Can I tax deduct my stock?

[jaydisc]

Can I tax deduct my collection stock?

I am a sole trader and run a legitimate software development business.

I have also started investing in collectibles as a business venture / investment. To prove this, I can provide receipts for all the stock that I have acquired to date. I also have some very slight income from the sale of a few collection pieces which unfortunately, since I did not wait for maturity, have been sold at cost or a loss. This has been for the sake of networking and establishing relationships in the industry. So, overall, this new business venture has resulted in a loss of about $5,000 this financial year.

Note that the inventory that I am building now will not mature and reap benefits for around 10 or 20 years, and I expect to operate at a loss until then.

Is this feasible?

Obviously, I'm not expecting accountant level advice, but are any of you doing this? Familiar with any of the rules surrounding this?

[Paulbot]

Ah so you're not a scalper... you're a business :P

[jaydisc]

Well, this is the story I hope to present. The only "sales" i have to demonstrate that I'm a biz are like 3 or 4 ebay transactions. I plan on arguing that selling now isn't worth it, and thus, I expect to take a 5,000 or so hit per year to build this stockpile. Now, the inverse effect of this scheme is that when and if I do ever sell the collection, I'll have to treat it as income.

I have no intention of truly being a business, scalper or anything but a collector. The text in italics is what I hope to present.

[TheDirtyDigger]

Haha...you make everything sound feasible Jd.:D

I'm gunna get you to act as a character witness at my next trial!:)

[Thanatos]

Are you sure that being a Transformers collector is possible to get out of taxation? Unless you're selling the collection in the 10-20 year mark you can't really apply a tax free status to your collecting can you?

[jaydisc]

Hey Thanatos.

The premise is that the collection is just stock that will be sold.

1. Since I am acquiring stock, this to me sounds like an operating expense.

2. If it is an investment that when reaped will be considered income, the investment should come out of my income before tax.

Basically, I'm looking to use my stock/investment as an expense that should be deducted from my income.

[Thanatos]

Sneaky Mr. Jaydisc. Very sneaky. Interesting premises too.

I'm not sure if it'll work, but keep us posted. I'd love to see this sort of thing happen.

[dirge]

"Scalper!!!!1!"

(:

[MV75]

I doubt you can use the capital of acquiring your collection as a tax write off.
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[1orion2many]

:confused:Have you got an ABN number and have registered as a small business, if so you may get away with it;).

[jaydisc]

I doubt you can use the capital of acquiring your collection as a tax write off.

Well, this is what I'm trying to ascertain. As a "toy collection", you're probably right. As "stock" for sale, I think I might be able to. Now, in order to prove that indeed it is stock, I have an inventory database, photos of the merchandise (MISB), and receipts for purchases.

The tough part is explaining why I don't have any current income arising from it. I do have a lot of money flowing in to my bank and PayPal account due to the group orders I manage and the hunting I do on behalf of others. I could argue that this very limited revenue is income for this business.

Of course, I'm doing a lot more buying than selling, so naturally, I'm running at a loss. Now, the tax office limits how long you can run at a loss to your own tax benefit (three years I think). So, I should at least get three years of tax benefit for accruing future stock, and then my baseless theory and hope is that somehow due to the nature of the business (time maturing collectibles), I can stave off this period for at least a few more years, if not longer.

Sound reasonable?

I'll be seeing my accountant in a little over a month and I will put this to him. I will of course let you know my results. I was just wondering if anyone had any experience in this area.

[jaydisc]

:confused:Have you got an ABN number and have registered as a small business, if so you may get away with it;).

Yes and yes.

[Tober]

When you filled out the application for the ABN didn't you have to declare weather you were an import/export business or a trader? It's been a long time since I filled it out so I can't really remember.

I can't believe you spend $5000 a year on scalping collecting trading. :eek:

[jaydisc]

I got my ABN as a sole trader, not in context to a specific business. That was the same year that ABN's appeared, so my memory is a bit hazy.

I have since registered a Victorian business name for my software business, but state business registrations are really just aliases. So, I'm still <insert my name here>, but in Victoria, I'm doing business as <insert business name here>

As far as the 5,000, it's more like 4,800 to date, and Games of Deception was about 20% of that. Hey, it's my first year! Leave me alone! :o

[autobreadticon]

disclaimer-reader beware

entertainment expense = tax deduction
e/g i brought the toys so when i am consulting customers their children can have something to play with

or a Japanese businessman really wanted to play with transformers, in order for me to close this business deal , i brought him transformer toys so he could play with them

[jaydisc]

Unfortunately, they've pretty much axed the ability to deduct "Client Entertainment". Too much abuse.

[Tiby]

There are specific categories for this, such as artwork (paintings etc). They can classify as investments. I don't think we can get there with these figures. Artworks are generally one of a kind.

[Vector Sigma 13]

Its would be like living the ultimate TFormers dream!

Buying, selling and playing with them. I think if you are gonna sell stuff like that the only way to escape ridicule (not that its anyone elses business really) is to buy cheap, add a minimum mark up and sell shite loads of it! And provide a exceptional customer service.

If youre going to run a business its gotta make money otherwise you dont get very far.

Theres my two bobs worth.lol

[autobreadticon]

disclaimer

you could buy eductional transformers for your kid and claim the 'min' deductable expense for education on your income tax form

for the entertainment expense try going for the first option ;)

[Pulse]

For some reason, I don't think the ATO would ever buy it... :rolleyes:

[1orion2many]

I got my ABN as a sole trader, not in context to a specific business. That was the same year that ABN's appeared, so my memory is a bit hazy.

I have since registered a Victorian business name for my software business, but state business registrations are really just aliases. So, I'm still <insert my name here>, but in Victoria, I'm doing business as <insert business name here>

As far as the 5,000, it's more like 4,800 to date, and Games of Deception was about 20% of that. Hey, it's my first year! Leave me alone! :o

:)Yes I'd be embarressed to, only a measly $4800:p:D

[jaydisc]

I can't believe you spend $5000 a year on scalping collecting trading. :eek:


:)Yes I'd be embarressed to, only a measly $4800:p:D

Care to provide any comparative figures, Gentlemen? :rolleyes:

[MV75]

And don't you have to prove they're losing value? What do you compare them to? Sales at kmart? :p
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[roller]

if they can give druggies a legal place to shoot up then surely Jossier Jaydisc can get some tax back

[Tober]

Care to provide any comparative figures, Gentlemen? :rolleyes:

I don't think I go over $1200 during any given year. And I only collect technical transforming toys for the most part.

I probably should get a job... :rolleyes:

[autobreadticon]

i am not 100% sure but i remember reading that u can claim deduct eductional expenses for your children on your personal income tax form

[Burn]

For shame on Dirge for not remembering where I work ...

I don't have the fancy papers, but i've worked for an Accountant for 11 years. So here's the deal.

Your "stock" won't be a straight up deduction. As you still have it "on hand" you have to put it in as "closing stock". Basically it's Sales - Purchases + Closing Stock.

So if you sold $1000 worth, bought $4000 worth, your closing stock is essentially $3000. That's at the cost price level. You can also use the market value, ie, what you intend to sell the remainder for which may be $5000.

However all that may be pointless depending on your other income.

If you were on wages and earning more than $40,000 you wouldn't be able to claim any losses unless your sales were over $20,000.

However as you're a sole trader that won't be an issue as at the end of the day, all business related income and expenses are lumped together.

In other words, you could have seperate Profit and Loss statements for your software business and collecting business, but once you do the tax return they're combined.

At the end of the day though IF you were to be audited I would imagine the ATO would take one look and regard it as nothing more than a hobby and disallow it.

Your Accountant however may see things differently so any advice I give here may be different to what they offer. Neither is right, neither is wrong, it all comes down to how well you cover it up so the ATO doesn't see it.

[Burn]

i am not 100% sure but i remember reading that u can claim deduct eductional expenses for your children on your personal income tax form

That's being introduced for the 2008 tax year. Not quite sure how much you can claim though, still waiting on the tax pack for that stuff. :p