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Discussion Starter · #1 ·
I was just browsing some tax stuff (don't ask :) ) and I came across a "Hobby Loss Rules".


Basically if you say that your business is a theatre and say you charged a couple people a few bucks or more if you really want to watch a movie, then the expenses involved can be a loss. I really don't think you will charge enough people to make up for that $5k projector. These items then become tax deductable.


I'm as tax illiterate as they come so I probably didn't phrase that correctly.


The IRS does consider some hobbies as businesses though and any income generated would be reported as "other income" on Line 21 of your Form 1040.


Are there any tax freaks out there that maybe can shed some light on this subject?


Here's a link to a better description .
 

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I'm no tax expert, but the first thing that I thought of was the MPAA, et. al. knocking on your door asking for the royalties for these public paid performances (not to mention penalties for lacking written consent) :eek:
 

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Discussion Starter · #3 ·
Hmmm, didn't think about that. Good point. :)


Ok you 'charge' friends for snacks. The movie is on the house. Or you don't charge at all. I'm not even sure you need to. It could be a non-profit organization that is there to educate people on why OAR is good. No money exchange at all.
 

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Discussion Starter · #5 ·
But red flags going up doesn't mean that it isn't indeed legit. I'm not trying to con the IRS with this. I was just curious if there truly is a reason where a projector could be tax deductable for either a hobby use or for educational purposes. If a church buys a projector to show biblical movies it can write the expense off. I do know that they do that. What happens if I write it off saying that I am educating potential customers on the importance of OAR and then send them to a retailer to buy something?


This could be just a dream but it never hurts to ask. ;)
 

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I am not a tax lawyer, nor am I a CPA or an accountant.


If you have legitimate, demonstrable income, and use it in a professional context, I imagine that it would indeed be tax deductible.


There are others on here with far more knowledge on this topic than I -- and actually if they weigh in here, I might send them a message or two ;-)


Regards,
 

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Quote:
Originally posted by LynxFX
If a church buys a projector to show biblical movies it can write the expense off. I do know that they do that
Since churches don't pay tax, why would they need to write anything off?
 

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I'm deducting my screen and PJ as business expense as I use it to give "lectures"--I gave 1 or 2 a year for drug companies and medical residents :)
 

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Generally you can only write off up to the amount you "make" in the business. i.e. If you sell popcorn at a total of $100 the max your expenses should be is $100. AFAIK you may be limited to that amount by their rules.

The IRS gets real interested when it appears to be a hobby (a home theater) and it's run at a loss. They really tightened up the rules a while back.

If your main income was selling popcorn then they are much more receptive to the notion it's a legitimate business. When you have a W2 for $60K and $300 in popcorn income and $10K in expenses they will probably want to talk.

You could probably try it but don't feel victimized if you get audited and end up with some penalties.
 

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Discussion Starter · #10 ·
An edit to my above post. Totally screwed up on that one. :)


I meant was that a gentleman bought a projector for his church which he worked for or volunteered for. He paid with his own money and then wrote that off on his own taxes. Not the church. This probably goes under donations though.


Skip that scenario though. Instead it is more like a corporation that buys a projector for demonstrations, presentations, etc, like Huey said. Those kind of companies are trying to make a profit one way or another and it is a legitament business expense. What if the guy who runs widescreen.org started using his system at home to demonstrate his cause. Would he be able to write off the expenses occurred by his organization?
 

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To get away with this, you'd have to be able to demonstrate that you intend to make a PROFIT on the activity. Given the cost of equipment, etc., I'd say this is highly problematic.


IMO, this isn't close to a grey area.


- m
 

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Discussion Starter · #12 ·
So the excuse that I'm just a really bad business man wouldn't fly? :D


"Oh I'm sorry, I thought red ink meant good and black ink meant bad. Boy is my face red, or would that be black. See how confusing that is."
 

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I am a CPA, so here is the scoop.


First if the equipment is used in any type of business (it has to make sense) then it is fully deductible and or depreciable.


If the equipment is being used 50/50, then 50% is deductible or depreciable


Forgeting that it is illegal to charge for showing a dvd, a hobby can make a profit but the worst you can do is to break even.


However, unless you identified yourself as a hobby from the very beginning, (which no one really does) then you can take a loss in that year. What makes you as a hobby is if you dont make a profit 3 out of five years. So technically you can loose your tushy the first year and assuming you make a profit in future years their is no problem. Thats the basic concept except of course the IRS can still say its a bull but they would have to have a good reason.


The following are 9 major issues that ones looks at to determine if a business is a hobby. For most cases, the 3 out of 5 years of profit is the key



1)

Manner in which the taxpayer carries on the activity. The maintenance of complete and accurate books and records indicates the activity is being carried on for profit. A change in the method of operation in order to improve profitability also indicates a profit objective.



(2)

Expertise of the taxpayer or the taxpayer's advisors. Preparation for the activity by learning of accepted business practices and the procurement of expert advice in beginning or carrying on such activity indicate a profit objective unless the taxpayer fails to follow such advice, in which case a lack of intent to derive a profit is usually manifested.



(3)

Time and effort expended by the taxpayer in carrying on the activity. A taxpayer who devotes a substantial amount of time and effort to carrying on an activity, particularly if the activity does not have significant personal or recreational aspects or if the taxpayer has withdrawn from another occupation, evidences an intent to derive a profit. Although a taxpayer may personally devote a limited amount of time to an endeavor, a profit objective when the taxpayer employs competent and qualified persons to carry on the activity.



(4)

Expectation that assets may appreciate in value. Profit, for this purpose, includes an appreciation in value of the assets used in the activity. Thus, a profit objective can exist where an overall profit would result where the gain from the disposal of the asset is added to the other income from the activity, even though a profit is not derived from current operations.



(5)

Success of the taxpayer in carrying on other similar or dissimilar activities. A situation when a taxpayer has engaged in similar activities in the past and converted these from unprofitable to profitable enterprises indicates a profit objective.



(6)

History of income or losses with respect to the activity. Losses during the start-up of an activity are not necessarily an indication that the activity is a hobby. However, continued losses beyond the period customarily necessary to bring an operation into a profitable mode are an indication of a hobby. Losses due to unforeseen circumstances, such as fire, theft or depressed market conditions (as opposed to customary business risks or reverses), do not, of course, indicate that the activity is a hobby. (See "Presumption that activity is for profit," below.)



(7)

Amount of occasional profit. The amount of profits in relation to the amount of losses incurred and the relationship of such profits to the amount of the taxpayer's investment and the value of the assets used in the activity are important factors. An occasional small profit for an activity generating large losses, or in which a taxpayer has a large investment, is not sufficient to establish in itself a for-profit objective. Conversely, an occasional but substantial profit is generally indicative that the activity is not a hobby.



(8)

Financial status of the taxpayer. Lack of other sources of income indicates that the activity is engaged in for profit.



(9)

Elements of personal pleasure or recreation. Although the fact that a taxpayer enjoys or derives personal satisfaction from an activity does not foreclose a finding of a profit objective, the presence of such elements suggests that the activity is a hobby.
 

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Lots of good info, but just one clarification. You are not automatically considered a hobby just because you dont have a profit in 3 out of 5 years (or any profit in any years for that matter).


It is just profit motive. I believe the 3/5 year rule is that they cannot even question the fact that you have no profits in that short a time. (they could still question your profit motive during this period)


But even still, if you are a poor business person, it could still be a business even if you have losses for 10 years (you just have to have to be able to demonstrate the profit motive)


-maynard
 

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Discussion Starter · #15 ·
Very good information. Thank you both for the indepth responses. I was just curious about the whole matter. I have a hard enough time with the 1040EZ and now I'm making money on the side doing improv so taxes will be a pain in the arse already for me. Ok ok, not that hard but still. :)
 

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I did freelance work for 10 years in the 80's, I doubt much has improved in your favor.

Quote:
You are not automatically considered a hobby just because you dont have a profit in 3 out of 5 years
I haven't read the tax code in 10 years, but that is what is said back then.


Quote:
I have a hard enough time with the 1040EZ
Oh boy, wait until see what you got yourself into! EZ is gone, add Self Employment tax, double social security tax, etc. I would suggest you hire a tax expert. This is the main reason I got out of it - I could make more money flipping burgers for extra income than working for myself.
 

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Most of the Studio Execs, Producers, Directors and Actors in the Hollywood community have very elaborate home theaters. But when it comes to the IRS tax form they are called "Personal Screening Rooms." Perhaps we all should declare ourselfs as film critics and write off our HT's, I mean personal screening rooms, as tools of the trade.

Regards,

Don
 

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It sounds like for your purposes, there's no valid reason that you could write it off.


For me, my wife and I design web sites. One of our leads is a realtor who has invited us to sell our services to her local realty firm. I'm thinking of using my LT85 to walk through some web site examples. Also, I'm thinking that I can validly write off part of it for research purposes since I'm also writing a home theater designer Windows application. Despite these two valid reasons, since I still expect that the bulk of its use will be for personal movie watching, I don't expect that I'll write off any more than 50% of it.


If you do have a business where you can utilize the LT85/LT150, it would be a great projector to write off since NEC targets these at the business market. This may help in reducing the risk of raising red flags.


Scott
 

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Quote:
Originally posted by LynxFX
So the excuse that I'm just a really bad business man wouldn't fly? :D


"Oh I'm sorry, I thought red ink meant good and black ink meant bad. Boy is my face red, or would that be black. See how confusing that is."
Good one :D


-Mr. Wigggles
 

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Discussion Starter · #20 ·
Actually in all honesty I was planning on creating a trailer review site. There are way too many movie review sites so figured I would just focus on the Trailers and teasers etc, since we all know that there are good trailers (First Cast Away teaser that shows him just land on the island) and bad trailers (second Cast Away trailer that shows that he got off the island and was there for 4 years, thanks for ruining the picture).


Could this actually be a legitiment use? Especially since I would download with my HTPC view them with the LT150 and then compare against the movie whether it is out in the cinemas or on dvd. It wouldn't be 100% but maybe like Scott and only 50%.


Of course this would mean that I would have to get off my butt and actually make that site which I've been wanting to do for years. :)
 
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