Welcome to siproject’s blog, as of 25th January 2010 I will be commencing my final year project to create a Project Management Tool for a company called Hark Solutions.

I will be working on this project from January right through till May, the aim of this blog is to keep you posted on where I am in the project, what I am currently doing and as a recording platform for discussing where it can be improved and areas of difficulty that will inevitably arise during the project.

Please visit this blog on a regular basis as I progress through the project.

The AGFC Commission recently voted to allow for $110,000 for improvements to the White River below the Beaver Lake Dam. Per the letter by Mr Hendrickson “The commission also approved a budget increase of $110,000 to improve trout habitat in the White River below Beaver Lake. The money will come from a federal grant through the American Recovery and Reinvestment Act”. I havent heard what the exact plans are, but rumor mill says they are wanting to place J-vanes between Parker Bottoms and the Bertrand Access, as well as fix the vanes above Parker that were damaged by the flooding. I have emailed Mr Ron Duncan, AGFC Commissioner, to see if there was an exact plan, but have not heard back from him.

This will be a great addition to the last stretch of the float from the Dam to Bertrand. A few large rocks along that stretch would not hurt either.

There is a VERY interesting interview to the leader of Magic Lantern Project, posted on November 1st at Cinema5D, that is really worth reading.

Please check it here: 10 Questions with Magic Lantern’s Trammell Hudson

Some quotes from it:

“It would really please me if Canon incorporated all of the features from Magic Lantern into their firmware.“

(…)

“Perhaps they hadn’t considered the filmmaking market for the DSLR form-factor. In any event, Magic Lantern brings the ability to add these features to the user, not just the manufacturer.”

(…)

“The 5D is a great camera and I hope that my project helps Canon sell more 5D camera bodies. We’re not in competition, despite the rhetoric on some of the forums: Canon has created an incredible camera and I’m really pleased to be able to add some measure of additional value to it. The fact that they have added manual exposure control and will be adding 24/25p frame rates indicates that they are engaged with their user base and that they are working to improve the cameras that have already been sold.”

(…)

“It would be great if Canon would provide some documentation to make this easier (…)”

If you are interested on this project and/or in what CAN be improved on Canon 5D Mark II and 7D, please consider supporting us. It will certainly benefit all users.

We are acting as Community, your are not alone and your help is VERY valuable.

It can be provided in many ways. One is Calling Canon and registering your Features Request for the 5D Mark II and/or 7D. Please check the Features Request List that has been written as reference by lot of 5D Mark II users.

Another way is supporting Magic Lantern Project.

You can of course do both things

We sincerely hope that Canon take a deep look on what the huge Community of Photographers and Filmmakers are requesting all around the world, and release so many improvements that can really be implemented via Firmware Update with minimal costs.

That will not only improve their own product line and make it more competitive and versatile, but also keep big sales on existing models, and that is a great deal from a business point of view.

It is MUCH cheaper to exploit the inner capabilities of an already designed and already in-production camera, than making a new whole design with its respective firmware and all the process it implies. The costs between both actions have no comparison, the difference is astronomical.

Additionally, if customers see that Canon is engaged with their users to improve the existing cameras, exploiting their huge potential, then they will certainly increase their LOYALTY to the brand. And that is a KEY factor for the long-term company profit, especially in the high competitive market of DSLRs.

As some reader and customer said:

“If Canon want to maintain customer loyalty people need to know when they purchase a Canon product they are going to be looked after. If I knew Canon would add if possible any features wanted by customers, I’d buy Canon EVERYTIME.”

I’m back to talking about Wikipedia.  This week I tried my hand at editing a page in the online encyclopedia.  Deciding what to edit was probably just as time-consuming as the actual editing process itself.  Currently, there are 3,105,852 content pages in English to choose from.  Two hours and approximately 50 search terms later, I landed on a woefully inadequate Wikipedia page about a book I read four years ago, What to Expect When You’re Expecting. The page, as I discovered it, would likely have deterred someone who had not yet read the book from actually reading it.  The sparse content contained a section on controversy that was not well-balanced with other facts.  I found this book helpful when expecting my first child and set out to improve its existence on Wikipedia.

When going through the tutorial, practicing in the sandbox and on the talk page, the exercise seemed pretty straightforward.  However, once I viewed the guts of the page and started to add content it wasn’t so straightforward.  The text, formatting and citations began to run together and I found it difficult to go back and recognize errors.  Initially, I found the careful formatting tedious but eventually began to get the hang of it (I think).  Each time I hit save, and returned to find the page improved, even just a little, it was rewarding.  I totally get the editing junkies.

Many times as an entrepreneur we have high hopes of starting & developing 1 or more successful businesses. In the process of building a new  business or working on the current one that you have, you may forget about family. Sometimes you may forget or don’t pay enough attention to how is this going to affect your family or the ones closet in your life.

Starting & managing a business can take a lot out of you. Many things around the life and success of your business ventures or projects should start out with a strategic plan & support. Why?

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Because without strategically planning things can lead to disorganization, various problems in your company, problems with family, friends etc… If your entrepreneurial adventures have some affect on your family or close ones then create a plan; a strategic one at that.

Let your family know that this is a business and things have to get done but there will be family time soon & stick to the plan! When you have a strategic plan to make time for both: business & family, you could possibly create & maintain a sense of balance which could possibly lead to success in both areas.

Take into account those around you. Then you all can coordinate your schedules together. Take time out each week or month to have a meeting with them to discuss up coming events, plans etc…. Then decide how you all will work them out. Stick To The Plan!!

Have these things written out on paper, on your computer, personal calendar etc… Post them where every one involved can see them or be a reminder to you. That way, you all will know what’s going on (or supposed to be) in the coming days or weeks. Then you won’t have any surprises (hopefully).

In your plan you can leave some room for adjustments and problems but with your plan by your side you’ll see your way through a crisis.

Try to get more assistance around the home. Schedule out personal time, family time, quiet time for you to reflect, not too much till you start slacking in your business. Slacking off will show, your customers & associates might notice & that’s bad for business. Put aside enough time to just relax & release then come back to business refreshed. Let your family, close ones or loved ones help you out in your business in small ways.

A little strategic planning goes a long way, it can help you & benefit your business, your family & you in the long run.

OK – so e-mail has many failings (such as being able to fake the source etc), but I’d like to add this to the feature requests; A BCC message tag.

Essentially it would enable a User to email a recipient, and put a secret message within the email to BCC recipients.

Example; Let’s say we email Joe Bloggs (a client) and BCC some workers, then within the message we could put a special tag (e.g [BCC Message]) that only John Doe (or any bcc recipients) would get.

—–
To: Joe Bloggs
BCC: John Doe, Otto Normalverbraucher
Subject: Re: Amends

Body:

Hi Joe,

Thanks for the feature requests, we’ll start work on the amends asap and get back to you once complete.

[BCC Message]John, Otto – Please can you do the work and let me know once complete[/BCC Message]

Regards.
—–

Some of the benefits of this (over sending a duplicate email) is mailbox space, bandwidth, efficiency etc etc.

Your thoughts?

The gears are spinning again – we got a bunch of stuff done – and I have a screenshot to prove it!

If you go check the Checklist, you’ll notice a couple of things have turned a beautiful green.

I managed to show them all off with a single screenshot (yay!)

Notice:

The HUD is gone, excpet for the stats of the unit you selected and the end turn button. The other button you see is a notifier that tells you if you’ll have enough AP to take an action after you move to the cursor.

There’s a horse (yay!) and a guy riding it. Calvary. With working collisions. Oh yes. Notice: I actually took my time spriting the horse – trying to get a style down for the rest of the graphical revamp later. Check it out: 

It’s in widescreen – this isn’t default! It’s a custom resolution! Now anyone can have the game fit their monitor, yay! (Shown at my 1440×900 resolution)

Screenshot: http://img694.imageshack.us/img694/71/horseshudwidescreen.png

(Linked because it’s too big to post here)

Pretty nice, huh? Next up will be speed bonuses, and after that the collision revamp and ai revamp. Good things are in the future.

Also notice: The website’s been cleaned up. Now you can access the latest build AND the latest checklist through the navagation bar at the top of the screen! Classy!

Until next update,

SunnyKatt

Quick update on the lights – as you can probably see the electricians were here this morning installing the new fixtures.  Turns out,  the incorrect covers for the wall fixtures were ordered (all the other fixtures are fine, just the wall fixtures are an issue).

They are going to go ahead and install these, order the new covers and then swap them out when they come in.  If you are curious, the Summit Street side has the correct fixtures installed (that was our test run) – the covers we will eventually get have no grid.

In many of your business ventures or projects learn how to manage change for growth & improvements. Many times growth doesn’t happen without change. The future of your business or projects depends on the changes or steps that you make today. The future is quickly approaching tomorrow and every day after that. You must learn how to respond to it quickly.

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Find out what in your organization works and doesn’t work for growth, process improvement, productivity, customer satisfaction etc….. You must always have a strategy and plan in place; a.k.a a strategic plan. It helps to keep you company organized and running smoothly.

You must involve strategic planning for your companies future: Where are you all headed? What’s our next move? The way that you change a business unit to adapt to a shifting economy and markets is a matter of management style.

How are you going to respond to changes in the business market that you can or can’t see coming today? What plan do you have in place to respond to changes if things don’t go as planned?

You can bring the change about yourself or it can happen without you. Sometimes that can have negative effects or positive. It can come in ways that give you little choice about the who, what, when, where and how in change. Sometimes you shouldn’t fight against change. Learn to embrace it. It can be good for your organization. Sometimes the old saying can be true :”If it ain’t broke don’t fix it”, well…that all depends on the situation.

The strategic planning process is all about where are you headed, your mission, objectives, analyzing your situation, your strategy formulation, implementation & control. This process applies more to the upper management level in your organization. Every step in your strategy must be taken into careful consideration before final plans are made. Strong leadership is essential in building a culture that can transform/ change those powerful ideas into reality.

If you already have strategic plans in place for change; sometimes they can be improved to better support your company, those within your organization & decision making. You can get a better handle on market trends which is a way to take advantage of change, then convert risks into opportunities and be a step ahead of your competition.

Good news, the lights are in and will be installed on all the buildings and parking lots at the end of this week or the beginning of the next.

In other news, we’ve decided to wait on the waterproofing job until early spring.  We are getting too close to winter, the job is a complicated one and we don’t want to risk starting and then having to stop half way through.  However, we do have a solid date for the job to start – March 15-25 depending on the weather.  Landscaping will follow directly after.

That’s the update!  Don’t forget the annual owners meeting is coming up Monday, December 14, 2009.  6:30pm at Jalopy Theater at 315 Columbia Street.  See you there.

Researchers at the University of Missouri have discovered ways to make Ice Cream tastier and healthier by adding nutrients

such as  fibre, antioxidants and pro-biotics to premium ice cream.

I love Yelp, but Yelp’s iPhone application is a mixed bag. On the one hand, it’s location-dependent search function that returns results based on proximity to the searcher makes it vastly superior to Yelp’s web interface. For one thing, while sitting at your office desk perusing Yelp ratings it can be very difficult to get a feel for the neighborhood in which the rated restaurant/bar/cafe is located. But, let’s say you’ve just finished a long day of tedious chores and you want a nice cold beer: whip out the iPhone and use its GPS chip to return results relevant to where you are. Great. So, you select:

Now, suppose after eating you feel like rating the place you just ate at. After all, the experience is fresh in your mind. What options does Yelp’s iPhone app give you?

Your options are Add Quick Tip and Draft a Review. Neither of these really enables you to do what you want to do at the moment, namely, review the restaurant. Selecting either, here is what you get:

Quick tip allows you to enter a tweet-length tip to help out other Yelpers (see the suggestions above). But, a tip is not a review, and many Yelpers who choose the quick tip option use it instead to write a tiny review. That thwarts both Yelp and Yelp’s iPhone app users. Neither gets what they really want. Suppose you instead choose the draft a review option. Well, you get to rate the establishment and write down your thoughts. The problem?

You have to wait until you access the full Yelp website in order to post the review. So, posting your review is a multi-step process. This is really annoying. After all, you want to post a review at that moment, and you do not want to do it later. If you had wanted to do it later you would have. It baffles the mind why Yelp set things up this way. I can imagine that they must have been worried that writing reviews on an iPhone would lead to many spelling mistakes, or perhaps they were worried that the reviews would be too terse. Either way, it seems pretty inane to make users have to access the Yelp website in order to post their reviews.

Nevertheless, it is worth pointing out that the downside of writing a lengthy review on the iPhone is that typing it out would be really annoying. So, what is to be done? What could Yelp do to satisfy the user intent on posting a review from her iPhone without also compromising any other principles that Yelp has? And furthermore, is there a way to solve this problem that would further benefit Yelp? (i.e., encourage individuals to rate where they did not rate before, hence giving Yelp more data to work with)

There is a solution and it comes from combining what is best about the quick tip option and the draft a review option. Let’s call it: Quick Review. Here’s how it would work.

1. After eating (or drinking/etc.), select the Add button in the top right.
2. Select Quick Review.
3. Quick Review page 1:
   1. Rate Food taste from 1 to 5 stars.
   2. Rate Food portion from 1 to 5 stars.
   3. Click Next for next page.
4. Quick Review page 2:
   1. Rate Restaurant decor from 1 to 5 stars.
   2. Rate Restaurant cleanliness from 1 to 5 stars.
   3. Rate Restaurant noise-level from 1 to 5 stars.
   4. Click Next for next page.
5. Quick Review page 3:
   1. Price $: $0 – &5
   2. Price $$: $6 – $10
   3. Price $$$: $11 – $15
   4. Price $$$$: $16 – $20
   5. Price $$$$$: $21 and above
   6. Click Next for next page.
6. Quick Review final page:
   1. Optional, 140 character, final thought.
   2. Click Save and you’re done.

These four pages would allow a user to post a quick review of a restaurant that is at once both quick (it’s only take a few seconds, even with the optional 140 character final thought) and data rich. Enough quick reviews would really give other users a great deal of information, more readily accessible than if they had to read the lengthy reviews that users post from the website. Of course, the quick review would lack certain information, like detail about the meals, but that’s why the lengthy review option would still exist. So, raters get an option to provide a quick rating, reviewers who like detailed reviews can still post those, and users/readers get the best of both worlds. Not to mention, Yelp gets a ton of extra data which they can use to make their service more indispensable and useful.

I know that I would use the Quick Review option even though I never use the regular review option. Why? Because I do sometimes use the Quick Tip option to post mini-reviews and I wish I had the ability to rate the establishments that I mini-review. I’m not into writing long reviews of places. Period. And I’d bet their are a lot users out there who are just like me.

If you ask me, Yelp would be foolish not to adopt my Quick Review system. So, unless I am missing something (am I?), write a letter to Yelp, direct them here, and tell them to make their iPhone app better.

There is a trend towards removing the Japanese language or jargon from Lean transformations in the U.S.  I understand why organizations would want to make lean thinking and the  corresponding tools easier to digest, but I think we should seriously consider keeping it Japanese.

• People get used to new words and phrases better than you might think - Until a few years ago nobody knew what an iPod was.  A cougar used to be a big cat and not a woman who likes younger men.  Jewelry is now commonly called bling.
• There is no standard for Americanized Lean - Some call Gemba ”three actuals (actual place, actual process, actual people)”, others brand it as “direct observation”, some refer to it as just “process walk”, and I am sure Gemba goes by other names.  The problem with this is members of your organization can not easily learn Lean from external sources.  Article and book authors tend to use the Japanese terms at least in reference but your staff may miss it if the original word is not shared with them. 
• Lean transformation is a significant change and language should reflect that - A lot of Lean will seem counter-intuitive at first and there is a major shift in thinking that will take place on your journey.  A significant change in the language will help communicate to the culture that things will be different from here on out.  To paraphrase Deming, you are no longer using the language of the old world.

Choosing the language of Lean is a strategic choice for your organization.  It is easy to dismiss the notion of keeping the Japanese out and making easier translations.  Please consider the pro side of keeping the original language.

I am very interested in your comments.

My 2009 Hansei: Scarcity inspires creativity and innovation.  How can I help harness that inspiration?

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The blog post on zenfamilyhabits is simply brilliant. Er beschäftigt sich damit, was es so braucht, damit man energiegeladen mit seinen Kindern durchs Leben geht. It deals with what it needs to life your family life with your kids full of energy.

There is little to add. Maybe that I am using coffee-consumption and sugar reduction in my diet to help my energy levels to stay high.

Actually there are different phases in my life. Sometimes I am full of energy and need for action and then there are weeks when I am merely capable of coping with daily life and nothing else.

How about you? Got any additional suggestions on how to be full of energy?

What Can I Deduct?

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.

It is important to distinguish business expenses from:

• The expenses used to figure cost of goods sold,
• Capital expenses, and
• Personal expenses.

Cost of Goods Sold

If your business manufactures products or purchases them for resale, you generally must value inventory at the beginning and end of each tax year to determine your cost of goods sold. Some of your business expenses may be included in figuring cost of goods sold. Cost of goods sold is deducted from your gross receipts to figure your gross profit for the year. If you include an expense in the cost of goods sold, you cannot deduct it again as a business expense.

The following are types of expenses that go into figuring cost of goods sold.

• The cost of products or raw materials, including freight.
• Storage.
• Direct labor (including contributions to pension or annuity plans) for workers who produce the products.
• Factory overhead.

Under the uniform capitalization rules, you must capitalize the direct costs and part of the indirect costs for certain production or resale activities. Indirect costs include rent, interest, taxes, storage, purchasing, processing, repackaging, handling, and administrative costs.

This rule does not apply to personal property you acquire for resale if your average annual gross receipts (or those of your predecessor) for the preceding 3 tax years are not more than $10 million.

For more information, see the following sources.

• Cost of goods sold—chapter 6 of Publication 334.
• Inventories—Publication 538.
• Uniform capitalization rules—Publication 538 and section 263A of the Internal Revenue Code and the related regulations.

Capital Expenses

You must capitalize, rather than deduct, some costs. These costs are a part of your investment in your business and are called “capital expenses.” Capital expenses are considered assets in your business. There are, in general, three types of costs you capitalize.

• Business start-up costs (See Tip below).
• Business assets.
• Improvements.

You can elect to deduct or amortize certain business start-up costs. See chapters 7 and 8.

Cost recovery. Although you generally cannot take a current deduction for a capital expense, you may be able to recover the amount you spend through depreciation, amortization, or depletion. These recovery methods allow you to deduct part of your cost each year. In this way, you are able to recover your capital expense. You may also be allowed a section 179 deduction. For information on the section 179 deduction and depreciation, see Publication 946.

Going Into Business

The costs of getting started in business, before you actually begin business operations, are capital expenses. These costs may include expenses for advertising, travel, or wages for training employees.

If you go into business. When you go into business, treat all costs you had to get your business started as capital expenses.

Usually you recover costs for a particular asset through depreciation. Generally, you cannot recover other costs until you sell the business or otherwise go out of business. However, you can choose to amortize certain costs for setting up your business. See Starting a Business in chapter 8 for more information on business start-up costs.

If you do not go into business. If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories.

1. The costs you had before making a decision to acquire or begin a specific business. These costs are personal and nondeductible. They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility.
2. The costs you had in your attempt to acquire or begin a specific business. These costs are capital expenses and you can deduct them as a capital loss.

If you are a corporation and your attempt to go into a new trade or business is not successful, you may be able to deduct all investigatory costs as a loss.

The costs of any assets acquired during your unsuccessful attempt to go into business are a part of your basis in the assets. You cannot take a deduction for these costs. You will recover the costs of these assets when you dispose of them.

Business Assets

There are many different kinds of business assets; for example, land, buildings, machinery, furniture, trucks, patents, and franchise rights. You must fully capitalize the cost of these assets, including freight and installation charges.

Certain property you produce for use in your trade or business must be capitalized under the uniform capitalization rules. See Regulations section 1.263A-2 for information on these rules.

Improvements

The costs of making improvements to a business asset are capital expenses if the improvements add to the value of the asset, appreciably lengthen the time you can use it, or adapt it to a different use. Improvements are generally major expenditures. Some examples are: new electric wiring, a new roof, a new floor, new plumbing, bricking up windows to strengthen a wall, and lighting improvements.

However, you can currently deduct repairs that keep your property in a normal efficient operating condition as a business expense. Treat as repairs amounts paid to replace parts of a machine that only keep it in a normal operating condition.

Restoration plan. Capitalize the cost of reconditioning, improving, or altering your property as part of a general restoration plan to make it suitable for your business. This applies even if some of the work would by itself be classified as repairs.

Capital versus Deductible Expenses

To help you distinguish between capital and deductible expenses, different examples are given below.

Motor vehicles. You usually capitalize the cost of a motor vehicle you use in your business. You can recover its cost through annual deductions for depreciation.

There are dollar limits on the depreciation you can claim each year on passenger automobiles used in your business. See Publication 463.

Generally, repairs you make to your business vehicle are currently deductible. However, amounts you pay to recondition and overhaul a business vehicle are capital expenses and are recovered through depreciation.

Roads and driveways. The cost of building a private road on your business property and the cost of replacing a gravel driveway with a concrete one are capital expenses you may be able to depreciate. The cost of maintaining a private road on your business property is a deductible expense.

Tools. Unless the uniform capitalization rules apply, amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year or their cost is minor.

Machinery parts. Unless the uniform capitalization rules apply, the cost of replacing short-lived parts of a machine to keep it in good working condition, but not add to its life, is a deductible expense.

Heating equipment. The cost of changing from one heating system to another is a capital expense.

Personal versus Business Expenses

Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part.

For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you generally can deduct 70% of the interest as a business expense. The remaining 30% is personal interest and generally is not deductible. See chapter 4 for information on deducting interest and the allocation rules.

Business use of your home. If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation.

To qualify to claim expenses for the business use of your home, you must meet both of the following tests.

1. The business part of your home must be used exclusively and regularly for your trade or business.
2. The business part of your home must be:
   1. Your principal place of business, or
   2. A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or
   3. A separate structure (not attached to your home) used in connection with your trade or business.

You generally do not have to meet the exclusive use test for the part of your home that you regularly use either for the storage of inventory or product samples, or as a daycare facility.

Your home office qualifies as your principal place of business if you meet the following requirements.

• You use the office exclusively and regularly for administrative or management activities of your trade or business.
• You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.

If you have more than one business location, determine your principal place of business based on the following factors.

• The relative importance of the activities performed at each location.
• If the relative importance factor does not determine your principal place of business, consider the time spent at each location.

For more information, see Publication 587.

Business use of your car. If you use your car exclusively in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage.

You can deduct actual car expenses, which include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, and registration fees. Or, instead of figuring the business part of these actual expenses, you may be able to use the standard mileage rate to figure your deduction. For 2008, the standard mileage rate is 50.5 cents a mile for all business miles driven before July 1, 2008. The rate is 58.5 cents a mile for business miles driven after June 30, 2008, and before January 1, 2009.

If you are self-employed, you can also deduct the business part of interest on your car loan, state and local personal property tax on the car, parking fees, and tolls, whether or not you claim the standard mileage rate.

For more information on car expenses and the rules for using the standard mileage rate, see Publication 463.

How Much Can I Deduct?

You can deduct the cost of a business expense if it meets the criteria of ordinary and necessary and it is not a capital expense.

Recovery of amount deducted (tax benefit rule). If you recover part of an expense in the same tax year in which you would have claimed a deduction, reduce your current year expense by the amount of the recovery. If you have a recovery in a later year, include the recovered amount in income in that year. However, if part of the deduction for the expense did not reduce your tax, you do not have to include that part of the recovered amount in income.

For more information on recoveries and the tax benefit rule, see Publication 525.

Payments in kind. If you provide services to pay a business expense, the amount you can deduct is limited to your out-of-pocket costs. You cannot deduct the cost of your own labor.

Similarly, if you pay a business expense in goods or other property, you can deduct only what the property costs you. If these costs are included in the cost of goods sold, do not deduct them as a business expense.

Limits on losses. If your deductions for an investment or business activity are more than the income it brings in, you have a loss. There may be limits on how much of the loss you can deduct.

Not-for-profit limits. If you carry on your business activity without the intention of making a profit, you cannot use a loss from it to offset other income. See Not-for-Profit Activities, later.

At-risk limits. Generally, a deductible loss from a trade or business or other income-producing activity is limited to the investment you have “at risk” in the activity. You are at risk in any activity for the following.

1. The money and adjusted basis of property you contribute to the activity.
2. Amounts you borrow for use in the activity if:
   1. You are personally liable for repayment, or
   2. You pledge property (other than property used in the activity) as security for the loan.

For more information, see Publication 925.

Passive activities. Generally, you are in a passive activity if you have a trade or business activity in which you do not materially participate, or a rental activity. In general, deductions for losses from passive activities only offset income from passive activities. You cannot use any excess deductions to offset other income. In addition, passive activity credits can only offset the tax on net passive income. Any excess loss or credits are carried over to later years. Suspended passive losses are fully deductible in the year you completely dispose of the activity. For more information, see Publication 925.

Net operating loss. If your deductions are more than your income for the year, you may have a “net operating loss.” You can use a net operating loss to lower your taxes in other years. See Publication 536 for more information.

See Publication 542 for information about net operating losses of corporations.

When Can I Deduct an Expense?

When you can deduct an expense depends on your accounting method. An accounting method is a set of rules used to determine when and how income and expenses are reported. The two basic methods are the cash method and the accrual method. Whichever method you choose must clearly reflect income.

For more information on accounting methods, see Publication 538.

Cash method. Under the cash method of accounting, you generally deduct business expenses in the tax year you pay them.

Accrual method. Under an accrual method of accounting, you generally deduct business expenses when both of the following apply.

1. The all-events test has been met. The test is met when:
   1. All events have occurred that fix the fact of liability, and
   2. The liability can be determined with reasonable accuracy.
2. Economic performance has occurred.

Economic performance. You generally cannot deduct or capitalize a business expense until economic performance occurs. If your expense is for property or services provided to you, or for your use of property, economic performance occurs as the property or services are provided, or the property is used. If your expense is for property or services you provide to others, economic performance occurs as you provide the property or services.

Example.

Your tax year is the calendar year. In December 2008, the Field Plumbing Company did some repair work at your place of business and sent you a bill for $600. You paid it by check in January 2009. If you use the accrual method of accounting, deduct the $600 on your tax return for 2008 because all events have occurred to “fix” the fact of liability (in this case the work was completed), the liability can be determined, and economic performance occurred in that year.

If you use the cash method of accounting, deduct the expense on your 2009 return.

Prepayment. You generally cannot deduct expenses in advance, even if you pay them in advance. This rule applies to both the cash and accrual methods. It applies to prepaid interest, prepaid insurance premiums, and any other expense paid far enough in advance to, in effect, create an asset with a useful life extending substantially beyond the end of the current tax year.

Example.

In 2008, you sign a 10-year lease and immediately pay your rent for the first 3 years. Even though you paid the rent for 2008, 2009, and 2010, you can only deduct the rent for 2008 on your 2008 tax return. You can deduct the rent for 2009 and 2010 on your tax returns for those years.

Contested liability. Under the cash method, you can deduct a contested liability only in the year you pay the liability. Under the accrual method, you can deduct contested liabilities such as taxes (except foreign or U.S. possession income, war profits, and excess profits taxes) either in the tax year you pay the liability (or transfer money or other property to satisfy the obligation) or in the tax year you settle the contest. However, to take the deduction in the year of payment or transfer, you must meet certain conditions. See Contested Liability in Publication 538 for more information.

Related person. Under an accrual method of accounting, you generally deduct expenses when you incur them, even if you have not yet paid them. However, if you and the person you owe are related and that person uses the cash method of accounting, you must pay the expense before you can deduct it. Your deduction is allowed when the amount is includible in income by the related cash method payee. See Related Persons in Publication 538.

Not-for-Profit Activities

If you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit.

The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.

In determining whether you are carrying on an activity for profit, several factors are taken into account. No one factor alone is decisive. Among the factors to consider are whether:

• You carry on the activity in a businesslike manner,
• The time and effort you put into the activity indicate you intend to make it profitable,
• You depend on the income for your livelihood,
• Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business),
• You change your methods of operation in an attempt to improve profitability,
• You (or your advisors) have the knowledge needed to carry on the activity as a successful business,
• You were successful in making a profit in similar activities in the past,
• The activity makes a profit in some years, and
• You can expect to make a future profit from the appreciation of the assets used in the activity.

Presumption of profit. An activity is presumed carried on for profit if it produced a profit in at least 3 of the last 5 tax years, including the current year. Activities that consist primarily of breeding, training, showing, or racing horses are presumed carried on for profit if they produced a profit in at least 2 of the last 7 tax years, including the current year. The activity must be substantially the same for each year within this period. You have a profit when the gross income from an activity exceeds the deductions.

If a taxpayer dies before the end of the 5-year (or 7-year) period, the “test” period ends on the date of the taxpayer’s death.

If your business or investment activity passes this 3- (or 2-) years-of-profit test, the IRS will presume it is carried on for profit. This means the limits discussed here will not apply. You can take all your business deductions from the activity, even for the years that you have a loss. You can rely on this presumption unless the IRS later shows it to be invalid.

Using the presumption later. If you are starting an activity and do not have 3 (or 2) years showing a profit, you can elect to have the presumption made after you have the 5 (or 7) years of experience allowed by the test.

You can elect to do this by filing Form 5213. Filing this form postpones any determination that your activity is not carried on for profit until 5 (or 7) years have passed since you started the activity.

The benefit gained by making this election is that the IRS will not immediately question whether your activity is engaged in for profit. Accordingly, it will not restrict your deductions. Rather, you will gain time to earn a profit in the required number of years. If you show 3 (or 2) years of profit at the end of this period, your deductions are not limited under these rules. If you do not have 3 (or 2) years of profit, the limit can be applied retroactively to any year with a loss in the 5-year (or 7-year) period.

Filing Form 5213 automatically extends the period of limitations on any year in the 5-year (or 7-year) period to 2 years after the due date of the return for the last year of the period. The period is extended only for deductions of the activity and any related deductions that might be affected.

You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity, or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity.

Limit on Deductions

If your activity is not carried on for profit, take deductions in the following order and only to the extent stated in the three categories. If you are an individual, these deductions may be taken only if you itemize. These deductions may be taken on Schedule A (Form 1040).

Category 1. Deductions you can take for personal as well as for business activities are allowed in full. For individuals, all nonbusiness deductions, such as those for home mortgage interest, taxes, and casualty losses, belong in this category. Deduct them on the appropriate lines of Schedule A (Form 1040). You can deduct a casualty loss on property you own for personal use only to the extent it is more than $100 and exceeds 10% of your adjusted gross income. See Publication 547 for more information on casualty losses. For the limits that apply to mortgage interest, see Publication 936.

Category 2. Deductions that do not result in an adjustment to the basis of property are allowed next, but only to the extent your gross income from the activity is more than your deductions under the first category. Most business deductions, such as those for advertising, insurance premiums, interest, utilities, and wages, belong in this category.

Category 3. Business deductions that decrease the basis of property are allowed last, but only to the extent the gross income from the activity exceeds the deductions you take under the first two categories. Deductions for depreciation, amortization, and the part of a casualty loss an individual could not deduct in category (1) belong in this category. Where more than one asset is involved, allocate depreciation and these other deductions proportionally.

Individuals must claim the amounts in categories (2) and (3) as miscellaneous deductions on Schedule A (Form 1040). They are subject to the 2%-of-adjusted-gross-income limit. See Publication 529 for information on this limit.

Example.

Ida is engaged in a not-for-profit activity. The income and expenses of the activity are as follows.

Ida must limit her deductions to $3,200, the gross income she earned from the activity. The limit is reached in category (3), as follows.

The $800 of depreciation is allocated between the automobile and machine as follows.

The basis of each asset is reduced accordingly.

Ida includes the $3,200 of gross income on line 21 of Form 1040.The $1,600 for category (1) is deductible in full on the appropriate lines for taxes and interest on Schedule A (Form 1040). Ida deducts the remaining $1,600 ($1,300 for category (2) and $300 for category (3)) as other miscellaneous deductions on Schedule A (Form 1040) subject to the 2%-of-adjusted- gross-income limit.

Partnerships and S corporations. If a partnership or S corporation carries on a not-for-profit activity, these limits apply at the partnership or S corporation level. They are reflected in the individual shareholder’s or partner’s distributive shares.

More than one activity. If you have several undertakings, each may be a separate activity or several undertakings may be combined. The following are the most significant facts and circumstances in making this determination.

• The degree of organizational and economic interrelationship of various undertakings.
• The business purpose that is (or might be) served by carrying on the various undertakings separately or together in a business or investment setting.
• The similarity of the undertakings.

The IRS will generally accept your characterization if it is supported by facts and circumstances.

If you are carrying on two or more different activities, keep the deductions and income from each one separate. Figure separately whether each is a not-for-profit activity. Then figure the limit on deductions and losses separately for each activity that is not for profit.