Tax Shelter

[FreefallSnoopy 0]

So, I'm not an expert at this but I was curious if anyone else has done this. Other threads I've found weren't quite what informative enough, or were pretty old.

I was thinking of pairing a coaches rating with a sole proprietorship or other business form to put all my jumps under. This way, I could have fun jumps under the business for "training" purposes. I've definitely heard of other people doing this, but wondered if anyone else has done it without any audits from the IRS.

This year I got completely screwed for state taxes due to higher than normal income, and am looking at a way to reduce this, or at least offset skydiving costs to free up money to pay the state in the coming years. This really has nothing to do with liability whatsoever.

Most of what I'm interested is:

Do I need to have a certain paid jump vs. training jump percentage?

Is one business model preferable in the skydiving industry over another?

If this works, can I write off new gear?

How much can I spend on training jumps per year?

Anything else you might think is helpful.

Thanks

[justme12001 0]

I am definitely not a lawyer, so this is just my .02

As a coach I would so no, the reason being, is you usually don't get paid as a coach, you just get free jumps.

Now if/when you start doing video/tandem/aff and actually start getting paid and receiving 1099 then yes.

I don't write off all my fun jumps, but I do write off some, along with gear, licenses, physicals, and mileage. The flip side is you do have to claim income that you made.

Again, just my opinion!!

[DougH 270]

You need to see a real CPA. I am a CPA that specialized in taxes, and while I won't give out a bunch of advice, I will tell you that there are pitfalls, and an expert is worth the money spent.

You can start by not calling it a tax shelter, your CPA isn't going to like that. If you want to take deductions it has to be a legit business venture. You have to have the intention of making a profit.

There are hobby loss rules that prevent people from deducting loses from activities that don't generate profits, that in reality aren't a business venture, they are hobbies. The application of the rules requires knowledge of the complete fact pattern, and is more nuanced, and I won't attempt to do that online. At a high level, you have to make a profit, or you have to make a profit within a period time of starting the business.

Since you want to shelter income from outside of skydiving, with losses from your skydiving activity, you are probably in the no go zone.

To share a personal experience I am a part time instructor on the weekend, I get a 1099, and I write-off expenses of the business. But at the end of the day my skydiving business makes a profit every year, and at that point the analysis turns to making sure you a deducting reasonable business expenses, and can document them.

I assume that someone only doing coach jumps on a casual basis would not generate enough income to get a 1099 from the drop zone, and probably isn't going to have enough activity to treat it as a business.

I hope that helps somewhat. Where should I send the invoice for the consulting fees payable in beer?

"The restraining order says you're only allowed to touch me in freefall"
=P

[Andy9o8 0]

Quote

you usually don't get paid as a coach, you just get free jumps.

Just as an aside: technically, payment in-kind, rather than in-cash, is still taxable income.

[DougH 270]

Andy9o8

Just as an aside: technically, payment in-kind, rather than in-cash, is still taxable income.

You are going to blow some peoples minds Andy. We could talk about the whole employee versus contractor thing, but "they" might be listening.

"The restraining order says you're only allowed to touch me in freefall"
=P

[Divalent 89]

Andy9o8

Quote

you usually don't get paid as a coach, you just get free jumps.

Just as an aside: technically, payment in-kind, rather than in-cash, is still taxable income.

Yeah, but they don't, for example, tax the pilot and crew of an airliner for the reasonable value of a flight from one place to another. If they are only giving you what they need to give you in order for you to do the job, its not taxable.

Now if they gave you a free jump on another load to "pay" for your coaching duties on this load, then technically that would be taxable income.

[DougH 270]

Yes, the slot on the actual coach jump itself isn't compensation. Credit on your manifest account is.

"The restraining order says you're only allowed to touch me in freefall"
=P

[justme12001 0]

I know that if your "business" loses money for 5 years (I think) it goes from being a business to a hobby.

My question is when/if my business gets turned into a hobby, can I no longer take deductions against it? I am assuming that the IRS is still going to make me claim the money that I make that I get the 1099 for.

My thought process is this. My "business" really is a hobby, but the IRS forces me to claim the income that I make, so I am going to write off every thing I can to cover the taxes I now have to pay on the money I make doing my hobby.

[DougH 270]

The limitation of loses is a different issue than the ability to claim business deductions.

You started this discussion by asking about sheltering non-skydiving income with losses from your skydiving coaching business.

The rules are not 5 years of losses equals a hobby. Out of five years 3 years of profits is evidence that an activity is for profit. That doesn't mean you can't be challenged year 1 when you claim a loss.

Go see an accountant.

"The restraining order says you're only allowed to touch me in freefall"
=P

[justme12001 0]

actually FreeFallSnoopy, started the thread about starting a business as a coach to cover none skydiving expenses.

I just responded with my opinion and experiences. I did not know about being paid in kind, thank you for the information Andy!

I have been an industrial contractor for most of my working life and know pretty much what I can and can't deduct on my taxes. Everything I claim is at least somewhat/mostly legitimate. Would you agree that, that reserve repacks and USPA license and membership dues are necessary expenses for a skydiving business, even though they aren't exclusively used for the business?

And FYI I do have an accountant.

My skydiving "business" has made money every year except for the first one(7 years ago). So I was a little fuzzy on the 5 year thing. I knew it had something to do with loses over a 5 year period. I do remember my tax lady telling me that if it did get changed from a "business" to a "hobby" that nothing would really change. I would still have to claim the money made and I could still deduct my expenses.

So I guess the real question is what is the point of the designation of business and hobby?

[DougH 270]

justme12001

actually FreeFallSnoopy, started the thread about starting a business as a coach to cover none skydiving expenses.

I just responded with my opinion and experiences. I did not know about being paid in kind, thank you for the information Andy!

I have been an industrial contractor for most of my working life and know pretty much what I can and can't deduct on my taxes. Everything I claim is at least somewhat/mostly legitimate. Would you agree that, that reserve repacks and USPA license and membership dues are necessary expenses for a skydiving business, even though they aren't exclusively used for the business?

And FYI I do have an accountant.

My skydiving "business" has made money every year except for the first one(7 years ago). So I was a little fuzzy on the 5 year thing. I knew it had something to do with loses over a 5 year period. I do remember my tax lady telling me that if it did get changed from a "business" to a "hobby" that nothing would really change. I would still have to claim the money made and I could still deduct my expenses.

So I guess the real question is what is the point of the designation of business and hobby?

Sorry, I got mixed up in the chain about who was asking what. The dangers of smart phone posting.

I think in practice you would find that there isn't a real distinction between hobby or for profit activity for instructors that are actively using their AFF or TI ratings.

The rules keep people for sheltering unrelated income with losses. If you are an active instructor with legitimate expenses you are going to be hard pressed come up with enough legitimate deductions to end up in a net operating loss.

It only matters when the activity isn't generating net income, like the original poster.

For example 100 jump wonder gets a coach rating, and makes 50 coach jumps a summer. Now he want to write off his rig, his tunnel time, uspa membership, mileage to the DZ. Sure he may make 1000 dollars at a generous DZ, but now he want to classify 8,000 dollars of skydiving expenses each year.

That isn't going to be considered a for profit activity under audit. The deductions are going to be limited to the 1000 dollars of revenue from the activity.

"The restraining order says you're only allowed to touch me in freefall"
=P

[DanG 1]

Step 1: Post on public forum your plan to defraud the government
Step 2: ???
Step 3: Huge profits

- Dan G

[Andy9o8 0]

DanG

Step 1: Post on public forum your plan to defraud the government
Step 2: ???
Step 3: Huge profits

He should open a pizzeria in Indiana

[JohnMitchell 14]

justme12001

I know that if your "business" loses money for 5 years (I think) it goes from being a business to a hobby.

Uh oh, does this mean several major air carriers are actually hobbies?

I have a great accountant that helps me write off all of my business expenses, including repacks, mileage, occasional hotel rooms and more from my annual skydiving income. But I still make some profit every year.

[AnalMike 0]

Quote

If this works, can I write off new gear?

Uh oh, don't forget about depreciable property used in a trade or business!!!!

READ: As with everyone else - seek expert tax/legal advice. It is a complicated mistress...which is why people get paid a lot of money to navigate these issues.

Anal Mike

HEE HAW!!!
http://www.droguedonkey.com

[chuckakers 369]

justme12001

actually FreeFallSnoopy, started the thread about starting a business as a coach to cover none skydiving expenses.

I just responded with my opinion and experiences. I did not know about being paid in kind, thank you for the information Andy!

I have been an industrial contractor for most of my working life and know pretty much what I can and can't deduct on my taxes. Everything I claim is at least somewhat/mostly legitimate. Would you agree that, that reserve repacks and USPA license and membership dues are necessary expenses for a skydiving business, even though they aren't exclusively used for the business?

And FYI I do have an accountant.

My skydiving "business" has made money every year except for the first one(7 years ago). So I was a little fuzzy on the 5 year thing. I knew it had something to do with loses over a 5 year period. I do remember my tax lady telling me that if it did get changed from a "business" to a "hobby" that nothing would really change. I would still have to claim the money made and I could still deduct my expenses.

So I guess the real question is what is the point of the designation of business and hobby?

The "hobby vs business" rules are pretty vague.

http://money.usnews.com/money/blogs/my-money/2014/03/31/does-the-irs-view-your-side-hustle-as-a-business-or-hobby

Chuck Akers
D-10855
Houston, TX

[stayhigh 2]

Write it off.

What are the chances that IRS is going to review YOU?

I know a dude who had not file taxes in last 3 years.

Bernie Sanders for President 2016