Paying taxes on scrapping

Originally Posted by newattitude

Keep track of your mileage also, you can deduct I think its .55 cents a mile now? Also any vehicle repairs. those 2 items help reduce your actual income and the tax amount you will owe.

I know the first year I scrapped I actually only ended up making $200.00 (after deductions) and didn't owe any taxes on it but it still had to be reported.

Another thing, when self emploeyed my tax person said you have to show a profit 3 out of 4 years. Not sure why. I think it has to do with business vs hobby tax rules or something.

New,

Very good advice! I'm going to clarify one thing.

From what I understand, the 3 out of 4 years is a little bit of a myth. Showing a profit 3 out of 4 years, clearly shows that you are doing this activity with a profit in mind. My understanding is that by showing 3 years of profit (out of 4),the IRS won't question if this is a business or a hobby. That doesn't mean that they won't question your income or expenses. Having multiple consective years of losses, does not automatically mean your a hobby as opposed to a business. Being a business (in IRS terms), means that you need to have a profit motive and be able to show that that is your goal and you are trying to work towards it. If I find the actual IRS regulation, I'll post a link.

Originally Posted by mthomasdev

New,

Very good advice! I'm going to clarify one thing.

From what I understand, the 3 out of 4 years is a little bit of a myth. Showing a profit 3 out of 4 years, clearly shows that you are doing this activity with a profit in mind. My understanding is that by showing 3 years of profit (out of 4),the IRS won't question if this is a business or a hobby. That doesn't mean that they won't question your income or expenses. Having multiple consective years of losses, does not automatically mean your a hobby as opposed to a business. Being a business (in IRS terms), means that you need to have a profit motive and be able to show that that is your goal and you are trying to work towards it. If I find the actual IRS regulation, I'll post a link.

Here is an IRS link about business vs. hobby:
Is Your Hobby a For-Profit Endeavor?

link to distinguish between business and hobby:
Income & Expenses

5 basic tax tips about hobbies:
Five Basic Tax Tips about Hobbies

Hope these help everyone.

Just a disclaimer, I am not a tax professional. I do however do my own taxes and these include my wifes business, my side business, rental property and other investments (stocks, etc.)

Originally Posted by mthomasdev

Here is an IRS link about business vs. hobby:
Is Your Hobby a For-Profit Endeavor?

link to distinguish between business and hobby:
Income & Expenses

5 basic tax tips about hobbies:
Five Basic Tax Tips about Hobbies

Hope these help everyone.

Just a disclaimer, I am not a tax professional. I do however do my own taxes and these include my wifes business, my side business, rental property and other investments (stocks, etc.)

That's good info right there.

That got me thinking then... If you're selling on Ebay, can you write off your Ebay and Paypal fees as expenses? Cause they just take and take and take....

Yes you can deduct your EBay and PayPal fees.

I am an accountant/banker in my "real" life. The tax code allows "any ordinary and necessary" expense to be deducted. It would be reasonable for me to drive to Ohio to sell electronic scrap but it wouldn't be reasonable for me to fly to China. However, someone who processes a large amount (think multiple containers per week) might find it necessary to fly to China to strike a deal with an end user. The answer to whether something is deductible is usually - "it depends". It depends on if you are actually treating the activity like a business, it depends on how you hold yourself out to the general public and it depends on how you keep your records.

So, if you treat this activity correctly, you can deduct any ordinary and necessary expense needed to help you increase your business.

Be reasonable! If you only sell $300 per month as scrap, is it reasonable for you, or could you prove that it would be ordinary and necessary to purchase a new skid steer loader?

Find a tax preparer that understands small businesses and how to work with you. Not all accountants or CPA's do. I have met many that feel everyone should pay as much tax as possible.