Tax advantages to set up guide service

[TWalhof]

Is there any tax advantages to set up a guide service and do it on a very part time basis. Can you write off the boat, gas, and motels? Thanks for the help.

[JAH]

There are some advatages... but nothing that will allow a part-timer to write off large ticket items. If you guide 10 times in a year and you use your boat 100 days (you will need to document days used for business and personal use to satisfy the IRS for an audit), you'll be allowed to take a deduction, against the income earned during your days guiding, equivelent to 10% of your boat payments. Just by calling yourself a guide won't allow you to play for free. I've been guiding full-time for 4 years and have built my business from part-time to full-time... and did so by FIRST consulting a tax professional that was familiar with the documentation and record keeping responsibilites required of someone in this line of work. It really help keep my butt out of trouble as there's this real common notion that by printing off some business cards and running a guide trip or two, you'll be able to write off your boat, motor, truck expenses, etc. It just isn't true and yet I run into guys all the time that state they write off all their equipment purchases and payments because they pass themselves off as a guide. I cringe when I here it! I know one area part-time guide fairly well that went through a nasty audit last summer and no longer has a boat and spends his evenings and weekends working at Kwik Trip, times when he should be out playing, earning extra money to pay off his tax bill to the IRS.

Pay the meager consultation fee to a qualified tax preparer and get the straight dish on doing this before you do anything. Almost all guides start small so if this is an avenue you want to pursue, start off on the right foot.

[nd]

JAH

I applaude your post. Too many people have the false idea that writing off a $20,000 toy is as easy as setting up a part-time business. Great advice.

By the way, I am a CPA. I have heard and been questioned about this idea numerous times (not only with boats and guiding). Although I personally have not heard of anyone getting audited on this issue, it would be pretty much a slam dunk case for the IRS agent.

[wwater]

Thanks JAH

I appreciate an honest post like that.

Info like that is appreciated.

[Tom]

i agree with JAH it happens in all sorts of so called bussinesses, i own my own bussiness and i do everything by the letter of the law, i don,t like it sometimes but i do it WHY cause when the IRS shows up for an audit i won,t have to spend my nights and weekends working at a quik mart, those out there that are doing this sort of cheating are only fooling themselves cause when the tax man comes calling you,ll find yourself up the creek without a paddle.





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[tjsker]

A couple things to add:
1) If you are starting up a business, set up a separate checking account. Don't mix business and personal finances.

2) Read IRS publication 334. Lots of good info in there, and you can download in off of the IRS's site at irs.gov

[Tom]

i should have added that unless you are a cerified CPA get one, thats one bussiness expense you can,t afford to be without.





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[nd]

Tom

I also applaud your post! Great referral for us CPAs :)

I do agree though. Make sure you seek out a tax professional who is qualified. There are plenty of non qualified ones out there. By choosing one who is "certified" (CPA), you will narrow your choices tremendously!

Good luck.

[targa2]

I agree to a point and disagree to a point with the above posts.

I believe that you are better to take any deduction that is reasonable and hope that it is never questioned. What I mean by reasonable in this very specific case is anything that is used to grow and improve your guide business including time on the water doing research when you do not have clients. Tax auditors should be familiar with the specific needs of the businesses they are auditing. To become a good enough guide to be paid for that service requires an investment of time and money before ,during and after the fact. If an auditor does not agree then ask him or her to pick out a lake on the map at random and take you there and put you on fish as if they were a guide.

Fishing patterns change daily and in order to be effective, a % of your time without clients should be considered a deduction. It should be reasonable is all I am saying.In the P.W.T. we are given 5 days of practice and 3 day of actual tourney time.It's all a deduction to me if I am expected to declare any winnings.

It is better to take a d

[Ungawa]

I agree 100%. The IRS will blow you out of the water if you were to deduct more than the percentage of business use! Unfortunately - or fortunately for many of you, the IRS has not had very many agents in the field during the last 3-4 yrs but they are gearing up again. So many of you have taken way too many deductions and have got away with it. That doesn't make it acceptable advice! As a CPA who deals with many hundreds of business clients annually in this environment and a handful of tournament fishermen (some who have full sponsorship and some that don't") including myself, I can assure you that you need to document all of your fishing activity. Just because you have a "guiding license" or just because you fish "money tournaments" doesn't mean that you get any additional breaks from Uncle Sam. Talk to your local CPA and ask him or her to research the IRS Publications, etc. that are mentioned in this post and just remember that "common sense" usually prevails. Obviously, there is always the grey area, and this is where you need to have you schedule, names and dates of charter clients, names and dates of tournaments, and all the other info relative to mileage, motels, baits, tournament fees paid etc. The more details you keep, the better off you'll be when Uncle Sam comes knocking - and he will someday! For those of you that work full time and get a W-2 from your employer, you will not be able to offset "Schedule C" fishing losses against your W-2 income. Ask your CPA to inform you of the IRS' "hobby loss rules". Basically, you can only deduct your expenses to the extent of your income. There is a safe harbor rule if you report income for 3 out of 5 years including the current year. For those of you who do not generate any fishing income...you will not be able to deduct any expenses...period.

Mike Unger, CPA, CFP
"Ungawa"
Marinette, WI

[Curious]

Mike, can a legitimate business owner write off any expenses incurred to "sponser" someone for Tournament fishing? Example: Joe's contracting pays for entry fees, etc...in sponsership of a Tourney fisherman or team. It would seem only fair that any company that utilizes sponsership for advertising would be able to take a credit for these costs. If that is true, what does the recipient need to do to advertise in good faith for the sponser? Are stickers on the boat and vehicle of the sponsers company legitimate enough. I see this all the time at tournaments, that's why I'm assuming it's a legitimate tax claim. Also, what exactly can the sponser claim for a write off for this advertising? Thanks in advance for your insight.

[Ungawa]

A legitimate business can always deduct business expenses including advertising, sponsorships and promotional items. Any expenses paid that are ordinary, necessary and reasonable typically would be allowable, assuming they are properly documented. Look at all the sponsorship money paid by businesses for NASCAR, etc. for example. The actual fisherman being sponsored will no doubt want to give his sponsor some publicity via stickers on boat and or vehicle along with patches, etc on shirts and hats. It all comes down to reasonableness. I hope this answers your questions.

Mike U.

[sevenmmm]

Assuming you have a job which is your main source of income, you can not deduct the expenses unless your guide service either makes a profit, or you earn wages from it (wages are taxable).

Plus the rules get very tricky with your deductions as far as how much you can deduct each year. Don't go to a bookkeeper, you must have a CPA do your taxes, to get it right.

Of course stay away from Enron style CPAS!

Rick