HOBBY OR BUSINESS?

Larry, I have been raising horses for fun and have sold a few here and there. One of my buddies that I horse around with (no pun intended) suggested that I could maybe deduct my expenses as business expenses. What do you think?

Roger

Roger, this question is way too complicated to answer without discussing with you personally. If you are a client of our firm, call me and I will disucss with you to see if there is a possibility that your horse business is actually a trade of business or just a hobby. If your favorite activity does make a profit every year or so, there may be tax implications. You must report income to the IRS from almost all sources, including hobbies.

To give you an idea of what we would be looking at to determine if you have a trade or business or a hobby, here are the questions that we would be reviewing:

• Is the purpose of your activity to make a profit? Generally, your activity is considered a business if it is carried on with the reasonable expectation of earning a profit.
• Do you participate in your activity just for fun? Hobbies – also called not-for-profit activities – are those activities that are not pursued for profit.
• Do you depend on income from the activity? If so, your activity is likely considered a business.
• Have you changed methods of operation to improve profitability? If so, your hobby may actually be a business.
• Do you have the knowledge needed to carry on the activity as a successful business? People who carry out hobbies just for fun, often don’t have the business acumen to turn their not-for-profit activity into a profitable business venture.
• Have you made a profit in similar activities in the past? This may indicate your activity is a business rather than a not-for-profit hobby. An activity is presumed carried on for profit if it makes a profit in at least three of the last five tax years, including the current year – or at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.
• Does the activity make a profit in some years? Even if your activity does not make a profit every year, it still may be considered a business.
• Do you expect to make a profit in the future from the appreciation of assets used in the activity? This indicates your activity may be a business rather than a hobby.

Note that if your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity. If you are conducting a trade or business you may deduct your ordinary and necessary expenses.

It is a pleasure serving you.

Larry Kopsa CPA

QUOTE OF THE WEEK

My favorite poem is the one that starts
'Thirty days hath September'
because it actually tells you something."
--Groucho Marx

SOME JOB-SEARCH SPENDING CAN BE DEDUCTED FROM YOUR TAXES

Expenses incurred while looking for employment are often tax deductible, but you have to follow the rules laid down by the Internal Revenue Service. The first thing to consider is whether your search is targeted to a position similar to the one you last held. Career changers are out of luck when it comes to deducting job-search expenses. Under the "same occupation rule" you can claim expenses that you've incurred only in trying to find a job like the one you had before. The Wall Street Journal

ROY SMITH NEWSLETTER - ACRE and CSP

I receive a really good ag newsletter from Roy Smith. Roy calls his newsletter FARMER TO FARMER $easonal $trategies Newsletter. If you are interested you can get more information from his website http://www.soyroy.com/ or email him at roy@soyroy.com.

Here is an excerpt from his latest newsletter that I thought you might be interested in.

"ACRE and CSP? I signed up for the ACRE program on my home farm but not on the rented farm as I alluded to last month. With the anticipated good yields predicted for non-irrigated land in Nebraska, I probably am going to sacrifice some direct payment because the price probably will not get low enough to compensate for the yields. What happens to the crop between now and harvest and what cash prices do in the next year are the determining factors.

Just when I thought I had the program figured out, along came the Conservation Stewardship Program, or CSP. I understood that it was designed to reward those farmers who already have conservation practices implemented. At a meeting last week, I discovered that to get a payment, a farmer also has to agree to implement additional practices. I posed the question of what I would be expected to add since my farm already has nearly every practice on the approved list. The one thing that would fit their requirement would be to include wheat in my crop rotation. That isn’t going to happen because I sold my wheat growing machinery. I see some traps in this program that we all need to be aware of before we sign up for a five year commitment. The deadline for getting in on the first sign up is September 30. See your local FSA or NRCS office."

ETHANOL INDUSTRY IS BOUNCING BACK

(DomesticFuel.com) -- DomesticFuel.com reports that "according to the Governors’ Biofuels Coalition (GBC), Nebraska’s ethanol industry has nearly recovered from the economic doldrums it faced last year and is back near full production capacity." According to Todd Sneller of the Nebraska Ethanol Board, "during the last three to four months plants have been starting to operate much closer to their operational rate of capacity, so if they were operating at 70% to 80% of capacity, they are now operating 'much closer to 100% of capacity.'"

Read the full story at <http://domesticfuel.com/2009/09/03/nebraska-ethanol-industry-bounces-back/>

HERE COMES INFLATION

According to economists the federal government will not be able to contain inflation because the government has pumped trillions of dollars in stimulus funds into the economy, the Federal Reserve will not be able to keep inflation in check in the next several years. While the central bank's unofficial inflation target is 2%, economists expect the price gauge tracked by the Fed to increase by an average of 3% annually from 2014 through 2018.

"An excessively stimulative fiscal policy and a complicated exit from its quantitative-easing policies over the medium term will result in the Fed tolerating a higher level of inflation than it desires," according to the National Association for Business Economics.

To see the entire article go to Bloomberg.

MISSPELLING YOUR NAME ON YOUR AIRLINE TICKET WILL NOW COST YOU $20-$150 OR MORE

American Airlines now charges 20 dollars to process a name correction (misspelled name). Even if you have to change one letter it is $20 bucks. Many people tend to use their nicknames when they buy a ticket and forget that they have to have the ticket match their government issued ID (drivers license or passport). A simple Chris to Kris will cost you $20. Steven to Stephen is $20. Matt to Mathew is also $20. Changing a complete name on most non-refundable tickets is not allowed.