Thread: more tax questions about schedule c...

This is my first year filling out a schedule C.

Where do you put deductions for expenses like costuming, makeup, and workshop/class payments that you attended??

I couldn't figure out if costumes went under the same area as musical instruments would, or if they had to go under the depreciation section. As for workshops and classes, I just simply couldn't fathom where those will go.

I know it's early, but I'm trying to get my mind around it before I go & buy the turbo tax for this year & get started...anyone who's filed C before...help?? :-)

When I pull out my schedule C from last year (when i'm working on my taxes), I'll let you know how I accounted for those things. Most of them went in Other, as far as I can remember.

I put costumes in depreciation (cause lets face it, they do as we use them.) All other things I put in "Other"

Wrong and wrong. Can't write right now, will elaborate later...

Well, it depends how you're entering it. To write stuff here opens a flood of liability as well as the fact it's different for everyone's situation. Here's an open invitation to call me!

Because of the way a schedule C form is set up, there are items we use in our business (for example, perhaps costumes) that roll up into "Other". However, my accountant and I itemize categories within the "other" and then use those sub-categories consistently from year to year.

I don't really depreciate costumes typically. Have depreciated a couple of pieces of equipment that were for the business and over a certain dollar amount.

Thanks, ya'll. RaqOn, any chance you could pm me a phone number? I may just take you up on the phone call.

The schedule C is very vague for many people that need to file it. I use it as a skating coach and put just about all my expenses in "other". As long as it is itemized well on a sub-schedule (as Mirah mentioned) and then consistent from year to year it should not throw up any red flags to the IRS. Depreciating costumes or not is going to depend on your personal financial situation. You may want to spread the expense out over multiple years if you didn't have a good a year this year as you may plan to have next year or you may want the large expense to offset large income in the year. Depreciating will add more accounting paperwork since you have to keep track of it annually. Also if you should sell a costume before it is depreciated there is a little be more to reporting the income from it. As for other expenses make sure they are completely business related or only deduct a portion of it and have some sort of reasoning behind that poportion. The biggest thing that can throw up a red flag to the IRS is this truly a business or a hobby that occasionally pays you. The difference between the two for 1040 filing is very different.

Sorry my answer got a little long winded, I'm a CPA and we can get that way occasionally. ;-)

Originally Posted by VegaDancer

The biggest thing that can throw up a red flag to the IRS is this truly a business or a hobby that occasionally pays you. The difference between the two for 1040 filing is very different.

I was told that you can only report a loss for 5 years before the IRS considers your business to be a hobby. Correct?

Originally Posted by VegaDancer

The biggest thing that can throw up a red flag to the IRS is this truly a business or a hobby that occasionally pays you. The difference between the two for 1040 filing is very different.

During startup there's usually not a lot of money coming in but it's certainly going out. Does having an assumed name certificate help with the IRS at all in demonstrating it as a biz vs hobby?

Originally Posted by andalee-oriental

I was told that you can only report a loss for 5 years before the IRS considers your business to be a hobby. Correct?

I'll let Vega or one of theother tax pros clarify, esp. because I can't recall the exact number (3? 5?), but yes--there are only so many years you can take a loss, and even within that time, there are things that can be seen as a little sketchy depending on circumstances.

So...if from year to year you are, say, making $5000 a year and spending $6000 on costumes, music, workshops and other business costs, you do need to take a close look and determine whether you're really running a business or a revenue-generating hobby, and/or what you need to do to bring your expenses and revenue more in line.

My tax guy says it's more that the number of years you report a loss; the important thing is that you show that you are making a valid attempt to make a profit. He has advised me that as long as my expenses do not greatly exceed my income (I showed a loss of less than $50 on last year's Schedule C...soooo freaking close!), and my overall numbers are so small (less than $15K a year in my case), it's unlikely to raise red flags at the IRS.

If it ever becomes an issue of too many years reporting a loss, I'll just report less deductions. AFAIK, there's no rule that you have to actually deduct everything you're entitled to. Heck, if I just subtracted my mileage I'd be profitable.

Originally Posted by andalee-oriental

I was told that you can only report a loss for 5 years before the IRS considers your business to be a hobby. Correct?

General rule is 3 out of 5, but the IRS can question validity at any time.

Originally Posted by laura 2

My tax guy says it's more that the number of years you report a loss; the important thing is that you show that you are making a valid attempt to make a profit. He has advised me that as long as my expenses do not greatly exceed my income (I showed a loss of less than $50 on last year's Schedule C...soooo freaking close!), and my overall numbers are so small (less than $15K a year in my case), it's unlikely to raise red flags at the IRS.

If it ever becomes an issue of too many years reporting a loss, I'll just report less deductions. AFAIK, there's no rule that you have to actually deduct everything you're entitled to. Heck, if I just subtracted my mileage I'd be profitable.

I'm right there with you. I reported a loss of $32 last year and I am trying to make money!

The general rule is 3 out of 5 years. Should you not get to those three years it is still defensible that you are a business and not a hobby. This is a good article, at little old but still quite valid.

Avoiding "Hobby Loss" or "Not-for-Profit" Classification By A.J. Cataldo, Ph.D., CPA, CMA

SInce we run a studio and buy materials for the studio plus materials for costuming, the accountant we have worked with for 3 years has put costumes under supplies on the tax forms. Looks like even the professional tax people (and we do use a CPA) have different interpts too.

Originally Posted by patrisha

SInce we run a studio and buy materials for the studio plus materials for costuming, the accountant we have worked with for 3 years has put costumes under supplies on the tax forms. Looks like even the professional tax people (and we do use a CPA) have different interpts too.

Supplies wouldn't be a bad place to put costumes. All accountants categorize things differently, unless it is obvious. I have that debate with the auditors at our firm all the time. As long as it makes some sense and is consistant.

Originally Posted by VegaDancer

Supplies wouldn't be a bad place to put costumes. All accountants categorize things differently, unless it is obvious. I have that debate with the auditors at our firm all the time. As long as it makes some sense and is consistant.

Dito. I put costumes under supplies :)