Race Car Winnings

[joanmcq]

however, see reference to 'generally accepted accounting method'. If the hobby is a Mary Kay business, I can see COGS. There are goods that are sold. Likewise if client makes jewelery. COGS = materials to make jewelery, shipping on materials coming in, etc. A race driver? what is being sold? Nothing. all expenses are operating expenses. You might not like it, might not think its 'fair' but who says the government must support your hobby? Same with the horse breeder referred to earlier. If the breeder had any inclination to make a profit and treat it as a business, she would have known already how much money she lost. She was looking for a way to lower her taxes, and didn't even have the sense to realize you spend a dollar to get a 33 cent deduction and that doesn't make sense. and if you are willing to spend that dollar because you happen to like horses or racing, well, why should I subsidize that? I dont' see y'all subsidizing my trips to music festivals! and I even talk taxes there ocasionally!

[Black Bart]

Awww Joanie,

however, see reference to 'generally accepted accounting method'. If the hobby is a Mary Kay business, I can see COGS. There are goods that are sold. Likewise if client makes jewelery. COGS = materials to make jewelery, shipping on materials coming in, etc. A race driver? what is being sold? Nothing. all expenses are operating expenses. You might not like it, might not think its 'fair' but who says the government must support your hobby? Same with the horse breeder referred to earlier. If the breeder had any inclination to make a profit and treat it as a business, she would have known already how much money she lost. She was looking for a way to lower her taxes, and didn't even have the sense to realize you spend a dollar to get a 33 cent deduction and that doesn't make sense. and if you are willing to spend that dollar because you happen to like horses or racing, well, why should I subsidize that? I dont' see y'all subsidizing my trips to music festivals! and I even talk taxes there ocasionally!

You're too picky (you'd make a good IRS auditor).

Looky here; most of us have thrown in the towel and aren't asking to claim a loss -- we just don't want to be taxed on one. IRS' policy of taxing gains and throwing out expenses (Heads We Win/Tails You Lose) is absurd, but we're willing to meet them halfway -- we just want to call it even. Subsidizing is having the government give you money and that's not happening -- they're taking money.

This doesn't need a Supreme Court decision, but rather "man in the street" logic. Stop the first person you see and say "Look, I won $500 racing my car and spent $2,000 for gas, oil, and repairs. IRS says I have a $500 gain. What's your opinion?" Any sane person (except a tax preparer) is going to reply "Are they crazy?"

P.S. If you'll support my previously submitted proposal for a First Time HDTV Buyers Credit, then I'll ask my congressman about a First Time Concert Credit (for those who haven't been to a music festival in the previous three days) enhanced with Additional Childish Tax Credit (allowed if it's rap).

.

[Snaggletooth]

Joannie

however, see reference to 'generally accepted accounting method'. all expenses are operating expenses. who says the government must support your hobby?

Joannie, I'll bet you expected this. Bart and I are going to "tag-team" you.

If you read through the multitude of posts, you will see that no one is expecting the govt to subsidize this hobby by allowing the loss. What the government is attempting to do is collect taxes from a guy who lost thousands$$. Their mechanism to collect these taxes is a requirement that the hobby income be claimed as income, but restricting the expenses such that they are largely not deductible.

Also, the association between "Cost of Goods Sold" and "Inventoriable Costs" is undeniable. You should see the laundry list of expenses the IRS expects to be priced in ending inventories. They include all manner of direct and indirect costs, and the IRS forces this to be priced in ending inventories so they can't be deducted in the year incurred but instead deducted as COGS in the year the associated inventory is sold. If the associated inventory is sold in the same year incurred, then the costs are effectively currently deducted. IRS has been known to go to great lengths to make sure certain costs are capitalized into inventory.

I'm going to proceed by separating "direct" costs which would be COGS on a Sch. C. from the "indirect" costs, and applying just the direct costs against the 1099-MISC. The result is still a whopping loss.

[AuditorTurnedGood]

Looky here; most of us have thrown in the towel and aren't asking to claim a loss -- we just don't want to be taxed on one. IRS' policy of taxing gains and throwing out expenses (Heads We Win/Tails You Lose) is absurd, but we're willing to meet them halfway. This doesn't need a Supreme Court decision, but rather "man in the street" logic..

Though I agree, I still think you're wrong. The IRS is not looking for us to meet them anywhere but where they tell us to go. "Man on the street logic" says if I incur a casualty loss, I should get to deduct the whole thing, not after an AGI reduction and a per loss reduction. It also says that if I lose 35K on my rental properties as a non-real estate professional, I can't take more than 25K in a year against ordinary income. And let's not get started on depreciation recapture's impact on the sale of business use property - you're going to give me a deduction for years, then ask for it all back?

what I'm saying is logic doesn't matter. I'm with joan on this one - nothing is being sold, so how can there be COGS? Just the name Cost of goods sold should be enough to tell us this doesn't fly. I don't deduct COGS on my services, do you?

ATG

[Jesse]

Thinking out loud....

I would agree with Joanmcq on this too. I'd use the analogy of gambling winnings.

If I win $1,000 I cannot net out my expenses to enter less on line 21. I may have spent $10,000 to win $1,000 but I still have $1,000 income and if, and only if I itemize, a max of $1,000 in deductions on Schedule A. If I do not itemize I have $1,000 income and Zero to deduct.

If there is no goods sold, there is no cost of goods sold, although there is a cost to my winnings.

[Snaggletooth]

Gambling Winnings

Good analogy, Jesse, except gambling losses are not subject to the 2% theivery.

If your thousand dollars in winnings on line 21 are offset by up to $1000 in losses on Schedule A, and you are able to itemize, you have zero tax. You do have to limit your deduction to $1000 but you don't have to further reduce it by 2% of your AGI.

[Jesse]

Good analogy, Jesse, except gambling losses are not subject to the 2% theivery.

If your thousand dollars in winnings on line 21 are offset by up to $1000 in losses on Schedule A, and you are able to itemize, you have zero tax. You do have to limit your deduction to $1000 but you don't have to further reduce it by 2% of your AGI.

Not necessarily, this additional gambling income has now caused more of my social security to be taxable so although I was able to itemize it still resulted in additional taxes. Had I been able to net the amount on line 21 my tax on the winnings would be zero. Therefore, thievery still exists. ;-)