Tax advantages of tournament fishing??

[Mckoz]

I have seen a few posts touching on this subject but I am wondering if this potential write-off is a "hobby" or more like a business situation.

I would not mind trying a few tournaments - just for fun and the learning experience, I have no illusions of being competive - especially if I could deduct/depreciate some of the costs of the boat, truck and gear?

If a person were to fish only a couple of tournaments would the rest of your time/expenses on the water be eligible to deduct, say you were pre-fishing or just trying new techniques.

Any thoughts on this??

Mike

[Eyecrosser]

Very interesting question. Can't wait to see what people who know have to say.

[Mikes]

In talking to my accountant, it seems that the only tax advantage for those of us who just "dabble" in tournaments is that you can probably only write off expenses in the amount of your winnings. It is extreemly hard to convince the IRS that fishing is your "business". I also think that if you do try to deduct a lot of fishing expenses, you had better be ready for the full blown audit anal exam.

Mike

[Fshngyd]

First of all you must have income from your business(fishing), you cannot have all expense with no income. Then you must actively participate in this business, with "all of your investment at risk", in other words, if you fail to make money, you lose it all.
With that said, I will also say there is "gray area" here, I know of many people who use the Schedule C for tournament fishing, car racing and other business's that could be considered hobbies, and hobbies is what you cannot deduct for, unless gambling is a hobby, then you have to claim your winnings and not the expense:-(.
So, simply put, in order to claim this on your return, you must first have income from your business, as soon as that happens, then it opens the doors for claiming "reasonable expenses" and depreciation.
Now, most business's that start out new, assume they are going to make money, in doing so they incurr expenses which can be deducted, even if their expenses were greater then their income, so they are working in the red, the IRS will not allow you to operate in the red for more than a few years, so beware. In closing, you must have income, if expenses are greater than income, that is ok for a few years, it is a fact of life in the business world, but dont get yourself in trouble.
It sounds like to me that if you are serious about this tournament income, then first do it for a few years, and see what it is all about, track your income and expenses, then when you get a foothold on what is going on, and you want to continue, go for it, and ask Uncle Sam to help you along the way ;). Good luck, and if you have any other question, I would be glad to help you out.
express@actcom.net

[rmitchel]

Hm ... Is that true -- "must have income first". It certainly is best and least likely for an audit, but I am not sure that is absolutely required. I think that the law reads something like "must show a profit in at least two out of five years". Otherwise it is a hobby -- not a business. I am not absolutly sure about this.

Certainly would have to keep good records.

My two cents.

[Chad]

For most of us this would be treated as a hobby and you would be able to claim deductions and depreciation to offset any income.

Similar to winning at the blackjack table. You can deduct all your losses for the year to offset your winnings but you are not able to claim a loss.

If this is you job and the only thing you do then you would be able to deduct it. Example...A fishing guide, or someone else self employed or who gets a 1099 may be able to get away with more. I am an employee and just get a w-2 so no room to wiggle in some deductions unless I get a 1099 from winnings.

[Mckoz]

Thanks for the posts - very interesting. Since I was out today I stopped by the CPA with some other matters and got to talking about this. For most people it would most likely be a hobby - along with the critetia mentioned above - another includes your "ability" to be profitable.

In my case the CPA said in all likelyhood the chances of being able to deduct much of this was equal to my chances of winning anything - I am not sure how to take that!

In any event, If I ever did manage to stumble into some winnings it would be offset by the hobby expenses - as stated above!

Thanks again, guess I won't be able to use the deduction angle with the wife.

Mike

[WAZ]

Spoke with my accountant a couple of years ago. From what I remember you can establish your fishing career as a buisness. One hang up is that in the course of three years you need to turn a profit. More money coming in than going out. At that point there are tax benefits. Just what he told me over a cup of coffee. I am sure with the number of pro-fisherman that monitor the this web site they might be able to clear this up or refer us to a accountant with experience in this area.

[Box]

I am self employed and get a couple 1099's. This year I am going to explore much more into how I can deduct some fishing and hunting items/trips, as they were indeed business related - sort of. It is all very gray, but the tax laws state (basically) that if you are undertaking the activity in order to make income, you can use it for deductions. Of course, it must be true... But it is amazing the thiings I can deduct.... of course I pay a full 15% to social security...ouch.. so many gives and takes...

-Box

[Robertp]

You are on the right track but not quite right with all your facts. Hobby income can't be ignored because the Internal Revenue Code (IRC) Sec. 61(a) provides that "Gross Income includes all income from whatever source derived.....". Expenses may be permitted against the income subject to an ordering system. The problem is that if the income is from a hobby it is reported on page 1 of your return as Miscellaneous income on line 21 while the expenses are reported on Schedule A as Miscellaneous itemized deductions. As such, you must have enough itemized deductions to use this method. Assuming you do, the deductions are reduced by 2% of your Adjusted Gross Income.Because of this you may end up with taxable income from your hobby. If you don't, or can't, itemize you get -0- deductions for your hobby. Secondly, since miscellaneous deductions are not deductible for purposes of the Alternative Minimum Tax, you could become subject to this tax as well. The good news is you are not subject to self employment tax on hobby income.
Now, if your fishing activity is really a "trade or business" IRC Sec 162 permits deductions for all expenses in carrying on your trade or business. You can't just claim that you are in the business of fishing. The burden is on you to prove it. This is proven based on "all facts and circumstances" The regulations to the IRC (Reg. 1.183-2)provide a list of "factors" to consider and they are often cited in relevant case law. Whether your activity rises to the level of a trade or business therefore is based on a preponderance of the evidence. There is a statutory "safe harbor" that, if met, creates a presumption that you are actually engaged in a "trade or business". In order to meet the safe harbor the activity must generate a profit in at least 3 of the 5 years ending with the tax year in question. Even if you meet this test the IRS can still rebut the presumption but the burden of proof is shifted to the IRS. Even if you don't meet the safe harbor you can still claim your losses, but only if you can meet the more subjective factors mentioned above. As you can see, it is actually quite a bit more complicated than you thought and perhaps more than you ever wanted to know.

[Mckoz]

Wow - now thats a good explanation. Robert, you don't work for the IRS do you?? cuz if you do I was just kidding about those deductions, and about those cash side jobs......