Michael Choate Associates CPA

How to Deduct Your Lifestyle — Part I

Leisure vs. Business

The first day of summer is officially in June, and many highly successful business people are taking the time to recharge and escape for a long weekend or vacation. Some travel to the sizzling beach or cool mountains, while some retreat to their favorite camp in the woods. Golf, tennis and other outdoor entertainment are moved to a higher priority. That favorite hobby or sideline business plan is dusted off as dreams of less stressful ventures return. After repeating this ritual for several years, you may notice that many of your best personal friends are also your best business customers, prospects, vendors and associates. You're spending money with both groups. The line between business and personal lifestyle begins to blur. That's where we can help. We can show you how to deduct your lifestyle!

This summer and fall we will be running a series of articles on how you can deduct your lifestyle through legitimate business activities. We will focus on three areas: 1) business travel, 2) customer entertainment and 3) leisure/business activities.

Throughout our analysis, remember that business travel and entertainment can be enjoyable and tax deductible, if properly planned and documented. From a tax standpoint the objective is to demonstrate the connection between business activities and travel and entertainment. Even a leisure activity can be converted to a legitimate business activity with proper planning and documentation.

Leisure or Business?

Over the last 20+ years, we have helped many clients convert leisure activities into legitimate sideline businesses.

A "profit motive" is the most important aspect in converting personal expenses to tax deductible business expenses. For example, do you own a large sailboat or fishing boat? Consider forming a charter business with a "profit motive". The expenses associated with the charter business are then tax deductible. Do you own a farm or raise cattle or horses? Do you collect antiques or enjoy fine wines? Do you enjoy painting or photography? All of these activities could be converted into legitimate businesses by charging a fee for service. Think of the possibilities in your unique situation. Think of the tax savings.

When people establish a sideline business and lose money, the IRS will invariably question whether the business was really a hobby and disallow the deduction of losses against other income of the taxpayer.

To avoid such results, it is important to conduct one's sideline business in a professional manner. This includes preparing realistic financial projections, reviewing projections annually with an accountant, advertising, holding promotions and pursuing other activities to produce revenue, minimizing personal use of business property, maintaining proper books and records and showing a clear intent to earn a profit. To accomplish these objectives you could:

  • Form a separate business entity
  • Open a separate bank account
  • Develop business cards and simple letterhead
  • Document all expenses with a check, credit card or cash log
  • Record sales efforts in your day timer / electronic devices
  • Document personal use of business assets in your day timer / electronic devices
  • Run small ads in the newspaper

In conclusion, converting a leisure activity into a sideline business is not complex but does require a proper planning and true profit motive. Once established, expenses which were considered personal can be tax deductible and as a result save significant tax dollars.

For more information and specific ideas for your unique situation call Michael R. Choate, CPA at (225) 292-7434 or email mike@choatecpa.com.