question for scrapping "hobbyists": how to pay less taxes?

I guess this question is intended primarily for people who has been scrapping as a "hobby with benefits" i.e. using scrapping as a secondary source of income: What do you do when it's time to file your taxes, and what do you do give less to Uncle Sam -- legally? Is it possible to open some type of business entity and get some tax benefits from that, even if these benefits are only for the 1st year or two or three? Do you have to generate a certain minimum amount of $ from your scrap to make opening such entity either legal or worthwhile? Any other suggestions?

Thanks!

I operate plaxant.com as a sole proprietorship. Everything goes towards my income. But I also use every deduction possible.

$600 or over is reported as income. But, you can deduct the cost of anything used to generate that income. Even if you use your car, you can deduct a percentage of the car's maintenance or mileage. Don't forget to deduct what you paid for the scrap (Cost of Materials), tools and grinder wheel/Sawzall blades.

And your clothes for your "business", me personally; if it's in cash it's hidden in my pocket, Uncle Sam don't need to know,,, What he don't know, don't hurt him, lol

My saying goes Keep it Small and Keep it all

then do you still get a business license ?

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Originally Posted by Dumpster Dee

then do you still get a business license ?

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Having a business license is not related to taxes (except that you can deduct the cost of the license from your taxes). One is a State function; the other is federal. You can do one and never do the other. And it's no easier nor harder to get caught without either. By filing taxes as a business (even as Sole Proprietor), you can pay LESS taxes by showing a Business Loss which then lowers your taxes on your other income. I've done this by various means; including deducting the cost of the trailer in one year (it was a high income from scrap year) rather than depreciating over five years.

As for me, being a disabled vet I don't have to pay taxes so what's mine stays mine!

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Originally Posted by Mechanic688

As for me, being a disabled vet I don't have to pay taxes so what's mine stays mine!

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Oh? I'm a disabled vet, too, at 40%. Been paying taxes since on any earned income (vs disability compensation). I think the only thing you don't pay taxes on is your disability comp from the VA.

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Originally Posted by Mechanic688

As for me, being a disabled vet I don't have to pay taxes so what's mine stays mine!

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As Am I, but am waiting for my percentage. Are you saying that you don't pay any taxes for a business? is That in Indiana or just a choice, lol? I would like to learn more about that if it's the former and if you want to pm me instead of putting it here. My understanding has always been what Mick posted. Thanks.

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Originally Posted by Mick

Having a business license is not related to taxes (except that you can deduct the cost of the license from your taxes). One is a State function; the other is federal. You can do one and never do the other. And it's no easier nor harder to get caught without either. By filing taxes as a business (even as Sole Proprietor), you can pay LESS taxes by showing a Business Loss which then lowers your taxes on your other income. I've done this by various means; including deducting the cost of the trailer in one year (it was a high income from scrap year) rather than depreciating over five years.

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Mick, so let me see if I am reading this right. If I have a regular W-2 from my day time job then I file 1040 without any mention of the scrap income. Then, I also fill out a separate return for a business even if I don't have any business license and report all my scrap income and related expenses there. Right?

Now, here's the tricky part: if I claim more expenses than income and so get a net loss, I get to write the loses off and might actually get a refund instead of paying additional taxes, correct? I heard somewhere that you write off loses like that only for the first couple of years your business is mentioned in your tax forms.

Or am I interpreting this wrong?

Thanks!

I wouldn't post statements implying taxes aren't being paid. I don't care one way or the other myself, but it wouldn't surprise me if there's an over paid gov employee trolling forums looking for people that don't report income.

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Originally Posted by IdahoScrapper

I wouldn't post statements implying taxes aren't being paid. I don't care one way or the other myself, but it wouldn't surprise me if there's an over paid gov employee trolling forums looking for people that don't report income.

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Agrees 100%

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Originally Posted by ilyaz

Mick, so let me see if I am reading this right. If I have a regular W-2 from my day time job then I file 1040 without any mention of the scrap income. Then, I also fill out a separate return for a business even if I don't have any business license and report all my scrap income and related expenses there. Right?

Now, here's the tricky part: if I claim more expenses than income and so get a net loss, I get to write the loses off and might actually get a refund instead of paying additional taxes, correct? I heard somewhere that you write off loses like that only for the first couple of years your business is mentioned in your tax forms.

Or am I interpreting this wrong?

Thanks!

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That is absolutely correct, legal and common. The IRS expects that there will be a Business Loss for several years in any startup (guidelines USED to be no more than three years out of five, but no longer if you can show certain sincere attempts at showing a profit). Business income and loss is documented on Schedule C and the income or loss is transferred to your 1040 as ordinary income (Loss would reduce taxable income). Having a Business license is not relative. The IRS is only interested in "Did you operate a business during XXXX (year)?" If you consistently show a Business Loss year after year, the IRS MAY question it and make a determination that you operate a hobby, but you will have a chance to show you did attempt to make a profit. Hobbies are still reported as income, but not allowed to show a Loss.

You only file one 1040 for the year - The business income/loss is put on that same 1040 as your w-2 income. There is a specific line for it (in 2010, I think it was Line 40).

If you do show a loss though, they may not allow all of your deductions like home office or some of your 179 deductions(100%depreciation of an asset in one year), you can roll them over into the next year if you show a profit then.

You can't depreciate within a year anyway. Depreciation is only for items that will continue to have value and be used to make money over several fiscal years. IE: a truck, a trailer, etc... If it is used within a year, then it is a consumable, and can be fully deducted.

(Taking accounting for work. Still learning, but willing to help.)

The schedule 179 deduction allows you to take the whole deduction on many items the same year, it's how I have handled all of my tools and business property over the years big and small. Who knows I may not be around next year.
http://www.irs.gov/publications/p946/ch02.html

Definitely write off everything you can and this will help balance out your income and expenses. It's surprising what you can actually count as a loss.

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Originally Posted by Saroro

You can't depreciate within a year anyway. Depreciation is only for items that will continue to have value and be used to make money over several fiscal years. IE: a truck, a trailer, etc... If it is used within a year, then it is a consumable, and can be fully deducted.

(Taking accounting for work. Still learning, but willing to help.)

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Multi-year depreciation is mostly aimed at large corporations who reach maximum deduction amounts based on their large scale. It's all about maximum benefit based on capital improvements.

I am curious whether a business that deals with scrapping can qualify for any type of "green" tax benefits, since it recycles what can be considered "trash". I once was told a story of some business involved in PM recovery that supposedly got filthy rich not only from all the gold and other PMs it was extracting but also from various government "green" subsidies aimed at businesses that help keep hazardous stuff like computers out of landfills. This was probably more of an urban legend but I am still wondering if it was at least partially true...

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Originally Posted by ilyaz

I am curious whether a business that deals with scrapping can qualify for any type of "green" tax benefits, since it recycles what can be considered "trash". I once was told a story of some business involved in PM recovery that supposedly got filthy rich not only from all the gold and other PMs it was extracting but also from various government "green" subsidies aimed at businesses that help keep hazardous stuff like computers out of landfills. This was probably more of an urban legend but I am still wondering if it was at least partially true...

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You ever looked at the paperwork behind even applying for a subsidy?

If it involves more paperwork and involvement with the government, you can be sure I am not interested.

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Originally Posted by ilyaz

I am curious whether a business that deals with scrapping can qualify for any type of "green" tax benefits, since it recycles what can be considered "trash". I once was told a story of some business involved in PM recovery that supposedly got filthy rich not only from all the gold and other PMs it was extracting but also from various government "green" subsidies aimed at businesses that help keep hazardous stuff like computers out of landfills. This was probably more of an urban legend but I am still wondering if it was at least partially true...

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Could be a program out there, who knows, but the feds handing out money like it's candy is one of the reasons why this country is broke. How bout we just go for the honest days pay for and honest days work program...you will be amazed how far that gets you.

I have a more specific question - I'm in the process of adding everything up, income and outgoing - are you allowed to deduct both mileage AND expenses or just one or the other? If someone has already done a previous years taxes doing this I'd much appreciate the info.

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Originally Posted by newattitude

I have a more specific question - I'm in the process of adding everything up, income and outgoing - are you allowed to deduct both mileage AND expenses or just one or the other? If someone has already done a previous years taxes doing this I'd much appreciate the info.

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One or the other. Deducting mileage assumes average expenses per mile.

I just noticed the thread heading refers to scrap metal as a HOBBY. I mentioned it before but to emphasize - If this is a hobby (see the IRS rules for hobby vs business), you are not allowed to deduct any LOSS from your taxes.

my old scrap yard had an atm machine, but my new one hands out checks. does this mean ill have to report the money?

HOW you get it doesn't matter. It's income and reportable if more than $600.

Check or cash, if they get audited (yard) and they have your name on file, it gets turned into the IRS.