Chasing and taxes

From a beginner's perspective -

So I've decided to take up storm chasing as an official hobby. Is there anything I can do on my taxes to justify my money spent? If so, what do I keep track of? Are there any incentives one can get if they do spotting as well?

Basically write down any tax-saving advice...thanks!
 
Im going to assume you don't intend to setup a real company with stock and a board of directors and the like. Given that...

I researched this myself not 6 months ago.

1. Hobby actually mean something to the IRS. If you make zero money on your activities or take a loss for more than 3(?) years the IRS will actually consider your activity a hobby and not look kindly on you taking credits based on your expenses/loss.

2. There are no tax breaks for a hobby

For folks that are "full time" chasers...they actually need to make a profit from selling DVDs or video clips or it's still a hobby. Last I read even the likes of Mike Hollingshead, one of the best in the business, doesn't make enough money from just his chasing. Not speaking for Mike, but I suspect he can't take a tax credit on his chasing equipment, cameras, gas, etc.

On a personal note:
Even though I run a VERY small sole-ownership business, that actually came to be out of this hobby, I can not expense my 'storm chasing' or 'spotting' since it's not directly related to my business. I could skirt the area of legality by possibly going to a chaser convention as a 'vendor' and then chasing before or after on my way home. Then all expenses during that chase would be business expenses. Of course if I do that for 3 (?) years in a row so as to show my company as loosing money (let's say I take in $2000 a year and I spend $3000 on chasing) then the IRS will call my company a hobby and we are back to square one.

Of course im not a tax attorney...but I did stay at a holiday inn express.
 
Though similar to Tyler, I am able to get the expenses written off as necessary business expenses. Since I am a reporter for a radio station, it's my time and money that goes to the vehicle. I am not compensated by the station for this and I carry advertising on the truck for the station, I get to write of the mileage as well. I get a 1099 from the station (usually totaling around $1000 for other things) which allows me to do this. I get to write off all the mileage as well, since I'm advertising. Radio's are essentail to the duties of a reporter as well as Camera, Cell Phone, and other related equipment.
 
Tyler is right. Unless you make money chasing, which is very difficult, you can only take deductions for 3 years max.

I am trying it now with an honest intention to make money from a DVD I'm going to attempt to put out and sell locally in retail outlets as well as the occasional stock video / TV news video sale. I have gone part time with my day job to 'chase' and do this, and so far it is working OK, but it is not easy at all.

Starting a business is pretty complicated, especially if you live inside the boundaries of a city or large town. Lots of government people get a piece of your income and because of this, it is hard to make a profit if you're not making much to begin with. You have to deal with federal, state and local taxes. There are city B&O taxes and county property taxes on your equipment. It is pretty overwhelming when you do it for the first time and I am slowly figuring everything out.

I don't know if I will end up getting to do this after the IRS' three year timeline, if not I've got an employer that graciously will take me back full-time. I have not made a profit so far in two years, but most of that is due to first-time equipment purchases. Travel expenses (gas/vehicle wear) are a killer nowadays.

One thing is for sure is that if I wasn't passionate about the weather, I would never do this. There are much more reliable and easier ways to make money out there. You're probably better off getting a nice day job that allows you enough vacation time and pays you enough so you can afford the gear/travel expenses to chase like you want to.

Also, being single helps. If I ever get married, this 'chasing life' will definately have to end :)
 
Originally posted by John Diel
I carry advertising on the truck for the station, I get to write of the mileage as well.

Anybody have any links to say this is legal? Im not questioning what you are doing... I thought about doing the same thing with my car but everything I could find...though not specific to the question...seemed to point to the fact that since I wasnt actually driving the car for my business (ie: my wife driving the car around town to pick up our kids) I couldn't take the milage/gas on it. I could however take the milage/gas on it if I drove to a convention as a vendor for example.

I see a lot of small companies with signs on personal cars and I figure they can't be doing it just for the advertising...but I cant find a document that says I can expense it!
 
No expert here, but some relevant background.... Anyway, unless you're running a tour company, I'd suggest you frame the business as "nature and journalistic photography". The main thing about a business is that it makes money or demonstrably tries hard to; otherwise it's a hobby or recreation.

In addition to what Dan said, you should consider the liability and insurance implications of declaring it as a business. A business may be held to a higher legal standard of liability and your personal insurance may have exclusions for business use.
 
Ok, so it's obvious if you're a business...you can write off your expenses up to legal limits and such...got all that.

But if you're a newbie chaser and you want to get into it as a hobby, you could write it off in your first three years and never claim anything ese after that. Then you've written off your initial expenses which is predominantly the worst part about getting into chasing...that is, if you like all the fancy doo-hickies.
 
The three-out-of-five profit establishes intent. The reverse isn't the case, whereby you can run three years of losses and get a free pass. Practically speaking you might get away with it, but technically your "business" deductions might not survive an audit. From http://taxes.yahoo.com/basics/life/selfemp.html
Since the IRS business profit motive test is subjective, you stand a better chance of surviving any tax questions if you conduct your business professionally. That is what matters, as well as your training and background in the field, the amount of time you put into the venture, the operation's profit/loss history, your overall financial status and the \"recreational\" elements of the project. That doesn't mean you have to hate your own business, but neither can you claim your hobby is your work.
 
Originally posted by Tyler Allison
Even though I run a VERY small sole-ownership business, that actually came to be out of this hobby, I can not expense my 'storm chasing' or 'spotting' since it's not directly related to my business.
It is interesting that you put "spotting" inside quotes. I too am no tax attorney, but it seems like there *might possibly* be some kind of allowance in there for "storm spotting" if you are a Skywarn volunteer. You can deduct expenses that are related to being a volunteer fireman. Wouldn't this be a similar case? Surely, somebody here has checked into that.

And I don't believe that Skywarn activities are necessarily limited to your home community by legal definition.
 
Originally posted by Rob_Davis+--><div class='quotetop'>QUOTE(Rob_Davis)</div>
<!--QuoteBegin-Tyler Allison
Even though I run a VERY small sole-ownership business, that actually came to be out of this hobby, I can not expense my 'storm chasing' or 'spotting' since it's not directly related to my business.
It is interesting that you put "spotting" inside quotes. I too am no tax attorney, but it seems like there *might possibly* be some kind of allowance in there for "storm spotting" if you are a Skywarn volunteer. You can deduct expenses that are related to being a volunteer fireman. Wouldn't this be a similar case? Surely, somebody here has checked into that.[/b]

Interesting idea. And I hope someone can comment. The only difference I can really see is a volunteer fireman/police/ema has official recognition by a government entitity. I realize SKYWARN has an official recognition as well but it's not at the same level. I think volunteers in the fireman/police/ema area are sorta a special case.
 
Expenses directly related to storm-spotting in your community sound like a slam-dunk deduction to me. Now, that's a "charitable" deduction where you use the charity mileage deduction rate, itemize non-cash items, and get a letter from the donee agency acknowledging your contributions as regulations require.

AFA a Skywarn spotter from (for example) Tyler, Texas, deducting expenses for their spotting near Chadron, Nebraska, well, I dunno.... :wink:
 
It's part in what you call it. Lots of freelance photographers work as a business and they have many of the same expenses we do, especially if they travel much to do it.

When you really look at it, if your selling or licensing your images or video and you don't actually work for someone while your doing it, your a freelance photographer.

You can do this, and it's tough, and you can write off some things, but that self employment tax will bite you in the rear hard. It got me good for 2003 and 2004 it was even worse, and that was only on my chase stuff.
 
Since the station does not pay me mileage and advertises on the truck, it becomes an expense. Just about everyplace I go is generally within the listening area and the advertising doesn't just stop at business hours.
 
The tax codes are very complex with LOTS of gray areas that could easily, with the very slightest of "interpretations" or "definitions" in the tax law, swing your way or to your detriment. Not only do you have federal tax codes to deal with but at the very least state tax codes where you operate your "business-hobby".

I've been looking into this myself and it quickly becomes apparent that a tax attorney needs to get involved that will take the time to truly understand what you are trying to do and then explain the implications/benefits. I've done this with a real estate venture that I tried a few years ago and I can tell you for a fact that NOTHING is clear cut when it comes to dealing with the IRS. It's very complex with lots of room to make a mistake....not to mention all of the detailed paperwork and bookkeeping that you have to do.

I actually think it would be a good idea to get a group of chasers together, pool our resources, and hire a competent and savvy tax attorney to guide us. What do ya'll think?
 
Honestly, I don't think it's that complicated, unless you involve a high-powered lawyer! :wink: It's not like real estate IMHO.

I filed a Schedule C for some years to offset significant Form 1099 income (and sometimes a bit more) from singing with expenses including lessons, music, and travel. I was audited and passed without problems. Meanwhile I had other earned income.

It's pretty easy to justify offsetting any income from chasing with expenses. It's more difficult to also justify offsetting a big chunk of your unrelated earned income with a lot of excess chasing expenses. Unless you keep good records and build up a good case for intent, it looks like what it is :wink: : a way to deduct hobby and recreational expenses from your earned taxable income.
 
Originally posted by David Wolfson
It's pretty easy to justify offsetting any income from chasing with expenses. It's more difficult to also justify offsetting a big chunk of your unrelated earned income with a lot of excess chasing expenses. Unless you keep good records and build up a good case for intent, it looks like what it is :wink: : a way to deduct hobby and recreational expenses from your earned taxable income.

That's my point exactly. You particular situation is unique as is everybody esles. At what point does write-off expenses become excessive? What abot the 3 year rule? I could pop off alot of questions that I seriously doubt anybody here would know the full answer too. With the complex tax laws changing every year along with continuous "clarification" and "rulings" from the IRS, what worked for you a few years ago stands a good chance of not applying to this year or the next few years. It is unfortunate, but you must stay on top of the tax codes each and every year. Who has time to do that?

All I'm saying is that you have to spend a good deal of time with record keeping AND keeping up with the current tax codes. Is it worth it? Is it worth it making a mistake? I guess I'm being overly cautious here, but the IRS is one government entity that I'd rather not have to deal with....personally.

That's why I think it would be a good idea to have a group of us chasers hire a tax attorney to do all of this for us and keep us inline. :) As you mentioned intent, by doing so and if there are mistakes, I can guarantee you the IRS will be much more forgiving because you were acting under the advice of counsel. And, besides, you can write off your tax attorney fees too! :)
 
I understand where you're coming from, Steve, and I mis-phrased my post. I intended to say one shouldn't be deducting hobby and recreational expenses no matter how good their record-keeping.

In my personal opinion, though, the IRS' own publications and other on-line information gives pretty good guidance. A lawyer will mainly reformat and charge plenty for the same guidance. Then buy and use a good record-keeping program. I use Quicken Premier which allows management of both personal and business finances.

Alas, filing a Schedule C, especially with a significant loss, makes one much more likely to be audited from what I understand.
 
Originally posted by Steve Miller TX
That's why I think it would be a good idea to have a group of us chasers hire a tax attorney to do all of this for us and keep us inline.
Oooooh! That sounds like an absolutely great mission/benefit for this new "Chasers Association" organization everybody keeps proposing. Until now, the best anybody has come up with was bumper stickers and hotel discounts.
 
Originally posted by David Wolfson
I understand where you're coming from, Steve, and I mis-phrased my post. I intended to say one shouldn't be deducting hobby and recreational expenses no matter how good their record-keeping.

In my personal opinion, though, the IRS' own publications and other on-line information gives pretty good guidance. A lawyer will mainly reformat and charge plenty for the same guidance. Then buy and use a good record-keeping program. I use Quicken Premier which allows management of both personal and business finances.

Alas, filing a Schedule C, especially with a significant loss, makes one much more likely to be audited from what I understand.

I guess I should also clarify. :) If you have the time to read and digest all of the IRS publications and find all of the answers you are looking for, or worst yet knowing which questions you have to ask, then it can certainly be done. I guess I was responding more from my personal situation as I have investments, charitable contibutions, homeowner stuff, etc. that keeps me pretty immersed in the tax codes for those areas. Every year they change and it requires more reading. I just simply don't have the time to read up and become well versed in the tax laws regarding stormchasing business/hobby stuff. I still have to have time to go stormchasing and other things. LOL!! :)
 
Originally posted by Rob_Davis

Oooooh! That sounds like an absolutely great mission/benefit for this new \"Chasers Association\" organization everybody keeps proposing. Until now, the best anybody has come up with was bumper stickers and hotel discounts.

This could easily start a whole new thread. :) I've seen some discussions about that and it quickly deteriorates. Chasers are pretty independent and diverse breed. ;-) But, with services like that as well as copyright assistance (enforcement, filing, etc), and setting/adhering to pricing standards for our work, etc are things that would interest me. But, I digress before the admins tap me on the shoulder. :roll:

Maybe you could find a tax attorney that would like to go stormchasing with you in exchange for their services/advice? The old barter system is a beautiful thing nowadays.

Of course, my beliefs as a Libertarian is that federal income taxes should be totally abolished. Then we wouldn't have to worry about it. LOL!!!
 
My experience with this is limited to two years... I do a lot of contract work with video. While my income from this isn't massive, I typically write off as much as twice the amount I make in a year. This season may be a bit higher due to lack of video sales on my part.

I have written chasing off for a couple seasons now, both years recording losses and would imagine this year doing the same. I do not know how the three-year rule will affect me, but until I am told otherwise, I am going to continue to write-off my expenses as a "business" expense as I can justify all my expenses with receipts, mileage logs, etc. I keep very good track of what I spend related to chasing, so any audits should be rather painless (as much asone can be) if I were to get one.

Again, I don't find I am doing anything wrong. I figure as long as I can back up my claims with receipts, invoices, etc, I should be fine. Anyone who may know different please speak up, but as far as I know, I am fine.
 
It'd be easier if they just took your first child and called it a life (for taxes).
 
Not speaking for Mike, but I suspect he can't take a tax credit on his chasing equipment, cameras, gas, etc.

My only source of income in 2004 was from chasing stuff. You can rest assured I deducted everything I bought in 2004 that related to chasing....cameras, dvd making stuff(burner, software), etc. I never kept track of mileage and gas or did the other billion things I could have, like deducting parts of my appartment space/rent. But this is all probably different as I certainly didn't have a loss in it and wasn't working any other job. Well actually I did have a job through early March, but nothing after that.

I am working on a loss for this year though, lol. I plan to still deduct the things I have purchased, as well as gas costs, motels, etc.
 
Originally posted by Mike Hollingshead
Not speaking for Mike, but I suspect he can't take a tax credit on his chasing equipment, cameras, gas, etc.

My only source of income in 2004 was from chasing stuff.

Good thing I didn't speak for you :oops:


I am working on a loss for this year though, lol. I plan to still deduct the things I have purchased, as well as gas costs, motels, etc.

Most definately. You deserve to turn a profit soon though! :D
 
One thing that you have to remember when dealing with tax deductions is that tax deductions are not a way to save money dollar-for-dollar! That is, money spent on gear, travel, etc, or ANY 'business expense', does *not* equal tax savings dollar-for-dollar. Deductions only reduce your *taxable income*, which in turn reduces your taxes by a percentage - but the amount of money spent on a deductable expense does not equal the money saved on taxes.

I know the following numbers may vary greatly from person to person, but just for the sake of example: For instance, let's say you make $30,000 a year. With no deductions, your taxes (state and federal) may be roughly $8,000, assuming a total income tax of 26%. Now - you want that new Canon 20D and a VX2100, with L-series lenses, wide angle adapters, tripods, software, tapes, memory cards and accessories for a total of roughly $7,000. If you established a legit chasing business and deducted these items as expenses, your deduction would be $7,000 (if you deducted the full amount in one year rather than opting to depreciate the items over multiple years). Now, that $7K does not reduce your $8K tax bill to $1,000. What it does is reduce your taxable income by $7,000, so now your taxable income with the deductions is $23,000 ($30K income minus the $7K deduction). This only reduces your taxes to $5980 from $8,000, a tax savings of only $2020. In other words, you still have to pay taxes on the $23K. So, you spent $7,000 on gear and saved only $2020 on taxes.

In order to reduce your $8,000 tax bill to zero, you would need to have zero taxable income. This means you'll need to have deductions (expenses) that match your *total* income, which in this case would be $30,000! So, to pay zero taxes on a $30K income, you'd need to SPEND $30,000 - all to save just $8,000 on taxes! This won't work for two reasons - First, as mentioned in previous posts, the IRS is not going to allow you to do this for very long. And secondly, if you made $30,000 and spent $30,000, obviously that leaves you with absolutely no money to live on for that year!

In other words, justifying a large purchase or ANY expense by saying it is a tax deduction does not end up saving you as much money in the end as you think. Buying that new camera will still cost you a large sum even after the tax deduction. If you really need the equipment, that's one thing, but if the sole reason you're getting the gear is for the tax deduction, it won't help you as much as it may seem.

When you have a business, a lot of people (insurance companies, salesmen, etc.) will try to ease the pain of expensive items, rates or fees by touting the tax deduction you can take if you bought it. But just remember tax deduction =/ direct savings on taxes.

I guess my point is, don't fall for the trap of spending a large sum of money on expenses just for the tax deduction. Unless you really need the gear, it's actually cheaper to just pay Uncle Sam than try spending money to reduce your taxes.
 
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