Our 2009 Business Financial Summary By Month
It is our intent to make our entire financial picture available to all future full-time RVers for review.
That process has been complicated somewhat by our establishment of little businesses that we hope will generate enough income for us by doing the things we love.
The reason that complicates things is because we have to spend more money than just basic living expenses to get the businesses up and running and to maintain them. We didn't want to include those expenses in Our 2009 Actual Expenses since they are expenses that most others would not have to pay.
However, we have figured out that some of the expenses (or a portion of them) that we would have included as "living" expenses can now be classified as legitimate "business" expenses as they are necessary in the ordinary course of trying to generate income. ("Legitimate business expenses" and "necessary in the ordinary course" are IRS buzzwords in determining whether an expense is a deductible business expense.)
So, for example, the supplies Linda uses to make her crafts are now "business" expenses since she is selling her products and buying more supplies than she would have. Whereas we would have just classified them as "entertainment" expenses had she just continued crafting solely as a hobby. But we also now have additional expenses such as shipping costs and PayPal fees which would distort our living expenses.
So, that is why we decided to come up with this page. It shows that we do have expenses beyond what we include in Our 2009 Actual Expenses page so readers can see our total monthly outlay.
But this page also accomplishes a couple of other things. First, it separates out expenses that most other full-timers won't have. Second, it shows those that do decide to have little business ventures that certain expenses of living on the road can be directly tied to the pursuit of income, making them expenses that can offset income for tax purposes.
Okay, I've rambled enough. Here are the numbers. If you decide to create little businesses of your own, please be sure to read the "Caution" at the bottom.
Caution: The IRS uses two tests in determining whether your activity is a business rather than a hobby.
First, the profit test demands that you show you earned money on the activity in three out of five years.
If you can't meet the profits test, you get another chance to convince the IRS that you are running a business by passing the factors-and-circumstance test. Here, the tax agency takes a subjective, individualized look at your pursuit. Basically, the IRS examines:
Whether you carry on the activity in a businesslike manner. This includes, for example, keeping good books and records, promoting your business and holding down costs where possible.
How much time and effort you devote to the enterprise.
Whether you depend on income from the activity for your livelihood.
If your losses are due to circumstances beyond your control or are normal for a business in its start-up phase.
Whether you change your methods of operation in an attempt to improve profitability.
The knowledge and background you (or your advisers) have in running such a business.
If you were successful in making a profit in similar activities in the past.
Whether the activity makes a profit in some years and, if so, how much.
Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
The element of personal pleasure involved in the activity. That doesn't mean you can't enjoy your new business, but you better be getting more out of it than just a good time.
If you cannot meet either of these tests, get ready to cough up some back taxes and penalties. Our advice is to be pretty sure that you can meet the profit test. You do not want the IRS attempting to apply that second, more subjective test to your situation. The IRS and subjectivity do not go together very well. :)