Business expenses

[scubamickey]

I didn't know where to post this so here it is.

If you start a business to contract out your instructing services to a dive shop, realistically, how much do you write off on taxes? Further training is obvious, as is mileage, but what about dive trips and personal gear?
If you go on a trip to the Bahamas say-for either a training class or personal skills enhancement-can you write that off?

You can PM answers to me if you prefer. This is a serious question and I'm trying to make some decisions about starting a business. I will look into the relevant tax laws, but right now I just want to get a feel for what people are doing and what the industry in general does.

Thanks

 

[scubamickey]

Oh...I know I'm in the 50-100 dives category. Don't flame me. It's my husband who is considering the instructor track not me

 

[Jeff Toorish]

I will preface this by saying I am not an attorney, accountant or financial advisor. I'm certain someone with specific technical knowledge of those matters is a member of this board.

In the meantime, I can tell you a couple of things I know from running my own companies.

The first is, to deduct anything as a business expense, you have to be able to show that the business is real and is attempting to make a profit. As I understand it, the tax laws in the US are specifically designed so someone can't proclaim themselves to be a 'professional golfer' so they can deduct all their golf outings.

I would strongly suggest if your husband is going to to the professional route, then he should incorporate. An attorney or accountant can tell you the best type of corporation, but I believe incorporating makes a lot of sense.

If it is a true business, and incorporated, you can deduct pretty much anything related to the business. If you run it out of your house, you can deduct a portion of your home expenses (although be careful with that one, the IRS has very specific rules about home offices).

Without a doubt, others here will know more about this, but that may give you an idea.

My advice is to consult with a qualified professional.

Jeff

 

[Kev's First Mate]

I would highly suggest contacting a tax preparer and obtain first-hand information from them. The tax laws are always changing, and a tax preparer would be up-to-date on the new laws.

I would question the "personal skills enhancement." Personal gear? Only the portion directly attributable to the business use (%) is deductible. The portion (%) used for personal purposes is not deductible.

I agree with JToorish. Tax laws are designed so one can no deduct personal expenses for work purposes.

My suggestion? Consult a tax advisor.

 

[AndyNZ]

It's obviously going to be different in the US than here - but basically everything is tax deductible here. For example, I (as a business) rent out a house that I used to own (that I sold to the business) and I deduct all of my expenses against the income I receive, then take into account depreciation (in an inflationary market!) and the Inland Revenue ends up paying me about $7k a year even though I'm already making a profit month-on-month!

It's much the same with personal dive gear if you are an instructor. Just depreciate the lot each year, write it off after 2 or 3 years and shove it in a box. Four years later, sell it at trade price when the income will no longer mean you have to repay the depreciation amount and pocket the change.

Money for old rope!

 

[ProfessorAronnax]

I'm not an accountant but: If Dive Instructor is your primary full time profession, anything that involves that profession can be written off. e.g. if the gear is neccessary to do your job it's a write off, if you need to go to the Bahamas for training and your footing the bill you write off the whole trip-travel, lodging etc.

 

[matt_unique]

I explored two businesses this year. Part-time dive charter or captain for someone else. I opted to captain for someone else for a few reasons not related to the taxes (commercial boat insurance costs are huge - you need to be able to tranport a lot of divers at once to make it worth it and my boat does not have the capacity).

I spoke to a CPA first then I contacted the IRS directly. I would suggest you contact the IRS small business group directly. Get the name and ID of the rep you are speaking to and take careful notes. I made some common assumptions about the ability to write off all these expenses and it's not like you may think. If you have a regular full time job (which I assume would be the case for your husband) and if the equipment, costs, mileage, etc. can ALSO be used for non-business purposes, you have some real restrictions as to what you can deduct.

The tax laws are confusing....one section says you can do X but another section may contradict that a bit. It was much easier to get it clarified by the IRS agent. Just as one example in my case....I have a regular FT job but I work part-time as a passenger transport captain in Boston Harbor. I work in the evenings in some cases after my day job is done. Only the mileage and tolls from my primary job to Boston is deductible, NO portion of the mileage or tolls from Boston back home is deductible. When I work on a weekend day I cannot deduct ANY of the mileage or toll expenses to/from Boston and home. You would think you could deduct all of it for example but this is not the case.

Good luck with your research. You can get a good start by researching the IRS website.

--Matt

 

[HowardE]

I'm not an accountant but: If Dive Instructor is your primary full time profession, anything that involves that profession can be written off. e.g. if the gear is neccessary to do your job it's a write off, if you need to go to the Bahamas for training and your footing the bill you write off the whole trip-travel, lodging etc.

This is true...

Let me say that while I am not a tax professional either... I have been in business for myself for the past 20 years.

I was in the music business as well, and I KNOW that professional musicians write off instruments, equipment, travel expenses, and even clothing (if it's the clothes they wear on stage).

I write everything off that I think is possible, and then I have my CPA do my taxes at the end of the year. If I wrote off something that isn't deductable, he changes it for me...

I would say... Use Quickbooks, and write off as much as you can towards "business expenses" and have a CPA look over what you've done.

 

[Don Burke]

I didn't know where to post this so here it is.

If you start a business to contract out your instructing services to a dive shop, realistically, how much do you write off on taxes? Further training is obvious, as is mileage, but what about dive trips and personal gear?
If you go on a trip to the Bahamas say-for either a training class or personal skills enhancement-can you write that off?

You can PM answers to me if you prefer. This is a serious question and I'm trying to make some decisions about starting a business. I will look into the relevant tax laws, but right now I just want to get a feel for what people are doing and what the industry in general does.

Thanks

Generally speaking, at first you can write off legitimate business expenses against other income. After three years with no profit it would probably be classified as a hobby which would put you under different rules. The IRS also can determine it to be a hobby right out of the box.

If the IRS determines it is a hobby you can only write off expenses up to and including the earnings from the hobby. This is where most dive instructors in this area find themselves. At least they get a portion of their gear out of it.

Dive trips may not be deductable since there is a significant personal pleasure element. The rules for this can get pretty tricky.

The portion of personal gear that is used in the business or hobby should be deductable. For instance, if you use a $80 mask 50% for business, $40 would be the deduction.

Commuting mileage is not deductable. Dive trip mileage may be.

If you can keep it a business, there is also the possibility of taking depreciation on the gear, although that can get complex if you later close out the business and may not be worth it for a dive istructor.

The tax code for 2005 has not been fully published, so even if everything above is absolutely correct, you need to check it anyway.

 

[scubamickey]

Lots of good information. I will take a look at the IRS site and the relevant tax laws. This info gives me some idea of what to expect and look for, though.
Tax preparers are like dive computers. Only useful if you understand where the information is comg from and have a good idea of whether it's right or not. I don't even bother with them now. I will consult with a CPA after I do the research and go from there.

Thanks a bunch!