1099 Inc w/ questionable expenses?

[bbrownatl]

I’ve got a client where the husband did some 1099 work this year of approx. $13K. Subsequently, for their tax prep, he submitted his mileage and also a listing of tools and office equipment purchased ($3K).

First the mileage, if I’m reading Rev. Rul. 99-7 correctly, he can only deduct the mileage between multiple work locations (i.e. the regular commute to and from home is not deductible, whereas the other trips during the day are deductible). Of course, the recordkeeping there is sketchy.

Second, can those tools and equip be deducted via capitalizing and then depreciating? Normally, I’d say yes if this was an ongoing full fledged business. However, this was periodic 1099 work of which he may never use that equipment again. There is not separate entity, tax id, etc. This especially is my main question. So, I set up a Sch. C with the income, mileage deduction, and depreciation for this miscellaneous 1099 work which may (or may not) be an ongoing business of any sort.

Any clarification much appreciated.

Thanks,

Brian

__________________

The hardest thing in the world to understand is the income tax" - Albert Einstein

[Pacun]

Depending on the type of business he engaged... if he made 13K, 3K is easily a necessary and ordinary expenditure. In any event, commuting miles are not deductible but if you have to go to different sites in different cities, you can deduct them.

As long as he is willing and engage on the business, he can deduct his tools. This is clearly not a hobby since he more than quadrupled his expenses and had a big profit. If he has losses next year, he should be OK as long as he is ready and willing to continue this line of work. If you feel more comfortable, you can 179 the tools or equipment.

[bbrownatl]

Much thanks. Great tax insight. I'll proceed forward!!

[Pacun]

Let's wait for other replies to your post. It is good idea to read between the lines and read what everybody has to say.

[GeneInAlabama]

If he is working from his home, I don't see that he has any commuting mileage. I work from my home and I deduct my mileage from my office at home to a client I visit or to the bank or post office. I have been thinking about getting a golf cart to commute from my home to my office which is about 50 feet from my house. Since that would be commuting, I don't suppose that would be deductible? :lol:

[kcjenkins]

Not knowing the type of business makes it a little hard to make many suggestions. But clearly this was a business, and a profitable one at that. I see no problem at all with taking his deductions. Even if he has 'another job' and does this only occassionally or seasonally, it's still a business. Whether he keeps on doing it is not really relevant to this year's decisions, although if you §179 the equipment, I'd explain to him that if he does not continue to use it there will be a recapture issue.

[bbrownatl]

Not knowing the type of business makes it a little hard to make many suggestions. But clearly this was a business, and a profitable one at that. I see no problem at all with taking his deductions. Even if he has 'another job' and does this only occassionally or seasonally, it's still a business. Whether he keeps on doing it is not really relevant to this year's decisions, although if you §179 the equipment, I'd explain to him that if he does not continue to use it there will be a recapture issue.

Ok, one more twist for you. This individual has another business from last year (single member LLC) that was on the 2009 Schedule C. Had a loss of $11K. For 2010, this entity was dormant. He insists that this entity is viable as he hopes to have revenue in 2011. It is a green energy construction company. Would you still show this one as one on a Schedule C and indicate the entity it ongoing? Otherwise, here you had an entity in 2009 with an $11K loss for which if you just not report anything for 2010 raises some flags in my mind. Alternatively, my thought is to explain out the nature of the entity. Maybe I'm way off base here. Any insight appreciated.

Thanks again.

[Pacun]

Ok, one more twist for you. This individual has another business from last year (single member LLC) that was on the 2009 Schedule C. Had a loss of $11K. For 2010, this entity was dormant. He insists that this entity is viable as he hopes to have revenue in 2011. It is a green energy construction company. Would you still show this one as one on a Schedule C and indicate the entity it ongoing? Otherwise, here you had an entity in 2009 with an $11K loss for which if you just not report anything for 2010 raises some flags in my mind. Alternatively, my thought is to explain out the nature of the entity. Maybe I'm way off base here. Any insight appreciated.

Thanks again.

Just file and explain later if asked.

[jainen]

>>For 2010, this entity was dormant<<

He can only deduct expenses incurred in the OPERATION of a trade or business. Any carrying costs while dormant must be capitalized, until the entity is disposed of. What he "hopes" for the future is irrelevant.