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Tax question

Discussion in 'Business Operations' started by BAMARED, Feb 21, 2003.


    BAMARED LawnSite Member
    Messages: 206

    I utilitzed the "search" feature, but couldn't find an <B>exact</B> answer to this question. I would appreciate any input from anyone that knows. I have a fully legit part-time lawncare business - licensing, permits, etc. I work 7-4:30 at my main job and finish my day w/ several lawns as well as servicing as many as possible over the weekend.

    OK - here goes: Say that I earn $10,000 over the course of the summer. I have $12,000 worth of expenses (new equipment purchases, etc.) What amount do I have to pay taxes on? My accountant tells me that with this scenario that I would not pay any taxes and the $2,000 loss from this part-time business will be deducted from my main job. What does that mean? She went on to tell me that you have got to show a profit in 2 out of 5 years. Is all this right or am I missing something?

    Thanks for any advice/input,

  2. scott's turf

    scott's turf LawnSite Senior Member
    from NH
    Messages: 949

    Yes, say you made $50k from your FT job. You lawn care business netted -$2k so your taxable income now becomes $48k. I am not sure of the exact rules of when the IRS considers a business a hobby. But if you have more than two consecutive years with a negative profit than you might want to think of a different line of work.

    BAMARED LawnSite Member
    Messages: 206


    Thanks for the reply. What I'm saying in this scenario is that my part-time lawncare business <B>lost</B> $2,000, not made or "netted" $2,000. Right?

    Thanks again,

  4. bruces

    bruces LawnSite Senior Member
    Messages: 648

    Yes, that is pretty much right.

    Since you are operating as a sole proprietor (I assume) you will fill out a Schedule C - Profit or Loss from Business that will show your gross business income, deductions, and net income or loss.

    In your scenario, that will come out to a $2,000 loss. That loss is entered on the front page of your tax return and adds in with all of your other income (salary, interest, anything else) to determine your total adjusted gross income. Then your personal exemptions and itemized deductions come off of that to determine taxable income.

    Income tax is computed on that figure.

    You have options on the write off of equipment, you can depreciate it a variety of different ways, including using the Section 179 deduction to write off up to 24,000 in 2002.

    Remember though, if you write it all off this year and don't buy anything in 2003, you might have a lot more net income from the business to pay tax on in 2003.

    With equipment writeoffs (depreciation), it isn't a matter of how much you get (you get it all eventually), it is a matter of when.

    When you are doing your 2002 tax return you have a little opportunity to do some planning for 2003 by how you write off your equipment.

    As far as a profit in 2 out of 5 years, that is not a hard and fast rule, but, if you are operating by yourself and you aren't showing a profit after a year or 2, it is probably time to hang it up.

    BAMARED LawnSite Member
    Messages: 206


    Wow! Awesome answer. I see that your up-to-snuff on this stuff. Would you mind if I called you?

    Thanks, Bruce

  6. rodfather

    rodfather LawnSite Fanatic
    Messages: 9,501

    I seem to recall bruces is (or was) an accountant. He always has very informative replies to tax/accounting questions.
  7. Lawn Solutions

    Lawn Solutions LawnSite Member
    from midwest
    Messages: 39

    You can have more than 2 years of losses, as long as you can demonstrate a PROFIT MOTIVE. That is, be able to show IRS that you are legitimately trying to make a profit....

    Get the book "How to pay Zero Taxes" or J.K. Lasser's Income Tax Book, study it, and also get professional help.

    Our Income Tax System is absolutely ridiculous. There are people who never show a profit but are able to convince the IRS that they are trying. All I can say is do some studying, then be aggressive BUT DON'T evade taxes, keep detailed records and you will benefit more than you think.
  8. Doburf@cs.com

    Doburf@cs.com LawnSite Member
    from WV
    Messages: 6

    I depreciate my big money items such as vehicles, large equipment. Then I deduct all of my small equipment such as trimmers, blowers, etc. at once.
  9. DLS1

    DLS1 LawnSite Bronze Member
    Messages: 1,619

    Yes Bruce is a CPA who mows part-time.

    Hey BARMARED, you need to get to the library and start reading books on taxes for a business. You need to see a CPA in your town to do your taxes. Like already mentioned you can read J.R. Lassiter's tax book. You will still need to see a CPA since what you are reading from books may still not sink in about tracking expenses, depreciation, other IRS requirements.

    There will be agressive CPA's that recommend to take more deductions,etc. than another CPA. Example is one might say deduct all your cell phone bill and another CPA only say deduction % of bill according to how much use is personal versus business use. Some CPA's will say take home office deduction and another CPA say don't take home office deduction.

    I'm not a CPA but have had plenty of accounting classes, and some experience before switching to programming. The quicker you educate yourself about taxes the quicker you will know what a CPA is talking about .
  10. bruces

    bruces LawnSite Senior Member
    Messages: 648

    Yea, I am a CPA who mows part time. I moving toward being a LCO who is a part time CPA.

    All good comments, some tax preparers strictly follow the letter of the law, others will be more aggressive to the taxpayer's benefit.

    Just remember, if you take an aggressive position on tax deductions, you will pay the price, not the tax preparer. On the other hand, if you take an aggressive deduction and are never audited, then you come out ahead.

    Some people just want to be safe and are scared to death of the IRS, others are more aggressive.

    Also remember, don't tell your tax preparer anything yhou don't want them to know. If they knowingly cheat, then they are subject to penalties also.

    Another fact to consider, if you are continually paying no tax, one of two things applies, you really aren't making any money (that is really not good!!), or you are cheating in a big way.

    I'll bet if we wee the tax returns of the successful LCO's on here, they are paying a substantial amount of taxes.

    I'd love to have a $50,000 tax bill, that would mean I had a pretty good year.

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