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  #1  
Old 02-24-2014, 07:42 PM
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Financial Question #1 Hobby income

I know this is a car forum, and not a financial one. I also know we have a breadth of experience here that goes far beyond car stuff.

If I buy old cars, restore/ repair them, and then resell, is that income taxable for a retired person? ( assuming that actually IS a profit) If it is taxable, can i deduct the cost of tools, garage etc?

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Old 02-24-2014, 07:57 PM
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Depends on what kinds of deductions you'd like to make. I'm sure there is some threshold as far as income goes as well, but a lot of times it does make sense to incorporate (or LLC) if you're making enough to offset the expenses involved.

Business or Hobby? Answer Has Implications for Deductions

I'm not an expert, but I've looked into it myself for my own business intentions. I'm not sure of the specifics surrounding retirement and incorporating.
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  #3  
Old 02-24-2014, 08:16 PM
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I have heard that as a rule of thumb the IRS will cut you a lot of slack for five years on hobby income. The reasons for this is that most people don't last five years in a hobby business.

A start-up of any size has a lot of up front costs. The IRS understand this and has always encouraged the creation of small businesses by allowing business deductions for the equipment you need. There are limits to some items, like cars, but few people buy professional equipment for a hobby although I would bet there are a fair number of people that post here that have some rather tricked out garages.

But if you are not making a profit and paying taxes after five years the IRS feels like it might be time for you to consider another line of work as at that point you are just milking the deal.

Another thing that sends them into orbit is deducting for a home office. I have a home office, see clients, etc., but don't take a deduction for it. It is just not worth the hassle to me, and most of the time I meet people more in cafe's or bars to talk business.
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Old 02-24-2014, 08:20 PM
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I believe that restoring and reselling old cars for a profit, not only requires VERY careful diligence in selecting appropriate candidates, but a LOT of equipment, time, and labor and the understanding that this is a VERY difficult way to make a profit and the chances are large to take a huge financial loss on a resale (for a variety of reasons).

I'd step VERY gingerly in this direction were I to think of this seriously.

frankly I would only do it for fun.

Better idea might actually to BUY one fully restored, and sold at a loss to you by someone who needs to sell but cannot recoup his resto expenses. drive it a few months and flip it. You'd have had fun and maybe made some money if the stars aligned just right to make you a profit.
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  #5  
Old 02-24-2014, 08:33 PM
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If you want to flip something with wheels, there's more money in motorcycles. Buy during winter/sh**ty weather season, sell when weather is nice. There are also a lot of numpties who get bikes, don't know how to work on them, and unload them cheap. Picked up an old Honda that way. Bike "wasn't running" after the seller pulled the carbs to replace a cracked intake boot. I had the seller sign over the title, put a tag on it, popped the petcock vac hose back on, and rode it home. The look on his face was priceless.

Be careful, buying or selling more than a certain # of vehicles per year may require a dealer license, or at least creativity with how the titles are signed over...
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  #6  
Old 02-24-2014, 08:51 PM
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My head is spinning from talking with my tax accountant regarding this past year and income from two jobs. My car repair business is the only tax write off I have and the requirement is that you have to make a profit within three years of start up which I did in the first year - 2012. I did not show a profit last year though because I was not able to be in the shop as much as I would have liked because of job #1. My goal is to build clientele into retirement then do that to stay busy.

You can make money by purchasing cars that need a little help, fixing them up and selling at a profit. I did it many times with W123 cars years ago. If you flip more than five (JawJa law) within a year you would be construed as a "dealer". In my opinion the key is finding the right car and getting it for the right price.

Another thing I have considered is building a kit car like a Factory Five Cobra. Take your time and do it right then sell it. You should be able to make a little money doing it that way too.
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Old 02-24-2014, 09:04 PM
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There are lots of ways to make money. Strange that technically after so many cars a year you need a dealers licence in Canada as well. Five or seven units per year is the limit if I remember.

If you have a dealers licence though you might get good enough buys on recent cars at the restricted auctions to turn them over if not in a rush. The right cars at the right price with factory warranty remaining.
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Old 02-24-2014, 09:29 PM
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Quote:
Originally Posted by engatwork View Post
You can make money by purchasing cars that need a little help, fixing them up and selling at a profit.
This was the key for me. I would buy cars that needed cleaning but were mechanically sound. Very light repairs OK.

I priced them to sell themselves but even so financing for the buyers was the issue. To buy a decent vehicle and sell it for a profit I was selling them for $4000 and up several years ago. Most people don't have that kind of cash. It would probably be more now. Filling my days with such was not my idea of a good time.

After having said that I admit that I have lately been thinking of doing it again. I'm going to check on a dealer license in our new location.
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Old 02-24-2014, 09:36 PM
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Selling auto financing seems to be where the action is today. You sell cost per week,or monthly rather than the price of the car. People actually seem to care little about the price versus the payments.
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Old 02-24-2014, 09:42 PM
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When interest rates double, those people will be slapped back to reality.
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  #11  
Old 02-24-2014, 09:46 PM
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Cash only. No income.


You may not want to quote me on that.
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Old 02-25-2014, 08:23 AM
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Quote:
Originally Posted by SwampYankee View Post
Cash only. No income.


You may not want to quote me on that.
Probably good idea. But I didn't say that, and neither did you.

If I pursue this, I plan 2-3 cars a year, and mostly for the enjoyment of the restoration work. I find problem-solving very satisfying. ( Maybe that is why finishing is so difficult--all the problems have been solved.)
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  #13  
Old 02-25-2014, 10:07 AM
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if you are in the widget repair and resell business, then you can deduct the cost of tools and the profit from selling the widgets. That profit is regular income (and taxed accordingly). Similar rules apply to the carryover of losses as well.

if you are in a different profession and do the widget business only on occasion, then the profit you make is considered a capital gain (and taxed accordingly). your dabbling in widgets is considered a hobby. there are of course rules to weed out the hobbyists who deduct their expenses and claim they are businesses. If you are not profitable in 2 of the last 5 years, then you are a hobbyist not a business.

regular income- the taxes include, state, federal, self employment taxes (basically sss and medicare)

cap gains- depending on the holding period, you can count on 20%
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  #14  
Old 02-25-2014, 01:36 PM
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Originally Posted by spdrun View Post
When interest rates double, those people will be slapped back to reality.
You might think so but I have seen with my own eyes this is not true. These customers are 'payment buyers'. The car is important only in that it needs to look nice and match their image of themselves, but the payment is everything.

Can you handle $50 a week? Could you make that $75? The difference seems slight at first, but you are not considering that the car will break down during the first month. You are only thinking about if you can deal with $75 a week.

Can't make this week's payment? No problem because I am your friend! Just pay me, say, $10 this week and we will pick it up where we left off. No, I don't want the car back. You paid three times what it was worth because that was the only way you could get the 'special finance deal' I was offering.

Am I the kind of guy that gives used car salesmen a bad name? Well, so what if I am? I ain't in this business to make people love me.

And if you want to trade your current ride in I might be able to give you 50% of what it is worth. But don't worry, I will just roll that money into your new payment plan.

Because I am your friend!
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  #15  
Old 02-25-2014, 01:41 PM
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OK, you're not talking about conventional dealer financing, but rather about usurous financing rates from sleazy used car shops. Gotcha.

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