Tax Question

[chigbee 0]

I had a friend tell me today that if I form an LLC I can use it to write off all skydiving expenses as long as I say it is to obtain the training I need to get a job. So are there any accountants out here who know if I can say I am jumping to become an AFFI or TI, can I write off my jumps and gear? Both of which are required to become an instructor. It would be nice to take an extra $4000 deduction this year.

[DrewEckhardt 0]

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I had a friend tell me today that if I form an LLC I can use it to write off all skydiving expenses as long as I say it is to obtain the training I need to get a job.

It's not that simple.

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So are there any accountants out here who know if I can say I am jumping to become an AFFI or TI, can I write off my jumps and gear? Both of which are required to become an instructor. It would be nice to take an extra $4000 deduction this year.

The only clearly legal way to take a $4000 deduction this year is going to be earning at least $4000 in the skydiving industry; which in your first year will most likely be by packing 600-800 main parachutes. Things get more complicated when part of that is equipment.

Deductions from activities which are not done for profit (as demonstrated by actually earning a profit in 3 out of 5 years) are only allowed to the extent they offset income. When you earn $2000 growing Bonsai trees as a hobby after spending $4000, only the first $2000 is deductable.

Net operating losses are only allowed when you intend to earn a profit. They get applied to previous and subsequent years.

Equipment is only deductable to the extent it's used in business. If the use is half personal and half business you only get to claim half the depreciation as a deduction. To depreciate equipment the year it's put into service business use must be at least 50%. If business use drops below 50% or you sell it before the end of its depreciable life (7 years for personal property) you need to cover the taxes you should have paid. I only kept my first rig for 3 years and should have gotten something which actually fit the main I was jumping sooner.

If you take the education expenses as a personal deduction they count as a miscellaenous deduction. Miscellaneous deductions only come off your income when you itemize, and then only to the extent that they exceed 2% of your adjusted gross income.

Having an S-corp or LLC which opts to be taxed as an S-corp (I formed an LLC because it was easier and $50 cheaper in my state) is only a financial win in that some expenses are subtracted from revenues before they become income. That means you haven't paid FICA taxes before spending the money, it's not subject to the 2% miscellaneous exclusion, and you can still claim the standard deduction. Where everything earned in a sole proprietorship is income subject to FICA, your S-corp can pay you a reasonable salary as an employee and give you additional profits as a distribution which is only subject to income tax.

[chigbee 0]

If you take the education expenses as a personal deduction they count as a miscellaenous deduction. Miscellaneous deductions only come off your income when you itemize, and then only to the extent that they exceed 2% of your adjusted gross income.

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So If I am understanding that correctly I can take a $1200.00 deduction if my agi was $60,000.00 as an education expense? or is there something else I need to prove on it?

[DrewEckhardt 0]

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If you take the education expenses as a personal deduction they count as a miscellaenous deduction. Miscellaneous deductions only come off your income when you itemize, and then only to the extent that they exceed 2% of your adjusted gross income.

So If I am understanding that correctly I can take a $1200.00 deduction if my agi was $60,000.00 as an education expense? or is there something else I need to prove on it?