Tax question: Can you write off IM ebooks, training & coaching as business expenses

by bwall
19 replies
Whether you are operating your IM business as a sole proprietorship or a corporation, can you classify Internet Marketing ebooks, training programs and coaching as deductible business expenses or do you have to eat them as personal expenses.
If you do deduct them as business expenses what category would you put them in?
#business #coaching #ebooks #expenses #question #tax #training #write
  • Profile picture of the author Bryan Toder
    However...

    You will need to show that this is a real business. The IRS doesn't look kindly into dabblers who spend a lot of money with no real plan or outcome. They put this into the "hobby" category.

    An example: Years ago, I used to be a professional magician. I knew magicians who spent thousands each year on books, videos, seminars, conventions. They would try to deduct these expenses, but the IRS flagged them as "hobbies" and the expenses were not business deductions.

    Even if they did a few paid gigs in a year. They couldn't show that it was a "real business".

    So, if you have good records, etc., you may be able to do this.

    Oh, to answer your second question, the category I put them into is Education Expenses.

    *** Disclaimer: This is in no way business advice. Please see your accountant or CPA for more accurate information. ***
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    ~ Bryan

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    • Profile picture of the author jan roos
      I wrote all of that off this year and didnt get any resistance
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      • Profile picture of the author Steadyon
        Originally Posted by jan roos View Post

        I wrote all of that off this year and didnt get any resistance
        Not every tax return is carefully scrutinised to the nth degree

        However, if someone's does get picked at random and one has been a naughty boy, then you are heading down a very slippery slope with an unpleasant landing awaiting.

        If it is genuinely for your business, and you can show this, then there shouldn't be a problem. Stick within the rules.
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        • Profile picture of the author bwall
          Thanks for the responses.
          I do keep my books pretty well organized using Quick Books and I have set up a seperate bank account for my IM business. I am operating as a sole proprietor now but I plan to incorporate soon.
          I am not sure whether to set up an LLC or a subchapter S Corp.

          So it seems that as long as these training materials are directly related to my IM business and they maintain or improve the skills needed in this business they are justifyable business expenses.
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    • Profile picture of the author askloz
      Originally Posted by Bryan Toder View Post

      However...

      You will need to show that this is a real business. The IRS doesn't look kindly into dabblers who spend a lot of money with no real plan or outcome. They put this into the "hobby" category.

      Not true, my business partner is a fully qualified accountant, and this can be written off. Just as with any student books.
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      • Profile picture of the author LB
        Originally Posted by askloz View Post

        Not true, my business partner is a fully qualified accountant, and this can be written off. Just as with any student books.
        In the US, they absolutely will disallow deductions if your business is not profitable repeatedly or if they otherwise view it as a hobby. (and trust me, they will try)

        The question is just whether or not you will get audited or otherwise scrutinized for it.

        I could deduct an elephant and list it as "special friend who loves peanuts" but unless my return gets flagged or I get audited then it will probably slip under.

        But audits and investigations are at their highest rate ever. I would only deduct what I could prove because I don't want to have to worry about it.

        If it's a gray area, you can always deduct it at the chance it gets disallowed later at which point you will owe penalties and interest.

        The best answer is what it always has been...talk to a professional.

        In short, yes, educational business expenses are allowed. But if you're not running an actual business then it may be a gray area.
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        • Profile picture of the author Michael Motley
          To take business deductions, you have to be a business.

          Not just 'i work on my pc', you need to have an llc, or atleast a DBA that has been registered (i'd seriously suggest an llc). If you dont have that you probably wont like what happens if you try to take a business deduction.
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        • Profile picture of the author askloz
          Originally Posted by LB View Post

          In the US, they absolutely will disallow deductions if your business is not profitable repeatedly or if they otherwise view it as a hobby. (and trust me, they will try)
          "They will try" doesn't mean they will succeed! My business partner and I do it all the time, we set up ghost companies for our own well being.. oops, said too much about a tax loop hole
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          • Profile picture of the author TheRichLife
            Any business has start up expenses prior to generating revenue. There's nothing wrong with taking legitimate business expenses as a deduction, even if haven't generated any revenue.

            If you post a tax loss on a business 3 years in a row, you'd better get ready to explain yourself to an auditor. However, if your deductions are legitimate and documented, you have nothing to fear.
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          • Profile picture of the author Steadyon
            Originally Posted by askloz View Post

            "They will try" doesn't mean they will succeed! My business partner and I do it all the time, we set up ghost companies for our own well being.. oops, said too much about a tax loop hole

            Anyone can deduct anything they want and get away with it too.

            That is until they happen to check into it and if they find you have been playing funny buggers, then don't bother pleading for mercy because they will show you none. They can go back years if they think you have over done it or if they believe it is worth their while.

            At the end of the day you have to be able to convince them. Not the other way round.

            This applies in the US and the UK and most other countries actually.

            Many people make the mistake in thinking that just because they claimed something one year and weren't asked questions about it then it is fine to carry on doing so.

            By all means claim every vaild business expense you can. But there are many grey areas and YOU have to have a convincing case if they come knocking. Even then they may disallow it.
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    • Profile picture of the author Mark Brian
      Originally Posted by Bryan Toder View Post

      An example: Years ago, I used to be a professional magician. I knew magicians who spent thousands each year on books, videos, seminars, conventions. They would try to deduct these expenses, but the IRS flagged them as "hobbies" and the expenses were not business deductions.
      If that's the case then money earned from magician gigs should also be tax free, no?
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  • Profile picture of the author MichaelHiles
    Yes, whether a sole proprietorship, LLC, or a corp, these are legitimate business expenses.
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  • Profile picture of the author cderenberger
    I always do.. just keep a receipt as proof.. you may need it...
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  • Profile picture of the author jacktackett
    First, as others have said - you should discuss this with a CPA (or your country's equivalent). In the US, these are typically justified expenses.

    Second - congrats Ben - you're taking this seriously so you're heads above others. People just 'playing' at this typically co-mingle funds (a certain death blow to any claims that one is running a business) and keep little to no records of what they do.

    You're saving money by not incorporating right off the bat - again IANAL or an accountant, but incorporating doesn't always protect you. Especially if you don't take things seriously. If a judge thinks you're just playing at this, they'll pierce the corporate veil and let the jackals at your assets. So much for protection.

    So many people think Ha! I'm a corporation now, but never hold their annual meetings or show meeting minutes, or worse - again co-mingle funds or not keep proper books (again kudos on using quickbooks!).

    Finally, some somber news. As a small business person myself my accountant told me - almost 14 years ago now - that in the US the IRS hates small business owners since its so easy for us to hide money and that its not a matter of IF - its a matter of WHEN - you get audited. BUT to not fear that, since its just part of being in business, and if you keep proper records and behave in a civilized manner, you can get through anything. That tax avoidance is constitutional and all -American; Tax evasion is against the law and has serious consequences.

    And yes, I've been audited twice for sections of my return. (A full audit is scary I've been told, but usually most audits are for a specific area/deduction - and that area is all you have to be concerned with.) Won one - lost the other (and interest, taxes, and penaties were like $250 total).

    So again - I'm not an accountant - but I always take as a deduction anything that even remotely smells like one - since as long as you don't cook the books, all they can do is call you offsides (Audit! second and 10 :-) ) and you have to pay [typically] a small amount.

    This year my deductions for books topped 3K :-) - being a writer does have some benefits.

    good luck!
    --Jack

    edit/PS Talk with an account, there use to be a rule about showing a profit so many years out of five, but again, if you can prove you're in business and not just playing at a hobby, many companies go years without showing a profit. As long as you can prove your intent is to earn money, you should be ok. (again, can't stress this enough, talk with a CPA!)

    Everyone who takes this seriously needs to have on their team a CPA, a lawyer, and a banker who you can ask questions. Network! you don't always have to pay an hourly rate - a lunch every now and then can go a long way to getting some great advice. But don't forget to give them some real business too!
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  • Profile picture of the author creyes3
    So can you deduct WSO you buy here?

    thanks in advance
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    • Profile picture of the author Centurian
      Originally Posted by creyes3 View Post

      So can you deduct WSO you buy here?

      thanks in advance
      Yes, these are educational expenses and training to further your enterprise. Software is marketing supplies. You can use whatever categories that work for you on Schedule C.

      All your expenses spent on building your business are deductible for U.S. income tax. These are offsets to any income you make in your business. They will offset other income, but if you run too many years of losses you can find your work considered a hobby. Don't let this worry you into not taking legitimate deductions.

      "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands." Judge Learned Hand, (1872-1961), U. S. Court of Appeals, Source: Gregory v. Helvering 69 F.2d 809, 810 (2d Cir. 1934), aff'd, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596 (1935)

      You will have a loss for a while as you are in start-up. Having your own business is the best tax deduction you'll find. America (used to) love free enterprise and fortunately we can still deduct the expenses to become free.

      You should open a business checking account and conduct all your expenditures from there. Don't just run everything from your personal checking account. But even if you have, that does not make them non-deductible. As has been said, you just need to show you are in a legitimate effort to run a business and it's not just a hobby.

      I've been self-employed and deducting all my business expenses since 1980. My returns have also been prepared by CPA's and tax attorneys. My returns have been reviewed by IRS personnel. After a few years of seeing I had to do all the work myself anyway, I just did them myself instead of paying thousands for tax professionals to have their staff run my returns through a software program.

      What you really pay for is advice and expertise. Some will represent you in an audit, but they still want to get paid for their time. You can purchase audit insurance these days through some tax software programs.

      As was mentioned, typically it takes up to 3 years for the IRS to review your returns. So keep receipts and records of each expense. Write on your receipt exactly what it was for when you do it. A year later you may not remember. The IRS can audit back 6 years, more if criminal actions are suspected. After 10 years, your liabilities are erased. So in reality, your exposure is probably 10. And as we've seen, some government agents do whatever they want these days, unfortunately.

      Just keep good records, operate through a business bank account, and run a real business to make profit. Then go do it.
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  • Profile picture of the author Oliver Williams
    Any home based business has many tax benefits in AUS I claim as professional training
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  • Profile picture of the author seosoldier
    One mistake people make is thinking they have an 'office' just because they use their computer for their businesses.

    If your office is not a separate room or if you use your computer for personal stuff as well, I believe it will not count as an office and your deductions are then minimized, though you can still take some.
    I am not a tax expert but as I understand it, this is the case.
    If you do TurboTax it explains this stuff to you if you read the help files that are available.
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