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Gradual transition from business to hobby
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Ed Roberts Jr
Nov 16, 2012, 5:22:37 PM11/16/12
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Taxpayer started a business in 2007 as a mobile DJ, playing at weddings, company parties, etc. Taxpayer treated it as a business from the beginning, setting up a website, accepting checks in the name of the business, etc.
As business income increased, so did expenses, even when properly depreciated, so the business never made a profit. One might say that the profit was poured back into expanding the business.
In the last year or two -- it's impossible to point to a date when this happened -- the taxpayer lost interest and stopped trying to drum up business. Now the taxpayer just drags the equipment out now and then to do a friend's gig. Both income and expenses are so low (less than $1,000 either way) they don't make much of a difference to the taxpayer's bottom line, although they have to be accounted for somehow.
How should the taxpayer treat this gradual change from business to hobby? Simply stop filing Schedule C, stop depreciating equipment, and list the meager income on Line 21?
Thanks,
Ed
--
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As business income increased, so did expenses, even when properly depreciated, so the business never made a profit. One might say that the profit was poured back into expanding the business.
In the last year or two -- it's impossible to point to a date when this happened -- the taxpayer lost interest and stopped trying to drum up business. Now the taxpayer just drags the equipment out now and then to do a friend's gig. Both income and expenses are so low (less than $1,000 either way) they don't make much of a difference to the taxpayer's bottom line, although they have to be accounted for somehow.
How should the taxpayer treat this gradual change from business to hobby? Simply stop filing Schedule C, stop depreciating equipment, and list the meager income on Line 21?
Thanks,
Ed
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
Arthur Kamlet
Nov 16, 2012, 5:36:43 PM11/16/12
to
In article <033ae351-65be-4463...@googlegroups.com>,
equipment to personal use, then you will have to recapture (treat
as income) any depeciation you claimed in excess of straight line.
Use Form 4797 for that.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
Ed Roberts Jr <edrob...@yahoo.com> wrote:
>Taxpayer started a business in 2007 as a mobile DJ, playing at weddings,
>company parties, etc. Taxpayer treated it as a business from the
>beginning, setting up a website, accepting checks in the name of the
>business, etc.
>
>As business income increased, so did expenses, even when properly
>depreciated, so the business never made a profit. One might say that the
>profit was poured back into expanding the business.
>
>In the last year or two -- it's impossible to point to a date when this
>happened -- the taxpayer lost interest and stopped trying to drum up
>business. Now the taxpayer just drags the equipment out now and then to
>do a friend's gig. Both income and expenses are so low (less than $1,000
>either way) they don't make much of a difference to the taxpayer's
>bottom line, although they have to be accounted for somehow.
>
>How should the taxpayer treat this gradual change from business to
>hobby? Simply stop filing Schedule C, stop depreciating equipment, and
>list the meager income on Line 21?
Essentially yes. If you convert any depreciable former business
>Taxpayer started a business in 2007 as a mobile DJ, playing at weddings,
>company parties, etc. Taxpayer treated it as a business from the
>beginning, setting up a website, accepting checks in the name of the
>business, etc.
>
>As business income increased, so did expenses, even when properly
>depreciated, so the business never made a profit. One might say that the
>profit was poured back into expanding the business.
>
>In the last year or two -- it's impossible to point to a date when this
>happened -- the taxpayer lost interest and stopped trying to drum up
>business. Now the taxpayer just drags the equipment out now and then to
>do a friend's gig. Both income and expenses are so low (less than $1,000
>either way) they don't make much of a difference to the taxpayer's
>bottom line, although they have to be accounted for somehow.
>
>How should the taxpayer treat this gradual change from business to
>hobby? Simply stop filing Schedule C, stop depreciating equipment, and
>list the meager income on Line 21?
equipment to personal use, then you will have to recapture (treat
as income) any depeciation you claimed in excess of straight line.
Use Form 4797 for that.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
Mark Bole
Nov 17, 2012, 2:06:35 PM11/17/12
to
On 2012-11-16 14:36, Arthur Kamlet wrote:
> In article <033ae351-65be-4463...@googlegroups.com>,
> Ed Roberts Jr <edrob...@yahoo.com> wrote:
[...]
> In article <033ae351-65be-4463...@googlegroups.com>,
> Ed Roberts Jr <edrob...@yahoo.com> wrote:
>> In the last year or two -- it's impossible to point to a date when this
>> happened -- the taxpayer lost interest and stopped trying to drum up
>> business.
Nonetheless, I strongly recommend that the taxpayer identify a specific
>> happened -- the taxpayer lost interest and stopped trying to drum up
>> business.
date that is at least not unreasonable, and use it on a timely filed
return. If nothing else, this will start the statute of limitations.
This date will be the dividing line for income and expenses on Schedule
C vs. Line 21/Schedule A.
Now the taxpayer just drags the equipment out now and then to
>> do a friend's gig. Both income and expenses are so low (less than $1,000
>> either way) they don't make much of a difference to the taxpayer's
>> bottom line, although they have to be accounted for somehow.
>>
>> How should the taxpayer treat this gradual change from business to
>> hobby? Simply stop filing Schedule C, stop depreciating equipment, and
>> list the meager income on Line 21?
Line 21, and hobby expenses on Schedule A according to the hobby loss
rules, see Pub 535.
>
> Essentially yes. If you convert any depreciable former business
> equipment to personal use, then you will have to recapture (treat
> as income) any depeciation you claimed in excess of straight line.
> Use Form 4797 for that.
allowed amount is limited by the hobby loss rules. I don't believe any
recapture would be required simply by change of use from business to hobby.
--
Mark Bole, EA
Enrolled Agents - America's Tax Experts
http://markboletax.com
Ed Roberts Jr
Nov 28, 2012, 11:32:29 AM11/28/12
to
On Saturday, November 17, 2012 12:10:03 PM UTC-7, Mark Bole wrote:
> Nonetheless, I strongly recommend that the taxpayer identify a specific
> date that is at least not unreasonable, and use it on a timely filed
> return. If nothing else, this will start the statute of limitations.
Does this date actually appear on the return anywhere, or by "use it" do you refer only to using it as a means to calculate what you write next?
> Nonetheless, I strongly recommend that the taxpayer identify a specific
> date that is at least not unreasonable, and use it on a timely filed
> return. If nothing else, this will start the statute of limitations.
> This date will be the dividing line for income and expenses on Schedule
> C vs. Line 21/Schedule A.
> File a final schedule C, yes. Continue to depreciate. List income on
> Line 21, and hobby expenses on Schedule A according to the hobby loss
> rules, see Pub 535.
Thanks for your time, Mark and Art!
Ed
Mark Bole
Nov 29, 2012, 12:42:41 PM11/29/12
to
On 2012-11-28 08:32, Ed Roberts Jr wrote:
> On Saturday, November 17, 2012 12:10:03 PM UTC-7, Mark Bole wrote:
>> Nonetheless, I strongly recommend that the taxpayer identify a specific
>> date that is at least not unreasonable, and use it on a timely filed
>> return. If nothing else, this will start the statute of limitations.
>
> Does this date actually appear on the return anywhere, or by "use it" do you refer only to using it as a means to calculate what you write next?
>
>> This date will be the dividing line for income and expenses on Schedule
>> C vs. Line 21/Schedule A.
>
> [...]
>
>> File a final schedule C, yes. Continue to depreciate. List income on
>> Line 21, and hobby expenses on Schedule A according to the hobby loss
>> rules, see Pub 535.
>
> By "final schedule C" do you mean anything other than: file one
> more,
and then stop filing it? There's nowhere on the form to indicate that
it's the last one (unlike the typical state sales tax return).
>
> Thanks for your time, Mark and Art!
>
> Ed
>
Yes, that's what I meant about final Schedule C. If the tax software
> On Saturday, November 17, 2012 12:10:03 PM UTC-7, Mark Bole wrote:
>> Nonetheless, I strongly recommend that the taxpayer identify a specific
>> date that is at least not unreasonable, and use it on a timely filed
>> return. If nothing else, this will start the statute of limitations.
>
> Does this date actually appear on the return anywhere, or by "use it" do you refer only to using it as a means to calculate what you write next?
>
>> This date will be the dividing line for income and expenses on Schedule
>> C vs. Line 21/Schedule A.
>
> [...]
>
>> File a final schedule C, yes. Continue to depreciate. List income on
>> Line 21, and hobby expenses on Schedule A according to the hobby loss
>> rules, see Pub 535.
>
> By "final schedule C" do you mean anything other than: file one
> more,
and then stop filing it? There's nowhere on the form to indicate that
it's the last one (unlike the typical state sales tax return).
>
> Thanks for your time, Mark and Art!
>
> Ed
>
asks about a "final disposition of this activity", the answer would be
no, as the activity was not disposed. Transferring the assets in the
software from Schedule C to Schedule A may or may not be easy to accomplish.
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