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Hobby Breeders w/Business names

I'm curious if snake raising could fall under agricultural... in which case you have to show profit only3 out of 7 years, I believe. You can actually not show a profit, but you have to show that you have seriously been trying too.. Of course, that can depend on the definition used by an auditor. I remember being told that they will often audit for not real reason as the auditors got credit for the audit, no matter what the finding.
 
Not really true. An income tax return is subject to hundreds of computer checks and balances (once done by humans!) to ensure that the elements of the income tax return are compliant. After that, there is a bunch of ones selected at random to have various aspects, or the entire return, reviewed for "spot checking" purposes. After all, you kind of *are* on the honour system.

After that, those that were a bit funky will be checked out by an auditor.
 
Perhaps in Canada, but in the US unless it's changed in recent years, which I doubt since they've done away with alot of the tax breaks where the horses are concerned, you are subject to random audits. That was from a retired auditor from the fed. government. They got credit for running the audit, even if there were no errors. The first couple of years you would probably be okay, but his theory was to make sure your paperwork could stand up to an audit at any time. And to keep very thorough records of what you'd been doing to make a profit, even if you hadn't shown one yet.

I know my mother worked for the AZ state and I can remember her saying... I wonder when we last did an audit on them... (she was with the business section, not private and she actually wasn't an auditor), but in listening in at company picnics.. well, piss one off and you might find that you need to bring your paperwork in to make sure.
 
To echo michaelboyko, get some professional advice and I will quote my own tax attorney, "If for some masochistic reason you want the special attention of the IRS, deduct a home business." :sidestep:
 
I don't see why the IRS would take any personal (and harsher) in small props. It doesn't make too much sense. But, hey, I am not familiar with the IRS, as I am Canadian. But if you're that worried about it I would just incorporate, but be wary of the extra legal fees.

Minute books need a lawyer's care (unless you think you can do it), you need file a special Corporate Tax Return, complete sales tax returns, worry about directors fees, and shareholder accounts, you will *definately* need an accountant at this point and in Canada it can easily run you about 5000-10000 a year in legal/professional/banking fees for your *small* corporation.
 
The interest would be there because it would be more likely than a small business owner might be fudging his/er deductions. Home office, utlities, expenses. All things they might be able to catch.
 
I would say I do it as a hobby. But my parents have some friends who would like to buy so. I guess I would say that I am a hobby/vey little buisness.
 
In California I trained horses on the side and was a "business" I declared my horses and the expenses with them as a tax write off and paid taxes on my "profits" without having a business name. It wasn't required. The government wants their money. If you declare all money brought in and pay taxes on it, frankly they don't care about anything else. I got my taxes done by an accountant and it was all very straight forward. I've looked into getting a business license here in S. Carolina in order to be able to do the same thing with my snakes that I did for the horses. I will still be paying the taxes on the money I made from the sale of my hatchlings this year and will continue to do so. It would just be nice to be able to write off some of the expenses.
 
Good point MegF. While there are horror stories about people who may get audited and rejected expenses, if you have an accountant they will make sure things are on the up and up and will defend your books for you in the case of an audit. If they are done right an audit should never scare you.
 
I don't know....I think the word audit automatically raises anyone's blood pressure! You feel guilty even if you're not....kind of like being followed by a cop!
 
Just make sure you can trust your accountant. My daughter's father had one and ended up getting audited due to expenses written off for his job. Come to find out that the guy was taking a little bit too much and her dad ended up owing like $5500, because when they caught it for one year, they went back four more.
 
What it takes to legally operate a business varies greatly from state to state and even locality to locality throughout the country. Accountants are great for checking the books and helping with taxes, but everyone should at least consider talking to a lawyer if they have any question about what they need to do to avoid problems with their local governments.

Assumed business names are not the deciding factor between a business and a hobby. You have to look at the purpose behind the activity and the amount of income being generated.
 
Weebonilass said:
Just make sure you can trust your accountant. My daughter's father had one and ended up getting audited due to expenses written off for his job. Come to find out that the guy was taking a little bit too much and her dad ended up owing like $5500, because when they caught it for one year, they went back four more.
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He is very good. Was the accountant for my husband's business too and they were audited 3 times between the tax board and the regular IRS. No problems.
 
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