Posted: 5/13/2005 7:27:26 PM EDT
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Went to a funshop today and was b.s.ing with the owner when he mentioned that if you are incorporated you can deduct firearms and ammo on your taxes if you sponser an event that involves the shooting sports. I had heard this once before and it sounds to good to be true. He says it is no different than sponsoring a race car or anything else for that matter. What do you guys think? I have a range in my backyard and could sponsor a shooting event 
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I don't know the for sure answer, but most things of this type (meals, entertainment, travel expenses, etc.), according to tax law have to be deemed as promoting or contributing to your business. Crap like, if you take your wife with you on a business trip (and she's not involved in the business) you can deduct your expenses, or a portion of them depending on what it is, but not hers. I'd imagine that this would fall in the same realm. But again, I don't know that for a fact. I guess what I am getting at, is if your corp. doesn't serve a purpose, like making money (which it doesn't sound like it will) then the .gov probably won't like you trying to deduct things that basically have no business purpose. Not saying it isn't a good idea 
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YOu can deduct the event related expenses against the event related income. Under audit, the IRS is gonna apply the "hobby loss rules" i.e. hobbies are NOT deductible. Basically, its a judgment call, but generally speaking, I;d say "go for it." |
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My accountant says: "I think this would fall under the meals and entertainment section of tax law, and would therefore, be 50% deductible. If this is an actual incorporated business, hobby rules would not apply. The hobby rules are more for small businesses and are typically applied to businesses that have a net loss for three consecutive years. If a valid business purpose could be proved, the expenses may be 100% deductible, but I would assume that IRS would not look favorably on this assumption based on prior experience." She's not 100% certain but that's her gut reaction 
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So I could but 10 cases of ammo and 2 guns and then throw an event. If I spent 2k on the guns and ammo and I only made $100 for the event, then I could deduct the other $1900? Sounds to good to be true. |
Basically hobby loss is intended to prevent deducting losses (net reductions of taxable income) in any three out of a five year period. So yes, you could usually wipe out all income, and get to a net zero. The judgment call comes in with teh kind of deductions taken. For instance, if I start doing lots of CCW classes, I **** MAY **** be able to deduct my CCW firearms as "instructors tools" and guns for student use. IRS may or may not allow that, depending on....what crawled up their rectum on the day of audit. Its more art than science really. Hint: When going under audit, pray for a MALE auditor. The chix feel they got something to prove.
If I do you IRS audit representation, I would argue vigorously for just that. The IRS will look at the "big picture" of teh viability of your busines. Do you advertise? DO you have business insurance? A separate business phone? etc etc etc |
If it meets the "business purpose" test, then its deductible. "Business purpose" is a judgment call. I recommend clients be as aggressive as they can sleep at night with when interpreting "judgment call" deductions. |