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.
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