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[Stinger31]

It's just my professional opinion that the IRS would never accept an argument that 50% or more of your computer's usage is for the purpose of generating freebie trading income. I've seen similar situations before with daytraders during the stock market boom. I'm not trying to tell you I think your argument is invalid, I am just very confident it would not be accepted on review. No deduction, even prorated, is allowed for purchase of an asset used 50+% for personal use. This is different from ongoing regular fees for a service (i.e. Internet access).

Your argument would be much, much more viable if there were multiple computers in the home though and you had one designated as the "freebie computer" and did most of your personal bill paying, etc. on the other one.

Regarding the hobby question--if you make a profit then it's automatically a business and not a hobby, case closed. If you have a loss then you could only deduct it if it's a business and not a hobby. In other words, every freebie trader should/must consider their activities a business and not a hobby for tax purposes.

Regarding sullx's question, I think the best way to report is to show the gross cashouts ($40) as gross receipts and show the reductions ($1.46) as Paypal service charges, rather than just reporting the net amount.

Originally Posted by dtaylor5

I still don't understand why part of the costs at least of a computer used just for this would not be considered a deduction? In order to do freebies, you need a computer and an internet connection from home- It's not possible with any other- So, if a person purchased a computer for doing freebies, it seems a little strange to not be able to deduct at least some of the cost of buying it- Now, someone could reasonable argue that the computer was not used solely for freebies, but you could fairly easily say that it could be 25-50% of the time- and then there is the question of whether to declare as a hobby or business- is there any benefit of doing this one way or the other? there is a little time to get this together, but just wondering for now what I should be trying to do-thanks for the great post- i appreciate the time it took you to put it together. Earle

[shanladams]

I have a couple of questions.

Since we should be counting this as business income:
Is there ever a point where taxes for this needs to be filed seperate from normal taxes that you file for your "regular" job.

If you are claiming business expenses and profit on the same tax form that you file your job income does it in any way affect the child tax credit, earned income credit, or any of those other common credits that are given.

If you are not working at a normal job (for example stay at home mothers) does this business income count as earned income on that first page with the adjusted gross and whatnot, or is it added in there after that stuff is calculated.

I would assume that if you are not supposed to file seperate personal income tax and business income tax forms that you would have to file only the business income tax form instead of a regular 1040? Or is it all done with addons and schedules?

If my rambling doesn't make sense let me know and I will actually look at the forms and try and ask more specific questions.

[JKBaylor04]

I'm a CPA myself, and I think this is an excellent post. Thanks for taking the time to do this for everyone! I know many people will appreciate it.

[Stinger31]

Every individual (or married couple) who is required to file a tax return must file a Form 1040; the Schedule C or C-EZ are just subschedules which flow through to Page 1 of the 1040. So no, you will never file a completely separate return; you'll just add a schedule to the return you're already filing.

Profit from the Sch C would increase your Adjusted Gross Income on page one, which might have an effect on the child tax credit or earned income credit--but the effect is totally unpredictable and could be either positive or negative in a variety of situations. Freebie trading is considered earned income which, for very low-income parents, could actually help improve those credits. This is really a "consult your tax advisor" answer, sorry I can't be more specific.

Originally Posted by shanladams

I have a couple of questions.

Since we should be counting this as business income:
Is there ever a point where taxes for this needs to be filed seperate from normal taxes that you file for your "regular" job.

If you are claiming business expenses and profit on the same tax form that you file your job income does it in any way affect the child tax credit, earned income credit, or any of those other common credits that are given.

If you are not working at a normal job (for example stay at home mothers) does this business income count as earned income on that first page with the adjusted gross and whatnot, or is it added in there after that stuff is calculated.

I would assume that if you are not supposed to file seperate personal income tax and business income tax forms that you would have to file only the business income tax form instead of a regular 1040? Or is it all done with addons and schedules?

If my rambling doesn't make sense let me know and I will actually look at the forms and try and ask more specific questions.

[Celeste]

Thank you so much for taking the time to do this, and answer everybody's questions!! I feel better knowing if I have questions, I can ask you, a trustworthy fellow trader!!

[shanladams]

Originally Posted by Stinger31

Every individual (or married couple) who is required to file a tax return must file a Form 1040; the Schedule C or C-EZ are just subschedules which flow through to Page 1 of the 1040. So no, you will never file a completely separate return; you'll just add a schedule to the return you're already filing.

Profit from the Sch C would increase your Adjusted Gross Income on page one, which might have an effect on the child tax credit or earned income credit--but the effect is totally unpredictable and could be either positive or negative in a variety of situations. Freebie trading is considered earned income which, for very low-income parents, could actually help improve those credits. This is really a "consult your tax advisor" answer, sorry I can't be more specific.

That is exactly what I wanted to know. Whether it was "earned income" or not. I was just hoping it wasn't something weird that like dividends and stuff that doesn't count as earned income but still raises the amount of money you get taxed. Thank you for your answer.

[taterbaby]

i will definitely be using this! thank you

[chriscros]

Great info,
I usually average 2-4 schedule C's a year and would have thought the
cost of offers was a write off. Good thing I have my own CPA. He's going
to be raising his eyebrows at this!!!

[barbshome]

THANKS SO MUCH FOR THE INFORMATION. I HAVE SENT YOU A PM AS WELL. THIS INFO WILL BE A LIVESAVER FOR A LOT OF PEOPLE, THANKS AGAIN.

[ASharpEdge]

Nice work Stinger31! This gives people a lot more confidence about what is going on with this money they are making and how it is taxed. Very helpful!