Can Fred deduct the expenses of his treasure-hunting business, or will the IRS claim it is a hobby and disallow the expenses
Fred Fisher is a licensed scuba diver who lives in Key Largo. He is employed full-time as an engineer. Five years ago he had been employed as a professional diver for a salvage company. While working for the salvage company, he became interested in marine archaeology and treasure hunting. Until last year he gave diving lessons on weekends and trained individuals in the sport of treasure hunting under the name of ?Fred?s Diving School.? Three of the diving students he taught subsequently found shipwrecks. Fred generally did not engage in recreational diving.;Last year, Fred began a treasure-hunting business named ?Treasure Seekers Company.? He bought a boat specifically designed for treasure hunting and did extensive research on potential locations of shipwrecks. Fred located several shipwrecks, but none were of substantial value. He did retrieve several artifacts but has not sold any yet. Although these artifacts may have some historical significance, they have a limited marketability. Thus, Fred has not yet had any gross income from his treasure hunting activities.;Other than retaining check stubs and receipts for his expenses and an encoded log, Fred did not maintain formal records for Treasure Seekers Company. Fred maintains as few written records as possible because he fears for his safety. He took steps to keep his boat and equipment from public view and took precautionary measures to maintain the secrecy of his search areas. Fred incurred $5,000 of expenses relating to his treasure- hunting activities last year. Can Fred deduct the expenses of his treasure-hunting business, or will the IRS claim it is a hobby and disallow the expenses?
Paper#24463 | Written in 18-Jul-2015Price : $37