I think the accountant gave you dubious advice here, because the normal test is not “could be used outside work”, but rather “was used outside work” (and how much).
An example of this is vehicle expenses: if you document “for business” use, the fact that there is some non-business use does not mean all vehicle expenses are disallowed.
IDK, Moriarity got the same advice I did when my work required us to wear blue oxford shirts as a uniform.
There are specifically different rules for cars and clothes.
Which I specifically mentioned (about clothes) yesterday.
For cars, the rules I’ve heard (Canada) is to keep a log of when and where you travel on business, and that proportion of mileage is claimable. Or, in reverse, the proportion of mileage for personal use of a company-provided car is considered a taxable benefit, same as salary paid. With modern tech tracking car location, duration, etc. there are logging programs that automate this once-tedious logging process. OTOH, driving to your regular place of employ, your office or whatever, is considered personal travel, otherwise everyone could write off part of their car expenses. Business travel only covers going to other locations.
My wife told me about one field supervisor who would regularly drop in to a store near home (not even one he supervised) on the way to or from work or on the way to his kid’s daycare. The car’s GPS tracking would log this as company travel, thus saving him some taxes.
not sure on clothing rules, but they tend to require the apparel to be specifically necessary - uniforms that aren’t appropriate to wear outside work, steel-toed (and steel-soled) boots, hard hat, etc.
This is wrong. The rule on clothing (at least in the US) is whether or not it is “adaptable to be worn generally” (not whether the taxpayer would wear the clothes outside of work but whether the clothes could be so worn – and certainly not whether the taxpayer did wear them outside of work). That’s been the rule since at least the 1940s.
It’s a fuzzy line in some circumstances, but I don’t think there’s any doubt that business suits are going to be viewed as adaptable for general use. (I do wonder if fashion so far away from suits to make them unsuitable).
Don’t forget there are all sorts of tips & tricks one does in food photography to make it looks so scrumpdiddlyumptious (& fresh) when one might be shooting that plate for quite some time to get it just right; some of those tips & tricks might make food taste bad while others make it inedible due to non-food ingredients being put on/in the photographed food.
So let me boil this down, and see if I understand it.
I start a youtube cooking channel, where every week I make a large Sunday dinner. After I’m done cooking I save the food and eat it throughout the week.
I keep detailed records of the food purchased for the videos, as well as any other expenses, such as buying a camera and microphone.
At the end of the year I deduct all of my “business” expenses from my personal income (good thing I kept my day job), decreasing the overall amount of taxes I owe. By far the largest expense is the groceries required for the Sunday dinner. (Coincidentally, I’m also spending less for my personal groceries.)
Maybe, somehow, I get 1000 subscribers, and I start earning money from Youtube. Now the expenses offset any income I earn from the videos, before being deductible from my personal income.
After three years of no profit, the business gets reclassified as a hobby, and I can’t deduct my Sunday groceries anymore.
If the IRS audits me, I show my careful records of expenses, detailed business plan, and logs of the hours spent editing videos and researching recipes, and hope that is enough to convince them that my single-take videos of making spaghetti with a stream of consciousness dialog about the afternoon’s Packers game represent a real business.
I do question whether expenses from the failing/nascent food video business can actually be deducted from your day job income? Or are the losses accumulated to be deducted from future income that the food business will generate when it’s a success?
I remember reading something by someone in advertising talking about the rules for photographing pre-made food - specifically TV dinners, for those nice packages they come in. He said that re-arranging the food in any way would be deemed false advertising. All they could do was cook up several hundred regular dinners off the assembly line and peel the foil off one at time and take a picture - until they hit the perfect looking dinner not arranged by the crew.
I mentioned upthread the RV Odd Couple. They have many many videos posted and I’ve watched a lot of them. Somewhere in there they mentioned that they’d hired someone to consult them about how to set up their channel. I think the person had Hollywood connections or experience and it cost thousands of dollars but they’ve been successful and they say it was money well spent. They don’t say who it was…the person doesn’t want or need more work.
They seem to make money. They have 153,000+ subscribers and I think their top video had 787K views (though many are far less).
I found this:
Most YouTubers earn around $18 for every 1,000 ad views. That works out to around $3 to $5 per 1,000 video views. Of course, this varies based on your channel, but that gives you a rough estimate of what it takes to earn a living on YouTube.
The above link created itself…the original article I got it from is here, but that one above is much more detailed.
The article also says if you can attract sponsors, sell merchandise, or get a cut when a viewer clicks on an affiliated link you can make more.
And remember this woman? They changed how she would be paid for her videos. I’m not sure what legal guarantees youtube gives that they will continue whatever arrangements they make.
A friend in college new someone who appeared in a Pizza Hut commercial. He had to bite the pizza carefully…they’d put vaseline on most of it to make it look extra appetizing.
And I’ve heard that when you see a commercial for milk, it’s really watered down glue. Milk would curdle etc. under those hot studio lights.
YouTubers cooking in their home kitchen aren’t going to be using fake ingredients like glue or vaseline like commercial…commercial producers or still photographers.
A side business like that would fall under a Schedule C which is considered separately from your primary 1040 income, so yeah deducting those business expenses from day job’s primary income would not be cool. That’s especially so if you’re using the side job to supplement your home life. I’d say “spending less for personal groceries” would be the red flag, because that’s essentially an income or benefit transfer (not sure of the right term) from the side business to the person. Basically, if your side job loses money then you don’t pay any less tax on your day job than you would otherwise, but if the side job makes money then you pay tax on that additional income. You’re not “rewarded” for losing money, but you’re not punished either.
It’s my understanding that as long as you’re a sole proprietor you can deduct up to $250,000 in business losses from your other income. You can’t do that if the business is a C corporation, though, but there is no need to setup a C corp to upload a few cooking videos to youtube.
My biggest issue with the whole scheme is that it seems like lots of work to save 15-25% on some of your groceries.
If instead of doing lots of work, your just letting your phone to record, and then doing an upload while you eat, and calling that a business, then you will almost certainly not pass an audit. If you are trying to start a business making cooking videos, then why shouldn’t you be allowed to deduct your expenses?
There are definitely lots of niche channels on youtube, my understanding of the original question was this would be a no effort kind of thing. I don’t think you’re going to get too many patreon supporters paying for early access to your third tuna sandwich video this week (but this time seasoned with celery salt!).
I’m not talking about C Corporation (or S Corporation) but the Schedule C form that is for reporting additional income. That’s required whether you’re a sole proprietor, corporation, LLC, whatever.
OK, I thought you’d confused Schedule C, and C corp, because the wisdom of web says that sole proprietorships, S corps, and LLCs can deduct net operating losses from personal income. That business income/loss might be filed on a Schedule C, but it can still be deducted. For example, from How to Deduct Business Losses and Net Operating Losses | Nolo
If, like most small business owners, you’re a sole proprietor, you may deduct any loss your business incurs from your other income for the year—for example, income from a job, investment income, or your spouse’s income (if you file a joint return). If your business is operated as an LLC, S corporation, or partnership, your share of the business’s losses are passed through the business to your individual return and deducted from your other personal income in the same way as a sole proprietor. However, if you operate your business through a C corporation, you can’t deduct a business loss on your personal return. It belongs to your corporation.
The big limit to the grocery scheme is that you can only run it for a three years, and then it becomes a hobby, and in the event of an audit, you’re going to have to prove that it was a serious attempt to create a business, not a hobby or tax fraud.
This all does give me an idea. My wife is an artist, and she does sell things. The income earned has never been high enough to require paying taxes. However, I could deduct her equipment and supply costs from our joint income (taking into account the money she does earn from selling). Of course, she’s either going to have to be considerably more successful, or it would only last three years before I had to stop. As long as it is a hobby, not a business, I can only use expenses to offset any money earned from the hobby.
I guess because my side business only ever nets low four-figures at best, or at worst loses a couple hundred dollars, it just ends up being a slight change in adjusted gross income. That has a pretty small impact on the overall tax return, and it’s not a net operating loss as a whole.
Where I live we also have municipal income taxes which are automatically withheld and basically have no adjustments or exemptions unless you work in another city that also has a municipal income tax and there’s a reciprocity agreement in place. So if the side business posts a loss for the year then the city just doesn’t collect anything beyond what was already withheld in my W2, because it’s taken off the top. There have also been years where I had to write the city a $1 or $2 check because I posted a small profit from the side business that year.
Throughout this whole thread, it seems like the easier thing to do is just lie to the IRS. Yeah, there’s a slight chance you get audited and then caught, but they’re famously understaffed and don’t have the manpower to audit everyone who claims small business losses. Or if you want to be safe, just claim the various green energy upgrades every year.
In my experience trying to get enough itemized deductions to exceed the standard deduction is tough.
From the IRS:
The standard deduction for married couples filing jointly for tax year 2021 rises to $25,100, up $300 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,550 for 2021, up $150, and for heads of households, the standard deduction will be $18,800 for tax year 2021, up $150.
It’s called “withdrawal for personal use”, which reduces your “cost of goods sold” which negates the deduction.
One of the reasons ABBA’s costumes were so outlandish is that Swedish tax law forbids deductions for clothing that could be worn outside of work.
Friend of mine once told his version of the get-rich-quick plan, where he suggested on the last year (5th year in Canada?) don’t claim any expenses (just eat the cost, so to speak - sorry) so that the “hobby” actually shows income and a profit if you actually earn any money at all. then the taxman wouldn’t look deep into it and try to call it a hobby. He was full of ideas, never followed through, so don’t know if this would even work.
I wonder if his plan was to put a second hobby on another timetable — so that, in any year when one hobby would “eat the cost” by showing income and a no-expenses profit, the other one, uh, wouldn’t.