The Retirement Hobby

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Fact # 2

Swanson presents another typical situation: a retired taxpayer pursues a long-held hobby and find they can produce some income from it to offset its cost. That does not make it a business. Here, Mr. Swanson was a resident of Alaska who had retired in 2010. His retirement income came from his pension, from Social Security and from rents received on two properties he owned.

Mr. Swanson was apparently an avid fisherman. He had fished in Alaska for over 30 years. He liked fishing for halibut and he liked fishing from a town called Homer, the self-described “Halibut Fishing Capital of the World.” But he lived in Anchorage, some 200 miles away.

After retirement he bought a boat “designed to fish for halibut.” Op at 4. He was apparently able to store his boat and equipment for free in Homer because his “life partner’s children lived in Homer” (Id.). He also bought a plane “to shorten his travel time between Anchorage and Homer.”  Id.  He apparently was not already a pilot because Judge Pugh notes he held only a student license in the three years at issue (2014-2016).  Id.

All of this cost money and Mr. Swanson decided offset his expenses by offering his boat for charter fishing under the name Happy Jack Charters (currently ranked #53 of 63 boat charters in Homer, AK on TripAdvisor). He made some money at it. During the three years at issue (2014-2016), he reported gross receipts of $1,500, $2,345, and $3,709, respectively. Op. at 7. But his reported expenses gave him net losses, totaling $131,000 over the three years.



Like Dr. Sherman, Mr. Swanson apparently was not very good at filing returns. He filed his 2016 return in June 2017 and his 2014 and 2015 returns in August 2017. It is not entirely clear from the opinion, but it appears he was prompted to file returns by an IRS audit. Apparently the IRS was concerned about unreported income. A Revenue Agent conducted a bank deposits analysis, finding deposits for each year exceeding reported income. That's not routine. The IRS sent him an NOD and Mr. Swanson hired a lawyer and petitioned the Tax Court.


Lesson #2: Don’t Be “Lazy On Your Books”

Unlike Dr. Sherman, Mr. Swanson at least had some income from his chartering activity. And he kept records.

Mr. Swanson at least kept receipts that “he would hand to his accountant at the end of the year ‘to figure it out.’” Op. at 10. But just having income and keeping receipts of expenses is not enough to show an activity is operated in a businesslike manner. Judge Pugh explains that “the key question is not whether the taxpayer keeps records, but whether the taxpayer uses his records to improve profitability and take steps to control expenses and increase income.” Op. at 10 (emphasis in original).

What hurt Mr. Swanson here was his poor recordkeeping. One gets a sense of it from this TripAdvisor review from May 2017: “We caught our limit of halibut. Only downside is he got ticketed by the water cops ... lazy on his books they said. Other than that, we really enjoyed the trip.” 

Judge Pugh explains how Mr. Swanson was lazy on his books for tax purposes as well. He did not use his records to operate his activity like a business.  “Mr. Swanson did not explain whether and how he used the data about his income and expenses to make his activity profitable. *** Mr. Swanson did not have a business plan and made no significant changes to reduce expenses and generate income the entire time he operated Happy Jack Charters. *** Despite the apparent lack of clients and income, Mr. Swanson purchased an airplane and incurred significant expenses related to storing, maintaining, and operating it.. Over the seven years of operating Happy Jack Charters, Mr. Swanson never made changes that enhanced his prospect for making a profit.”  Op. at 10-11.


Bottom Line #2: Don’t be lazy on your books.

EPLI- What every growing business should know! Part 5

July 9, 2026
When to Consider Employment Practices Liability Insurance The best time to consider Employment Practices Liability Insurance is before a claim happens. Many owners wait until there is a problem. By then, a new policy may not help with an issue the business already knew about. A business should review EPLI when it: Hires its first employee Adds managers Grows quickly Terminates employees Creates an employee handbook Expands into another state Handles workplace complaints Has high turnover Operates without formal HR support The National Association of Insurance Commissioners notes that small business insurance needs vary based on the business, including employee count, products, services, and operations. That is a good reminder that insurance should grow with the company. [6] Employment Practices Liability Insurance is not just about today's team. It is also about where the business is headed. If the plan is to hire more people, open another location, or add supervisors, EPLI should be part of the planning conversation. Take the Next Step Before Your Next Hire Hiring is one of the biggest decisions a small business makes. It affects payroll, taxes, cash flow, workplace practices, and insurance all at once. Those pieces work better when they are reviewed together. That is why Steven Brewer & Company CPAs and Gild Insurance Agency work together. Brewer helps business owners understand the real cost of hiring, plan for payroll and taxes, and protect cash flow as the team grows. Gild helps owners understand which coverages belong in the conversation, from Employment Practices Liability Insurance to workers' compensation and general liability. Request a quote with Steven Brewer & Company to talk through the financial side of your next hire. Then take a few minutes for a free business insurance review through Gild Insurance and get a fast online quote. Two conversations. One stronger plan for growing your business.

EPLI- What every growing business should know! Part 4

July 9, 2026
Why Growth Increases Employment Risk A business with two employees may feel easy to manage. A business with ten employees needs more structure. A business with twenty employees needs even more consistency. Growth creates more decisions. More decisions create more chances for confusion, conflict, or claims. As a business grows, employment practices can lag behind. The company may add people before updating job descriptions. It may promote a team member into management before training them. It may handle performance issues differently from one employee to another. These gaps are common. They do not always mean the owner is careless. They often mean the business is busy. But employment claims often focus on process. For example: Was the rule applied the same way for everyone? Was the employee warned? Was the complaint reviewed? Was the hiring process fair? Was the manager trained? Was the decision documented? A clear process is easier to defend than memory. The Equal Employment Opportunty Commission advises employers to train managers and employees on equal employment opportunity laws, establish neutral and objective criteria for employment decisions, and monitor practices for consistency. It also recommends fostering open communication and early dispute resolution to keep small issues from becoming legal claims. [4] That is why Employment Practices Liability Insurance works best when it is paired with good workplace habits. Insurance helps protect the business financially. Documentation helps explain what happened. How Small Businesses Can Reduce EPLI Risk Employment Practices Liability Insurance is one layer of protection. Strong employment practices are another. Small businesses can reduce risk by making workplace decisions more consistent. This does not require a large HR department. It does require a simple system. Start with these steps: Use written job descriptions. Create a basic employee handbook. Document performance concerns. Use consistent interview questions. Keep hiring notes professional and job-related. Train managers on harassment, discrimination, and retaliation. Respond to employee complaints promptly. Apply workplace policies consistently. Review termination decisions before acting. Keep payroll and worker classification practices current. These steps help create a better workplace. They also help the business if a claim appears later. The EEOC offers a Small Business Resource Center with free guidance on hiring, training, evaluating, disciplining, and terminating employees. The agency notes that small business owners often do not have legal or HR experts on staff, and the resources are designed to help fill that gap. [5] Owners should be especially careful with terminations. A termination may be valid, but it should still be documented. The business should be able to explain why the decision was made and show that similar situations were handled in a similar way.  Good records do not remove all risk. They make the business more prepared.

EPLI- What every growing business should know! Part 3

July 9, 2026
What EPLI Is Not Employment Practices Liability Insurance is not the same as general liability insurance. General liability usually focuses on third-party bodily injury, property damage, and certain personal injury claims. For example, it may apply if a customer slips and falls at your office. EPLI is different. It focuses on workplace claims. Employment Practices Liability Insurance is also not the same as workers' compensation. Workers' compensation helps cover employees who are injured or become ill because of their work. EPLI helps with certain claims about how employees or applicants were treated. That distinction matters. Many owners assume their business insurance will cover an employee lawsuit. It may not. A claim involving wrongful termination, discrimination, harassment, or retaliation may fall outside general liability or workers' compensation. EPLI is designed to help fill that gap. EPLI also has limits. The Insurance Information Institute notes that EPLI policies may reimburse companies for defense costs, settlements, and judgments. But they generally do not cover punitive damages or civil or criminal fines. [1] Common exclusions may include: Criminal acts Intentional wrongdoing Bodily injury Property damage Workers' compensation claims Certain wage and hour claims Claims known before the policy began Some contract disputes Wage and hour claims deserve extra attention. Some policies exclude them. Others may offer limited defense coverage or an endorsement. The best question is not, "Do we have EPLI?"  The better question is, "What does our Employment Practices Liability Insurance actually cover?"