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that will work until they start asking for receipts
not trying to be a **** but if you start logging 5-10k of scrap from the same yard and that yard gets audited, your name is one of the chosen 'people of interest', you will have a hard time selling that. and guess who loses?
Intellectual property has the shelf life of a banana - Bill Gates
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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.Originally Posted by metz12
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.
Scrapper, Scrap Yard Worker, Horse farm worker, Cooler Puller and just plain ''tired''
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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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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.)
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^^ Yeah, its all about the deductions.
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I deal with a bank who's website and mobile apps both have built in category budgeting. Meaning I can tag an expenditure as fuel...oil, etc. I use this pretty heavily. In addition I also track my vehicles with "Fuel Log" an app on android, do yourself a favor and buy the full version. It'll track fuel, miles, oil and maintenance. Last, because paypal is such a big part of my business model I print of a PDF statement that covers the entire year. Same with fleabay and other sites I use. All in all I'm hoping this year I can get all my income and deductions put together in a couple days.
New Attitude is right though, you DO have to show a profit of some kind when self employed as a business over time or expect an audit for sure.
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If you use the Straight Mileage Deduction ($.55ish) any vehicle repairs come out of that. If you want to deduct vehicle repairs you have to keep track of every little expense and report it.
For most the Mileage Deduction is easiest and for me make the most financial sense.
Recyclable Material Merchant Wholesaler
Certified Zip-Tie Mechanic
"Give them enough so they can do something with it, but not too much that they won't do nothing."
Metal Recycling Entrepreneur
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I've used the H&R tax software for the past 8 years or so, the last couple also including the cash flow in and out of my "micro" business. The H&R product worked slick and so far no question from big brother although my amounts are very low. Like P76 said, I catalog any money coming into the house from some sort of work or sale; scrapping, on-line sales, egg selling (wish I did better book keeping there), and trapping. Last year, my mileage ended up me going into the red so the "business" lost money.
If you have substantial cash flow coming in and/or its your main income source, yeah, I'd keep all receipts for everything and have a professional do the taxes. They have to stand beside you if you get audited.
And, like it was said, if you have some pretty good money coming in, filing quarterly isn't a bad idea. My bro who is a doctor got side ways with the IRS because the loser clinic who considered him an employee for management purposes considered him a "contractor" for tax purposes and didn't take out withholding and SS. It took him a couple of years to get current and only did so by filing quarterly. The clinic really screwed him over when he went off to Iraq and ended up taking 82 cents for every $1 he billed when he got back. He finally got sick of their slight of hand and split. His last monthly check as a full-time physician was $500 after what they pulled out of it. He started the process of suing them but they basically owned the small city where the clinic was located and no local attorney would really take it on. There wasn't enough money in the mix for a bigger out-of-towner lawyer to take it so bro and clinic parted company. Lets' just say the people who call the shots in that clinic aren't on bro's Christmas card list anymore...
Last edited by DakotaRog; 12-21-2014 at 09:13 PM.
Metal Recycling Entrepreneur
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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....
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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.
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