Paying taxes for income earned from reefing?

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CenlaReefer

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Here is a great article that relieved my concern about taxes and this wonderful hobby. I have been wondering if I was breaking the law by selling frags here and there. Dave, the owner of Aquatic Solutions in West Monroe, told me not to be concerned about it at all. Here is an excellent article from the IRS that explains why:

https://www.irs.com/articles/tax-tips-people-who-earn-income-hobby

Here are some of my thoughts from this article:
  • The list of given under "Hobby vs Business" is super useful.
  • Almost everytning I put into this hobby goes into an aquarium fund that goes back into the hobby. I am not depending on this hobby to support the bills. I do not break-even in what I am currently spending on it.
  • I do not have corals or fish coming in by means of wholesale or anything like that. That may be another distinguishing point for some of us.
  • Again, this is a great relief to me. I hope it is to you all as well.
 

CenlaReefer

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You should run a failed coral farm so you can write of your expenses for a few years
Of course I know that you're joking; however, I would HATE running a business into the ground just for the sake of saving some money.

I think I would need an accountant to itemize deductions, but did any of you catch that part about having expenses for the hobby deducted from your taxes? It seems that you can get tax cuts for having hobby expenses. That could be a good deduction for some of us! That's a very interesting thought. I can imagine telling my wife, "Honey, I want to start a hobby so that we can save on our taxes."
 

Stoned

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Did you read this part?

As a hobbyist, you can usually deduct your hobby expenses up to the amount of your hobby income. But any expenses that exceed your hobby income are considered personal losses and are not deductible from your other income.
 

wazzel

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Unless you are getting past break even there is really no need to file them on you taxes. The IRS will not come looking for you unless you start making huge deposits in you checking or savings accounts that are not tied to employment. They will come looking for you if you make a big ticket purchase, like a car, with cash.

As far as a hobby expense saving you money on your taxes. Keep in mind it is not a dollar for dollar tax savings (tax credit), it is a reduction in your taxable income. Basically you spend more money than you save in taxes. This is true of anything that reduces your taxable income. Mortgage interest on your home is the biggest one. From a tax standpoint only, you are better off paying off your house than getting the tax break.
 

clsanchez77

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Yea, I never even gave it thought. Any income you could earn from the hobby is not going to be sufficient enough to catch their attention. Like @wazzel stated, if you are making enough to buy a car, then it's no longer a hobby...not to mention you have found success and should probably get professional tax help.

If you do have income that you want to consider as taxable, then by all means, you are fully entitled to set it up as a business and deduct all your expenses, just like any other business. You do not get to make money off reporting losses due to expenses, rather they just offset any future income, at least that is how it works in real estate.

There are people who setup businesses for the purpose of writing off expenses and hiding income. I suspect most people who try to game the system are not smart enough to see they are spending money than they are saving. The ones who figure it out, well the IRS is pretty good at finding these guys. I recall one of the triggers that IRS looks for is when you start claiming a portion of your home as a home office.

I keep mine honest so I don't have to worry about things like that. I do not run any businesses (or even pretend to) so that keeps it clean. I do have a rental property and keep everything well documented and clean. For example, on my truck, I claim mileage and generate a log each year instead of trying to prorate all my actual expenses. I make sure vendors give me invoices with the correct address and I only claim mileage when I can document it with a receipt or an invoice. If Im stopping by to just check on something on the way home, I don't claim that.
 

CenlaReefer

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Did you read this part?

As a hobbyist, you can usually deduct your hobby expenses up to the amount of your hobby income. But any expenses that exceed your hobby income are considered personal losses and are not deductible from your other income.
I should have read that more carefully. It was late when I discovered this article. Still, I think this news is encouraging.
 

roid reefs

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If you are making more money from this hobby than you are spending, then keep it as cash and use it to pay for the small things, ya know? a night out with the loved one. toys for the kids, so on and so forth. but honestly, if youre in this hobby and making profit, you aren't reefing right! Lol
 
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