Are You Ready? Personal Prep for Season

[Mark T. DeNucci, Sr.]

Originally Posted by BatteryPowered

Are there still rules about a "business" having to show a profit once every few years or the activity being considered a hobby? I am not a CPA...my son is...but have not asked.

Most of the officials I know only declare income reported to them on a 1099. Around here, schools and/or districts pay directly to the individual and with the high number of school districts and private schools in the area (a large metropolitan area) virtually nobody is paid enough by a single entity to reach the 1099 mark.

Years ago I got a tax ID and tracked all the income and expenses for two years. The first year I finished in the red by about $100...the second year I finished in the black by less than that. That is when I stopped tracking everything.

The rules state that your business is to have a profit 2 out of every 5 years.

BUT!! In 1996 at the ABL officials tryout camp in Atlanta, I officiated 4 games with a fellow college official who was also an IRS agent from Washington, DC. I asked him about that rule. He said not to worry about it.

Before invoking that rule, the IRS looks at the type of business and his expenses, and the amount of gross revenue that it generates. His example was a person who is a stamp collector and who buys and sell stamps as a "hobby". If this person, on his Schedule C shows $15,000 in expenses (airplane travel expenses rather than automobile expenses) and only $500 in gross revenue every year, he will be subject to the requirement of a profit 2 out of every 5 years. But someone who officiates H.S. and small college athletics whose travel expenses are almost 100% automobile mileage deductions will get a pass if they lose money year after year because it is acknowledged that the mileage can easily wipe out actual gross revenue or come very close to wiping it out.

I can't remember the last time I had a taxable profit from officiating and umpiring, and I declare every penny I make (including game fees that are paid in cash) and only take legal deductions. If you don't have a taxable loss every year, you are not trying, .

And while I still have a taxable loss I still have a non-taxable profit, just like the multi-national corporations. Isn't America great!

MTD, Sr.

[Welpe]

I seem to run a small profit every year. I'm only deducting the basics such as registration fees, clinic fees, mileage, tolls, uniforms and equipment. I don't mess with meals, laundry, portions of my cell phone bill, internet, etc. I figure if I only do the basics I'm less likely to get audited and a few hundred dollars profit doesn't have much, if any, impact on my final tax bill.

[BlueDevilRef]

It drives me INSANE to do my part in every aspect, including legibly filling out a voucher and W9, both with current address, to then have to track down a check 6 weeks later because the address the school has on file is the old house from four years ago. Happens at least 2-3 times per year between the two sports


I wish I had a cool signature

[Mark T. DeNucci, Sr.]

Originally Posted by Welpe

I seem to run a small profit every year. I'm only deducting the basics such as registration fees, clinic fees, mileage, tolls, uniforms and equipment. I don't mess with meals, laundry, portions of my cell phone bill, internet, etc. I figure if I only do the basics I'm less likely to get audited and a few hundred dollars profit doesn't have much, if any, impact on my final tax bill.

Oh my dear Welpe.

Meals: Do you and your partners stop for dinner after your game and have a post-game discussion about the game? If you do, that meal if 50% deductible.

Laundry: To to a laundromat and see how much it costs you to keep your officiating uniforms clean. To keep that sharp crease in my officiating and umpiring pants, nothing is better that having them dry cleaned a couple of times a season, especially umpiring pants.

Thanks to cell phones my long distance phone bill is now zero, and my postage is next to nothing because of the internet.

If you and share ownership of your car with a bank (and aren't we all making car payments) the interest on the car loan is deductible (prorated of course based upon your officiating mileage and your total mileage). The IRS agent I officiated with told me about this deduction. The mileage deduction does not cover the interest paid on your car loan.

MTD, Sr.

[Camron Rust]

Originally Posted by Mark T. DeNucci, Sr.

Years ago, I tracked every automotive expense that would be taxable under the actual expenses deduction for both of our cars because there were times I used my car and times when I used my "better half's" car. Unless you are replacing the transmission in every month that has 30 days; replacing the engine in every month that has 31 days; and replacing the tie-rods and brakes in the month that has 28 or 29 days, one's actual expenses cannot come close to the Federal mileage deduction.

For the year that I traced my expenses, my actual expenses came out to be only 55% of the Federal mileage deduction. You cannot beat the mileage deduction.

MTD, Sr.

I'm guessing that if you also included the cost of buying the car somehow, you'd come to that amount. There is plenty of fleet data out that that documents the cost of driving and when all costs are considered, it is often greater than the federal allowance, depending on the specific model. Older cars typically cost less than new cars.

[Mark T. DeNucci, Sr.]

Originally Posted by Camron Rust

I'm guessing that if you also included the cost of buying the car somehow, you'd come to that amount. There is plenty of fleet data out that that documents the cost of driving and when all costs are considered, it is greater than the federal allowance.

It was explained to me that the federal allowance takes into account depreciation. Don't ask me how, just that it is supposed to take it into account. But the federal allowance is still a good deal.

MTD, Sr.

[ODog]

Originally Posted by BatteryPowered

Most of the officials I know only declare income reported to them on a 1099 ... virtually nobody is paid enough by a single entity to reach the 1099 mark ...

Sounds like we know some of the same people.

[Camron Rust]

Originally Posted by Mark T. DeNucci, Sr.

It was explained to me that the federal allowance takes into account depreciation. Don't ask me how, just that it is supposed to take it into account. But the federal allowance is still a good deal.

MTD, Sr.

The allowance is a good deal much of the time. It is certain far easier than the alternative. The alternative could be better for someone who is self-employed such that they use the care almost exclusively for business where all of the costs would be a business deduction.

And the allowance does include depreciation, but no two cars depreciate the same. A person who drives an expensive gas guzzling car, if they tracked all expenses including depreciation, would easily be able to beat the allowance while someone who drives an inexpensive and efficient car would do better with the allowance.

As my prep I'm actually reading the rulebook this year instead of just reading situations on here to find out the rules.

In all seriousness I am reading the book from front to back which I haven't done in a couple years. It's amazing the little stuff you find!

[SE Minnestoa Re]

I have two state licenses for my real job. An income tax violation can result in a revocation of both of those licenses. I can't remember the last time I did not have a profit from officiating and I claim everything appropriate. However, I work varsity only and the paychecks are higher than B squad and the travel is the same.

I will continue to pay my income taxes and be glad that I have been able to officiate for over 30 years and still think its a good gig.

[WhistlesAndStripes]

Originally Posted by BatteryPowered

Are there still rules about a "business" having to show a profit once every few years or the activity being considered a hobby? I am not a CPA...my son is...but have not asked.

Most of the officials I know only declare income reported to them on a 1099. Around here, schools and/or districts pay directly to the individual and with the high number of school districts and private schools in the area (a large metropolitan area) virtually nobody is paid enough by a single entity to reach the 1099 mark.

Years ago I got a tax ID and tracked all the income and expenses for two years. The first year I finished in the red by about $100...the second year I finished in the black by less than that. That is when I stopped tracking everything.

Here is the answer to your question. This is from the 2014 version of Publication 535:

"Presumption of profit. An activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. The activity must be substantially the same for each year within this period. You have a profit when the gross income from an activity exceeds the deductions.

"If a taxpayer dies before the end of the 5-year period, the "test" period ends on the date of the taxpayer's death.

"If your business passes this 3-years of profit test, the IRS will presume it is carried on for profit. This means the limits discussed here will not apply. You can take all your business deductions from the activity, even for the years that you have a loss. You can rely on this presumption unless the IRS later shows it to be invalid."

So, basically, if you pass this test, then in years when you show a loss, you can take that loss against other income. Otherwise, your deductions are limited to the amount of income you produce.

I should also point out, as have others in this thread, that ALL INCOME is taxable, NOT JUST THAT WHICH IS REPORTED TO YOU ON A 1099.

I think Battery Powered is due for an audit.

[WhistlesAndStripes]

Originally Posted by Mark T. DeNucci, Sr.

The rules state that your business is to have a profit 2 out of every 5 years.

BUT!! In 1996 at the ABL officials tryout camp in Atlanta, I officiated 4 games with a fellow college official who was also an IRS agent from Washington, DC. I asked him about that rule. He said not to worry about it.

Before invoking that rule, the IRS looks at the type of business and his expenses, and the amount of gross revenue that it generates. His example was a person who is a stamp collector and who buys and sell stamps as a "hobby". If this person, on his Schedule C shows $15,000 in expenses (airplane travel expenses rather than automobile expenses) and only $500 in gross revenue every year, he will be subject to the requirement of a profit 2 out of every 5 years. But someone who officiates H.S. and small college athletics whose travel expenses are almost 100% automobile mileage deductions will get a pass if they lose money year after year because it is acknowledged that the mileage can easily wipe out actual gross revenue or come very close to wiping it out.

I can't remember the last time I had a taxable profit from officiating and umpiring, and I declare every penny I make (including game fees that are paid in cash) and only take legal deductions. If you don't have a taxable loss every year, you are not trying, .

And while I still have a taxable loss I still have a non-taxable profit, just like the multi-national corporations. Isn't America great!

MTD, Sr.

Per my previous post, it is actually 3 out of 5 years, not 2. Maybe it was 2 way back in 1996. Who knows.

I also don't like your stamp collecting example, as items such as stamps, coins, etc. are subject to capital gains rules and are reported in Schedule D, not E.

I also take issue with your statement that "The rules state that your business is to have a profit 2 out of every 5 years." The IRS can't tell you how often you HAVE To have a profit. All they can tell you is how often you have to have a profit IN ORDER TO BE ALLOWED TO DEDUCT YOUR LOSSES. Maybe I'm splitting hairs here and that is what you meant. And again I point out, the current rule is 3 out of 5 years.

[Mark T. DeNucci, Sr.]

Originally Posted by Whistles & Stripes

Per my previous post, it is actually 3 out of 5 years, not 2. Maybe it was 2 way back in 1996. Who knows.

I also don't like your stamp collecting example, as items such as stamps, coins, etc. are subject to capital gains rules and are reported in Schedule D, not E.

I also take issue with your statement that "The rules state that your business is to have a profit 2 out of every 5 years." The IRS can't tell you how often you HAVE To have a profit. All they can tell you is how often you have to have a profit IN ORDER TO BE ALLOWED TO DEDUCT YOUR LOSSES. Maybe I'm splitting hairs here and that is what you meant. And again I point out, the current rule is 3 out of 5 years.

When I said 2 out of 5 years I meant 3 out of 5 years. I am getting senile in my old age and probably was thinking of a loss 2 years out of every 5 years. And the stamp collector example was the example the IRS agent with whom I was officiating gave, not me.

MTD, Sr.

[jeremy341a]

I don't understand how I could not show a profit. In 2014 I brought in $5725.80 and drove 4300 miles. I think I have $55 to the state and $75 to my association. Uniforms purchases and shoes came out to around $200. What am I missing?

[Camron Rust]

Originally Posted by jeremy341a

I don't understand how I could not show a profit. In 2014 I brought in $5725.80 and drove 4300 miles. I think I have $55 to the state and $75 to my association. Uniforms purchases and shoes came out to around $200. What am I missing?

You either make a lot of money per game (relatively speaking) or your games/meetings/etc. are really close to your home.