By: A.J. Cook


Some taxpayers unwind with a hobby. That's good. It releases stress.

Some taxpayers deduct their hobby losses. That's bad. It stresses the Internal Revenue Service.

To deduct hobby losses, the activity must be conducted with the realistic hope of a profit. Would these hobbies qualify?

Wilbur K. Griesmer of Cleveland, Ohio, spent most of his life working as a seaman or in a factory, but once retired he decided he was a "self-employed physicist." He combed Lake Erie beaches for his Martian meteorites. He explained how they come to earth: "... big meteors land on Mars, they splash this brown and black stuff up in the air, and with the light gravity of Mars, it takes off into space. Now, it floats in space. Now, it's drawn by the gravity of the sun towards our direction." After cleaning what he found and painting some gold, he added them to his stockpile. Even though he never tried to sell them, he deducted office expenses and cost of salvagers, high school students who helped him find his collections. He called his business Treasures on Earth or T.O.E. Co.

The IRS kicked out deductions of $84,335 one year and $66,141 the next. When the court asked what income he hoped to get from his rocky business, Griesmer gave a candid but not necessarily relevant answer: "I want my grandchildren to enjoy life as well as I enjoy life." The judge, not knowing how the collection could produce a taxable profit, ruled for the IRS and added a negligence penalty.

The Moral: Confucius says he who seeks no profit has rocks in his head.

Robert L. Edmands worked for Alyeska Pipeline Service as a technician on the Trans-Alaska pipeline. He lived eight days in employer housing on site, followed by six days at his home in Kasilof, Alaska. In addition to his pipeline job, he listed on his return the businesses of fishing and snow plowing.

Edmond's snow plowing activity showed expenses of $4,408 for depreciation, truck and office expense. While investigating the tax return snow job, the IRS discovered his business consisted mostly of clearing his own driveway. Probably because he didn't advertise, he earned only $256 the year in question. He also angled to save taxes with his other hobby. He deducted $6,672 for boat depreciation, insurance, repairs and supplies. His catch: he hooked no fish, nor income - - but more taxes and penalties.

Fishing for deductions is expensive. (more at Hobby vs. Business)

A.J. Cook is a lawyer and CPA. His tax column appears weekly in numerous newspapers. Why isn't it published in your hometown newspaper? Ask its Business Editor to subscribe.

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Released 8-7-00