Taxes and scrap metal sales

**hobo finds** · 03-24-2014, 02:13 PM

Let me tell you how it will be
There's one for you, nineteen for me
'Cause I'm the taxman, yeah, I'm the taxman

Should five per cent appear too small
Be thankful I don't take it all
'Cause I'm the taxman, yeah I'm the taxman

If you drive a car, I'll tax the street,
If you try to sit, I'll tax your seat.
If you get too cold I'll tax the heat,
If you take a walk, I'll tax your feet.

Don't ask me what I want it for
If you don't want to pay some more
'Cause I'm the taxman, yeah, I'm the taxman

Now my advice for those who die
Declare the pennies on your eyes
'Cause I'm the taxman, yeah, I'm the taxman
And you're working for no one but me.

**numbers** · 03-24-2014, 06:01 PM

While although it does say that you can only show a loss for three years, that isn't quite the case. If the intent is shown to make money, along with a long list of other items (acting like a business, keeping records, not using the loss just to shelter other income, consulting with professionals, having a business plan that is modified as circumstances change, etc.), it is possible to have a loss for several years. I have been successful in defending clients during audit that have had multi year losses.

An example would be a scrapper that had income from another source to live on that spent several years working on building up a scrap business, and only selling what was needed to cover some of the expenses. By purchasing equipment (truck, trailer, skid loader, etc) it would be extremely likely that a sizeable loss could be had for several years. When operating on the cash basis, you only report as income the amounts that you sell, not the amounts that you stockpile in inventory. If after 7 years of losses, that pile of 5 tons of copper wire that has been sitting for the price to go up is finally sold, there would then be a profit in year 8. That would be a totally defendable position, easy to explain and within the IRS Code and rules.

If you have a loss, use it. If the loss is too big, it may give you a Net Operating Loss carry forward that will be applied to the next year.

However, always, always, always, keep good records that are understandable. Without records you will eventually have trouble.

**Mick** · 03-24-2014, 06:55 PM

Originally Posted by numbers

While although it does say that you can only show a loss for three years, that isn't quite the case. If the intent is shown to make money, along with a long list of other items (acting like a business, keeping records, not using the loss just to shelter other income, consulting with professionals, having a business plan that is modified as circumstances change, etc.), it is possible to have a loss for several years. I have been successful in defending clients during audit that have had multi year losses.

An example would be a scrapper that had income from another source to live on that spent several years working on building up a scrap business, and only selling what was needed to cover some of the expenses. By purchasing equipment (truck, trailer, skid loader, etc) it would be extremely likely that a sizeable loss could be had for several years. When operating on the cash basis, you only report as income the amounts that you sell, not the amounts that you stockpile in inventory. If after 7 years of losses, that pile of 5 tons of copper wire that has been sitting for the price to go up is finally sold, there would then be a profit in year 8. That would be a totally defendable position, easy to explain and within the IRS Code and rules.

If you have a loss, use it. If the loss is too big, it may give you a Net Operating Loss carry forward that will be applied to the next year.

However, always, always, always, keep good records that are understandable. Without records you will eventually have trouble.

Exactly what I'm doing. Hoping for prices to go up. Quicken Simple Start keeps good track and reports function is used for tax returns.