. Try something like this:

site:scubaboard.com instructor tax deduction

I see several threads on this topic.

 

[RJP]

Any professionals out there who can shed some light on this?

Yup. They're called ACCOUNTANTS.



Seriously.

---------- Post added August 20th, 2015 at 12:15 PM ----------

Remember in the US though you can only show a loss for three years before the IRS considers your side job a hobby and not a job.

It's innacuracies like this that underscore the need to talk to an accountant.

There's nothing about "only showing a loss for three years" in the tax code. You've not only missread the wording, but completely misinterpreted the "Hobby Loss Rule."

Here's what it actually says in the section that refers to "three years" >>

"An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year."

What that means is that if you show a profit in three of the past five years, your activity qualifies as a business. Full stop. No questions asked. Showing profit in 3 of 5 years is an affirmative test.

However it is NOT a negative test, meaning that the opposite is NOT necessarily true: an activity that has NOT shown profit in three of the last five years is not automatically EXCLUDED from being considered a business. There are other considerations:

• Does the time and effort put into the activity indicate an intention to make a profit?
• Do you depend on income from the activity?
• If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
• Have you changed methods of operation to improve profitability?
• Do you have the knowledge needed to carry on the activity as a successful business?
• Have you made a profit in similar activities in the past?
• Does the activity make a profit in some years?
• Do you expect to make a profit in the future from the appreciation of assets used in the activity?

The question comes down to whether you are TRYING to generate profit.

You need to be a "For Profit Endeavor" to deduct your expenses --- but you don't actually need to be successful in generating a profit in order to do so.

Is Your Hobby a For-Profit Endeavor?

 

[Lorenzoid]

Bottom line is that if year after year you plow more money into the endeavor than you earn from it, the IRS is going to question those deductions. You don't want to find yourself the target of an IRS audit and having to defend yourself by proving the kinds of things in Ray's bullet points above.

 

[RJP]

Bottom line is that if year after year you plow more money into the endeavor than you earn from it, the IRS is going to question those deductions.

They're not the only people who should be questioning those expenditures.

 

[captio2000]

You should talk to your accountant. However, most DMs and Instructors I know likely would show a loss at the end of the year due to expenses and equipment purchases. In this case the IRS will likely consider your activity a hobby rather than a business and would not let you write off any diving loss against income from other sources (like a day job). Most of the folks I know don't make a living diving they do it because they love it.

 

[TMHeimer]

There is a thread or two in this forum with lots of info./advice (you may just have to scroll through all the past threads). From what I recall, it is a consensus about needing to make more than you deduct--the hobby vs. work thing. As well, I am fairly sure you can't use any scuba deductions against $ earned from your "day" job. I keep track of expenditures, gas mileage, etc. and send it all to my guy. Not sure what he does with it on my Canadian taxes.

 

[RJP]

There is a thread or two in this forum with lots of info./advice (you may just have to scroll through all the past threads). From what I recall, it is a consensus about needing to make more than you deduct--the hobby vs. work thing. As well, I am fairly sure you can't use any scuba deductions against $ earned from your "day" job. I keep track of expenditures, gas mileage, etc. and send it all to my guy. Not sure what he does with it on my Canadian taxes.

Again, this underscores the need to talk to an accountant.

It's bad enough when someone suggest that there's a consensus about SCUBA stuff on ScubaBoard - fins, BCD, etc - but to offer that "there's a consensus" about taxes, much less that someone should follow that advice, is really stretching the bounds of credulity.