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ddsyverson(at)comcast.net
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 Posted: Fri Apr 14, 2006 5:54 am Post subject: Skyscrew tax deductions |
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Good morning,
A while back some information was exchanged on the list regarding if a person could, or could not, deduct the losses we suffered due to the bankrupcy.
I also recall that someone said that a hobby loss could be deducted.
I want to share what I found out to help keep my friends from getting unnecessary and unwelcomed attention from the IRS.
I am not a tax accountant, but I have a pretty good grip on how to sort through regulations. I do that as my day job - it is just not in the tax accounting area. I will provide some references - please check them out and don't take my word for it - everyone has to get this affirmed in their own mind as to what is correct and not correct.
1) If you purchased a kit or materials in the course of running a business, this is a no brainer - its a business loss and it is deductible - this is not what I am concerned with.
2) Those of us who purchased a kit or materials NOT in the course of running a business are compelled to abide by a different set of rules. This is generally regarded as a hobby activity; and, that definition is pretty much recapitulated by another government agency - the FAA, regarding constructing a homebuilt as an endeavor for our personal edification, interest, etc.
Please look up on the IRS website ( www.irs.gov - not www.irs.com) and find publication 529, page 14 which shows a list of NON DEDUCTIBLE miscellaneous items. It clearly says that HOBBY LOSSES ARE NOT deductible. What is deductible is hobby expenses up to the limit of hobby income. Other parts of the document will tell you what can be deducted for miscellaneous expenses. Although we are generating a small fortune through our activity, we do so by starting out with a large fortune and we normally do not have any hobby income in building an experimental aircraft so that has some limits - let alone the issues with the CFRs regarding noncommercial pilots charging beyond sharing expenses. Most hobby income has to do with someone building some artsy-craftsy objects and then selling them - in that case, the expenses (up to the limit of the income only) in doing the hobby can be deducted.
3) I also looked into the theft and casualty loss deductions. While anyone with a little concept of ethics and two or three brain cells firing at the time will come to the conclusion that when someone takes your deposites and lies to you over the course of year - it is theft and it is fraud; HOWEVER, there is a difference between basic morality and the laws of the land. While the bankrupcy laws protect folks who genuinely had bad luck or difficult circumstances, they also cover folks who mismanage and lie to their customers about about what they are doing with ytheir money - a successful criminal court case would be necessary to make this any different. For a loss to be defined as a casualty loss, it has to meet certain criteria, like a burning building or a hurricane. For a loss to be defined as a theft, someone has to bust into your place, take your stuff and get away with it, or use a deadly weapon to convince you top give up your stuff; unfortunately it does not apply to someone if they make off with you money through bankrupcy proceedings.
4) Not that I would trust without verification (I did verify); but, I did contact an IRS agent and talk through the casualty and loss type of deductions - pretty clear, a bankrupcy loss is neither a casualty of theft loss. If your insurance won't cover it, neither will the IRS.
5) There is a situation which where bankrupcy lossses are deductible, but it has to do with a bankrupcy of a financial institution where you lost investment money.
So, having said all that, I want everyone to know that I just don't want anyone in our group getting into trouble over this - look it up for yourself, be informed and stay out of trouble - sometimes it hurts to stay out of trouble.
"Virtue is its own reward - there is seldom any other reward"
Sincerely
Dave S
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f.miles.tcp.833(at)clearw
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| Posted: Fri Apr 14, 2006 7:13 am Post subject: Skyscrew tax deductions |
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Very well said. Succinct and to the point
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tenorio41(at)comcast.net
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| Posted: Fri Apr 14, 2006 12:00 pm Post subject: Skyscrew tax deductions |
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Like a post script to a very painful/maddening event in my life. The
painful truth is better than a pleasant lie....just wish Skyscrew held
themselves to that!
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