Just started a new tennis business... need advice on tennis-related tax issues

[Mikeadelic]

What's up friends,

So I started teaching tennis on a part-time basis earlier this year (on top of my regular desk job as an accountant), and I've started pulling in money at a pace where it is becoming a sizable chunk of change. I just registered my sole-member LLC last month, set up a new business checking account, and was pretty proud of myself for being officially a small business owner by my mid-twenties (a goal I set for myself at the beginning of this year)... and then I started thinking about the IRS :shock:

I started looking over some of the IRS tax laws and realized that there are some pretty asinine guidelines about what you can deduct vs what you can amortize. In terms of some of the costs I've had over the past year, I've spent tons of money on:

-Strings
-Tennis clothes
-Shoes
-Tennis balls
-A ball machine
-USPTA certification dues
-Clinics (I still hit with some local, nationally-ranked juniors to improve my game as well)
-Indoor court fees etc.
-Mileage to junior tournaments (where I hand out business cards and try to recruit new students)
-Web hosting fees
-Web / logo design (for my upcoming website)

Basically, I've come to a reasonable understanding of the tax implications of my business, and I've also gotten some great advice from my colleagues in my company's tax department, but what I'm really looking for is tax advice from other tennis business owners - kind of like a real-world perspective on what you can deduct, what you can amortize, what you can't etc.

Any response is gladly appreciated!

Mike

 

[ollinger]

Attending "pole dancing exhibitions" to learn ways for your students to increase flexibility is not deductible.

 

[r2473]

1) Get that f'ing shoe box of recipts off my desk. Organize this into a spreadsheet or something

2) Are you selling shoes, clothes, strings, etc? Then that is inventory. If its just stuff you use, expense it all. Maybe the ball machine should be amortized, but I'd expense it.

3) Don't forget your "hobby loss" rules. My advice, try to show a very small net profit every year. You stay "off the radar".

http://www.kelanroycpa.com/krcpa/hobby_loss.htm

4) As you are the sole member of the company, the entity is disregarded for tax purposes. You are basically a Schedule C, but you get the joy of filling out the LLC tax forms.

http://en.wikipedia.org/wiki/Limited_liability_company

 

[sureshs]

I thought "tennis business" referred to a shop.

You are asking about being an independent teaching pro.

Please post this thread in the Tips and Instructions section, which is frequented by pros.

 

[zapvor]

is it kind of ironic that you are an accountant but is asking a accounting question jk jk

i would say this is probably not the best place to post such a question

 

[Angle Queen]

1) Get that f'ing shoe box of recipts off my desk. Organize this into a spreadsheet or something

2) Are you selling shoes, clothes, strings, etc? Then that is inventory. If its just stuff you use, expense it all. Maybe the ball machine should be amortized, but I'd expense it.

3) Don't forget your "hobby loss" rules. My advice, try to show a very small net profit every year. You stay "off the radar".

http://www.kelanroycpa.com/krcpa/hobby_loss.htm

4) As you are the sole member of the company, the entity is disregarded for tax purposes. You are basically a Schedule C, but you get the joy of filling out the LLC tax forms.

http://en.wikipedia.org/wiki/Limited_liability_company

These.

is it kind of ironic that you are an accountant but is asking a accounting question jk jk

Sorry, Zap. There are many kinds of "accountants" (just like there are many kinds of "engineers" or "programmers" or "doctors"). My hubs is an "accountant," actually has a Masters in Tax from a major SEC university...but wouldn't even touch this specific instance with a 10-ft pole. The Tax Code is sooooo screwed up that small practitioners rarely do niche industries; it often takes a large firm with plenty of "research" assistants to do it true justice. Kind of makes me appreciate the 9/9/9 approach. *sigh* Something simple. Can't be government.

i would say this is probably not the best place to post such a question

Seriously, Mike. If you really want to cut it close, get a real professional to help. But r2473 is on to something...showing a small profit every tax year, is a good way to fly under the radar.

 

[SoBad]

What's up friends,

So I started teaching tennis on a part-time basis earlier this year (on top of my regular desk job as an accountant), and I've started pulling in money at a pace where it is becoming a sizable chunk of change. I just registered my sole-member LLC last month, set up a new business checking account, and was pretty proud of myself for being officially a small business owner by my mid-twenties (a goal I set for myself at the beginning of this year)... and then I started thinking about the IRS :shock:

I started looking over some of the IRS tax laws and realized that there are some pretty asinine guidelines about what you can deduct vs what you can amortize. In terms of some of the costs I've had over the past year, I've spent tons of money on:

-Strings
-Tennis clothes
-Shoes
-Tennis balls
-A ball machine
-USPTA certification dues
-Clinics (I still hit with some local, nationally-ranked juniors to improve my game as well)
-Indoor court fees etc.
-Mileage to junior tournaments (where I hand out business cards and try to recruit new students)
-Web hosting fees
-Web / logo design (for my upcoming website)

Basically, I've come to a reasonable understanding of the tax implications of my business, and I've also gotten some great advice from my colleagues in my company's tax department, but what I'm really looking for is tax advice from other tennis business owners - kind of like a real-world perspective on what you can deduct, what you can amortize, what you can't etc.

Any response is gladly appreciated!

Mike

I am sorry that I cannot help you on this, but I am curious about a few things, if you don’t mind sharing. Is there a downside to filing aggressively (and leaving it up to the tax authorities to demand corrections)? What state are you in and why did you choose LLC over a (S-) corporation for the one-man operation? I hope someone helps you out with your questions.

 

[r2473]

I am sorry that I cannot help you on this, but I am curious about a few things, if you don’t mind sharing. Is there a downside to filing aggressively (and leaving it up to the tax authorities to demand corrections)? What state are you in and why did you choose LLC over a (S-) corporation for the one-man operation? I hope someone helps you out with your questions.

These "hobby businesses" are often audited believe it or not. They just get flagged by running simple computer checks. The IRS isn't fond of people making up businesses to deduct personal expenses from their hobbies. What I actually do is to declare a few bucks profit most years and then "flush" all the big expenses in one year and declare a large loss (relatively speaking). You can just file aggressively and deduct anything and everything, but you should expect to be audited at some point. And it could be years down the road. Then you have to dig up all your stuff and go through the whole thing. If you lose, you have to pay the tax anyway plus interest and penalties. For the small time operation we are talking about, it just ain't worth it. But if we are talking about serious money, it might be worth rolling the dice.

No real difference between an LLC and S-corp in this case. S-corp has the advantage of avoiding self-employment tax, but that's not an issue here. And for tax purposes, both of these are just flow through's anyway. All he is getting is the liability protection (maybe; that isn't a guarantee either).

 

[Dave M]

I would say that something i learnt from older and wiser pros is that it pays to have 2 sets of gear, shoes, racquets, clothing etc so that you can't get accused of using your work stuff you've deducted for playing.

 

[SoBad]

These "hobby businesses" are often audited believe it or not. They just get flagged by running simple computer checks. The IRS isn't fond of people making up businesses to deduct personal expenses from their hobbies. What I actually do is to declare a few bucks profit most years and then "flush" all the big expenses in one year and declare a large loss (relatively speaking). You can just file aggressively and deduct anything and everything, but you should expect to be audited at some point. And it could be years down the road. Then you have to dig up all your stuff and go through the whole thing. If you lose, you have to pay the tax anyway plus interest and penalties. For the small time operation we are talking about, it just ain't worth it. But if we are talking about serious money, it might be worth rolling the dice.

No real difference between an LLC and S-corp in this case. S-corp has the advantage of avoiding self-employment tax, but that's not an issue here. And for tax purposes, both of these are just flow through's anyway. All he is getting is the liability protection (maybe; that isn't a guarantee either).

Thanks – I hope the OP will answer my questions, but I do appreciate people familiar with the issues pitching in, and you seem to know about these things. How about this simple hypothetical noob question:

Company A wishes to pay Individual B an amount of $100,000 as a lump sum for a one-time professional service. Individual B has no other income in the tax year in question. What is the most tax-efficient way for the individual to accept this payment? The individual maintains a home office and has related expenses. Does the answer depend on the state where the individual operates?

 

[Mikeadelic]

@r2473
Thanks for the advice. My intention is not, however, to run my tennis biz as a hobby. I am going all-out with expansion plans, budgeting, record-keeping, and multi-year revenue projections, all in the hopes of shifting as much of the burden of proof away from myself and to the IRS, in case I ever get audited. My goal is to build a small indoor bubble within the next five years, and actually operating as a tennis facility as opposed to purely an independent tennis pro.

My main issue currently is what to do with large equipment, such as the ball machine & stringing machine and to a smaller degree, shoes and racquets. Both machines are relatively high-end (in line with pro shop standards) and expensive, but as they are equipment, doesn't the IRS force you to amortize them? Or can they actually be expensed as part of start-up costs? It seems aggressive to expense a $2k+ machine all in one year, but then again, it is very tempting because of the tax implications. This is the one big question that will result in either a small profit come tax season, or a moderately-sized loss for me.

I would definitely consider a tax professional. But in my current case, a tax pro's fees may eat quite a bit into my current year revenues.

@Angle Queen
Thanks for the explanation for Zap on my behalf. Sometimes I get sick of explaining that "Accountant" =/= "Tax Specialist". No offense, Zap.

@SoBad
I chose LLC over an S corp mainly for simplicity purposes. As r2473 pointed out, the LLC is for liability purposes (although an S corp offers that as well).

 

[Deleted member 23235]

I know I'm reviving an old thread, but wondering how the OP has faired in his new venture. What tax lessons can you share for the rest of us?

Was reading this thread, which is relevant and interesting: http://www.nolo.com/legal-encyclopedia/operating-losses-prove-hobby-business-30000.html

 

[T1000]

is it kind of ironic that you are an accountant but is asking a accounting question jk jk

i would say this is probably not the best place to post such a question

Take a tax class and you'll see why even accountants don't know every answer to these questions. Worst class I took in college

 

[Deleted member 23235]

is it kind of ironic that you are an accountant but is asking a accounting question jk jk

i would say this is probably not the best place to post such a question

Take a tax class and you'll see why even accountants don't know every answer to these questions. Worst class I took in college

It's the same in every domain or industry.
* Medical: there are general practitioners, and then specialists
* Law: marital, real estate, tax, etc...
* Computers: everyone thinks if you do software, you're a computer guy,... software developers write code, hardware guys (aka. "computer guys) build machines... most lay folks need the "hardware" kind of computer guy - eg. to fix the mouse/computer they accidently unplugged.

Anyway, that said, any tips how to declare taxes as a tennis pro? Lol, or does everyone just get paid off the books (which I thought would be ideal, but if you have multiple revenue streams, it might be advantageous to keep the biz on the books, especially if you can declare large losses).

 

[Deleted member 23235]

no help on how to declare taxes (specifically deductions for expenses)?

or is everyone being tight lipped for fear of being audited