Stewart Fleming <
[email protected]> writes:
> Gerard Lanois wrote:
>
> > You omitted the word "reimbursement" from my original posting.
>
> Sorry. Not sure if it changes anything though...
>
> > Let's say I spend $89.00 on a team jersey and shorts. Then by virtue of racing 12 times during
> > the season and doing 8 hours of volunteer work my club reimburses me the $89.00. Suppose my
> > overall net taxable income for the year was $13,000. Then I could deduct the $89.00 from $13,000
> > and thus only have to pay the income tax on $12,911.00.
>
> So you spent the $89.00. Expense. You got the $89.00 back. Income. You have the jersey and shorts.
> The club has you for 12 races and volunteer work.
>
> I am missing the part where you could deduct this $89.00 from your income. If no $89.00 changed
> hands, would you still be able to deduct it?
No.
> So if you bartered volunteer work for jersey and shorts, your overall taxable income would still
> be $13,000 and you would be worse off than if you go through this expense/reimbursement scheme?
Yes, the point being that more of your income would be exposed to taxation.
As someone else pointed out elsewhere in the thread, the whole $89 isn't deductible, only 2% of $89
is deductible (sorry, I didn't read the fine print).
That might not sound like much, but if you're Ross Perot then append a bunch of zeros and you'll
begin to see why it would be worthwhile to try to find as many deductions as possible.
> I'm not saying you SHOULDN"T or CAN'T do this - I'm just genuinely interested in the mechanics of
> what makes this possible. STF
The IRS considers a hobby to be a "not-for-profit activity", and you can deduct a portion of your
expenses (not to exceed your income).
The US tax code is riddled with such so-called "loopholes". Many of these deductions are used as
election campaign fodder. Others tend to favor corporations (especially ones who are located in
certain states or election districts represented by certain congressmen). But if you were once blind
and a widow of a disabled retired railroad employee then you can deduct the interest you paid on the
portion of your farmland that you didn't rent so long as it was not titled as an asset of an
offshore trust and then only the depreciated portion carried forward from the previous year. And
there is a separate form you have to fill when you're in this situation.
-Gerard