Sch C 5th Year Loss?

[thomtax]

GROSS= $76,878

total depreciation= 6,344 on SCH C (this is his big welding equipment and everything he bought for his business)

his income for SCH C is only 2250

which his expenses , along with depreciation on the SCH C makes it over $8,000 LOSS sooooo how can I make a profit with this???

I can't seem to put this puzzle together right I know I am making harder than it looks; but thanks for any help. Less than 2 weeks to go and I have hard ones now.

Agree with you on one thing you are making it harder than it looks.

Disagree with you on the point "how can I make a profit with this???" You are not supposed to make a profit with it. You are supposed to report accurately. If there are different legal ways to report, take the most advantageous route, but it is up to him to make a profit - not you.

I know of one farmer client of mine that besides both working for W2s has had a loss on farm for over 10 years that I know of. They were audited once. Depreciation was one of the big expenses. Their argument with the IRS was that they were building the farm up and paying the expenses now so that when they retired from other jobs, the farm will be the income. Plus they were improving the land. This was accepted and, as I said, 10 more years of losses have followed.

LT

[Jesse]

This advise is plain stupid. Showing a loss for years in a row might be an indication of not running a biz but the other factors need to be considered as well. I have a restaurant biz that shows losses since forever, with one year of a little bit of profit in between. They got audited three years ago and auditor even found some more deductions for them.

Agree completely with Gretel. I also have Sch C businesses that show losses every year. They are definitely pursuing profit, but they just don't make any money or they are growing, as Edsel said, and writing off heavy equipment purchases via Sec 179.

I would file the return as is and cross the bridge if it comes to that. Sales of over $70k probably precludes this activity from being considered a hobby.

Agree with you on one thing you are making it harder than it looks.

Disagree with you on the point "how can I make a profit with this???" You are not supposed to make a profit with it. You are supposed to report accurately. If there are different legal ways to report, take the most advantageous route, but it is up to him to make a profit - not you.


LT

Agree with all of the above - you must look at all the factors, is it a hobby or is there a profit motive? Profit motive does not mean there will be a profit, but is there a reason there is no profit? Are they trying to do something different to achieve profit?

My mind is mush, if you search the board or google I'm sure you'll come up with many questions to help you determine if this is indeed a business or just a hobby or ploy to reduce income from other sources.

[Davc]

The 70K is from the W-2 job.

[BHoffman]

Yep, sorry about misunderstanding. I see now, after the requisite amount of caffeine, that the Sch C sales were only about $2k.

[Lion]

Hobby?

If his income is only $2,000 and he has consistent losses, maybe it IS a hobby. But, so what? Report it as a hobby if that's your call this year. When he retires and devotes more time to running it in a businesslike manner, gaining clients, growing income, reducing expenses in proportion, etc., then it will probably be a business then. Don't worry about then. Do what you feel is right now. Read up on the nine (is it nine?) points the IRS uses to determine if an activity is a business, discuss with your client, get 2008 behind you.

By the way, it's not five years of losses making it a hobby. It's three out of five years of profits giving the presumption of it being a business. Then the burden of proof would be on the IRS. But, your client didn't make that hurdle, so must show he treats it, runs it, like a business. What has he changed during those five years to improve the business outcome?

[SueBaby]

If his income is only $2,000 and he has consistent losses, maybe it IS a hobby. But, so what? Report it as a hobby if that's your call this year. When he retires and devotes more time to running it in a businesslike manner, gaining clients, growing income, reducing expenses in proportion, etc., then it will probably be a business then. Don't worry about then. Do what you feel is right now. Read up on the nine (is it nine?) points the IRS uses to determine if an activity is a business, discuss with your client, get 2008 behind you.

By the way, it's not five years of losses making it a hobby. It's three out of five years of profits giving the presumption of it being a business. Then the burden of proof would be on the IRS. But, your client didn't make that hurdle, so must show he treats it, runs it, like a business. What has he changed during those five years to improve the business outcome?

Upgraded his equipment and added on his welding shop plus more customers.

[Lion]

Depreciation choices

If he upgraded his equipment and added to his shop in 2008, then consider SL depreciation or the slowest available for the asset types. Have him keep careful records of his growth in both number of customers and in his gross revenues. Five years is a long time to get to only $2,000 in receipts. Suggest he examine his prices compared to area shops.

[SueBaby]

If he upgraded his equipment and added to his shop in 2008, then consider SL depreciation or the slowest available for the asset types. Have him keep careful records of his growth in both number of customers and in his gross revenues. Five years is a long time to get to only $2,000 in receipts. Suggest he examine his prices compared to area shops.

Thanks for all the respones in this matter. Hard to think sometimes and don't want anything to slow me down for a long time now at the end. Thank goodness it is ending; could not work like this the WHOLE year. Thanks again