Robotic gold mining device...approach as hobby or business?

[Jfet]

I have a novel idea for a robotic attachment for a gold mining dredge (background is electrical engineering with a minor in mechanical tinkering) and talked it over with my software engineer wife. She actually thinks this idea would work and is willing to write the control software

I have a lot of the equipment already that would be needed to fabricate the prototype (cnc milling machine, cnc lathe, test equipment, tig welder, etc.) so I think a majority of the cost would be in the material and servos (have designed a brushless servo driver and have about 50 leftover from last run).

My early guestimate is the prototype would cost about $5000 to $7000 to produce, not including the pumps, sluice box, generator. I would like to try it out in Nome, AK after some initial proof of concept in local waters. It is especially suited for dredging under the ice without the need for a diver, greatly reducing the risks.

From a tax and investment point of view, how would you approach this? It would be great to deduct the cost of the prototype, the shipping of the equipment, and possibly even the trips to Alaska to test it. As a hobby, my understanding is that this would only be deductable against income produced from the hobby. If I set up a sole proprietor business for this, I would be able to deduct everything and even some against other ordinary income. The problem is it might be 2 years to develop the prototype then another season for testing. There may never be income from this if it fails. On the other hand, someone might see it and want it for some other purpose, giving me a whole new business venture. What do you guys think?

[barnaclebob]

I see you have been watching the discovery channel. They do make it look easy to pull gold off the ocean floor don't they?

What is your experience in gold mining, dredging and building robots that operate in cold saltwater environments?

If it were me and this were my first attempt at something that could become a business i would treat it as a hobby until i saw a reasonable potential for profit since you say your expenses might be fairly low. If it really has potential 10-20k of lost deductions wont hurt you in the long run.

Have you looked for patents on similar ideas?

[hicabob]

Not a CPA here but have had a couple sole props. I think you have to make $$$ 2 of 5 years (but can shut 'er down before 5 years is up). I believe the IRS could collect retroactive deductions if they conclude you were not really trying to make $$$ - so make sure you can show you were trying to have a business and not a hobby.

[Jfet]

I see you have been watching the discovery channel. They do make it look easy to pull gold off the ocean floor don't they?

What is your experience in gold mining, dredging and building robots that operate in cold saltwater environments?

If it were me and this were my first attempt at something that could become a business i would treat it as a hobby until i saw a reasonable potential for profit since you say your expenses might be fairly low. If it really has potential 10-20k of lost deductions wont hurt you in the long run.

Have you looked for patents on similar ideas?

Yes, of course the idea came from watching the very dangerous Bering Sea Gold Under the Ice episodes....and I do understand that a large part of the show is likely scripted.

I have only done gold mining/prospecting on a hobby level but I do have some experience in AUV design. My plan is to use stainless steel for everything that goes in the water, and all of the servos and electronics would live up top out of the water in a sealed box. My CNC mill is a 7000 pound Shizuoka bedmill and has no problem cutting stainless.

I haven't found a patent on a similar idea yet but I have not done an exhaustive research either. I would not try to get a patent myself and figure it is fairly unlikely that I would infringe on another patent or draw enough attention at this small level to really worry about it.

I hate missing out on the deductions though. We are in at least the 30% bracket, so having Uncle Sam fund almost a third of my venture would be quite nice. Perhaps it is not worth the hassle though.

Another approach might be to build a working scale model and see if Discovery wanted to feature the full size version....but I bet they get these ideas all the time.

[bertilak]

I haven't found a patent on a similar idea yet but I have not done an exhaustive research either. I would not try to get a patent myself and figure it is fairly unlikely that I would infringe on another patent or draw enough attention at this small level to really worry about it.

I suggest getting a patent. The process will cost money but a few points:

• If you intend to make a business out of it you should hope "small level" won't last.
• If it starts to work out, it could get noticed even at a small level, and someone may beat you to the patent. There will be lots of knowledgeable and interested people in Alaska!
• IMPORTANT: You probably want to patent everything: the device (or devices) AND the software AND the process. Software is patentable with the right kind of write-up. See Process Patent Amendment Act of 1988.
• A good patent attorney will ensure a good patent search and will be sure your patents are worded in the proper lingo to be accepted. It is unlikely you will be able to do this on your own.

Congratulation on what I assume is a good idea and, to borrow a phrase, "Stay the course!"

P.S. Even if you decide not to follow up in the long run, patents can be sold for good money.

[gandolphfitch]

The standard for differentiating a hobby and a business is the reasonable expectation of profit. The IRS has factors to take into consideration. I don't know how to link but if you google these terms you will get a list of the factors the IRS considers. Just because you don't know if you are going to make a profit doesn't mean that you can't treat the activity as a business on your tax return.

Often, it isn't too hard to make the distinction between hobbyists and for-profit when talking to people in your situation. In my experience, people either treat the activity as a hobby and can't show much effort to make money, or they work it like a business. If you are working it like a business, it will show. If you are going to work it like a business and you can show product viability, I wouldn't be afraid to treat it as a business for tax purposes.

Also, you can have a reasonable expectation of profit in one year and not in the next. In other words, for 2013 and 2014 if you work on your prototype diligently you may well say that yes, I do have a reasonable expectation of profit. But if in 2015 it becomes clear that the product isn't viable, then pull the plug on it on your tax return.

Finally, there are enough issues tax-wise (e.g., depreciating all the equipment you already own and will use in developing the product, and whether to capitalize or currently deduct development expenses), that you would be well served to get expert tax advice. In searching for an accountant, I would ask potential accountants what experience they have with clients like you and ask for a reference or two. And I would suggest an initial consultation with a business and/or patent attorney. Again, if this is a buisness, treat it like a business and get appropriate advice.

Best of luck to you!

[hicabob]

Patents are expensive and time consuming but nice to have , and very good professionally - and a big 3% of them actually make the owner money!

[texasdiver]

I spent 15 years living and working in Alaska and knew a number of small scale placer gold miners. Without exception none of them ended up making any money. A couple found enough gold to pay some expenses and one managed to turn his meager finds into a jewelry business that he ran out of the back of his pickup truck at various craft fares and markets around the state. I wouldn't treat placer mining as anything but a hobby like rock collecting.

Bottom line? Despite the reality shows, most actual gold mining today is hard rock mining done by multinational corporations who invest hundreds of millions into their operations and use cyanide to extract gold from high volumes of low grade ore. In other words, the companies with deep pockets who actually do real mining are using completely different methods in completely different types of mines. They are digging ore out of the ground not sifting through sand and gravel. Your market would be the small scale and hobby guys who don't have much capital and generally aren't making much money to begin with.

[Jfet]

I spent 15 years living and working in Alaska and knew a number of small scale placer gold miners. Without exception none of them ended up making any money. A couple found enough gold to pay some expenses and one managed to turn his meager finds into a jewelry business that he ran out of the back of his pickup truck at various craft fares and markets around the state. I wouldn't treat placer mining as anything but a hobby like rock collecting.

Bottom line? Despite the reality shows, most actual gold mining today is hard rock mining done by multinational corporations who invest hundreds of millions into their operations and use cyanide to extract gold from high volumes of low grade ore. In other words, the companies with deep pockets who actually do real mining are using completely different methods in completely different types of mines. They are digging ore out of the ground not sifting through sand and gravel. Your market would be the small scale and hobby guys who don't have much capital and generally aren't making much money to begin with.

Thanks for all the replies. I do tend to agree with texasdiver with one exception: This robotic device would be fun to build and could have other practical applications besides mining. Perhaps it could even be used in the oil and gas industry. That sounds ambitious, but you never know...

I don't have great expectations of making much money in gold, nor do I think bubba joe is going to buy my robot even if I could sell it cheap enough and still make a profit.

I have also watched the dragons den shows and see tons of people who have sunk $$$ into patents for their non-viable product. I would like to avoid that and keep this small and simple. If the device is cool enough (and it should be if built as envisioned) I might make the most money getting it featured on a Discovery type show.

Some good things to think about, thanks!

[LadyGeek]

This thread is now in the Personal Finance (Not Investing) forum (business start-up questions).

Here's the difficult aspects:

Is your wife willing to spend the time committed to this business? You have to meet cost and schedule, not to mention the full software requirements / development / test / QA process, which includes configuration management. Doing something at home is no different than an office.

Can you two work together? Really. I don't mean "let's work on this after dinner." I mean "Did you finish writing the bucket scoop algorithm? Can it be done tonight?" sort of thing.

[Jfet]

This thread is now in the Personal Finance (Not Investing) forum (business start-up questions).

Here's the difficult aspects:

Is your wife willing to spend the time committed to this business? You have to meet cost and schedule, not to mention the full software requirements / development / test / QA process, which includes configuration management. Doing something at home is no different than an office.

Can you two work together? Really. I don't mean "let's work on this after dinner." I mean "Did you finish writing the bucket scoop algorithm? Can it be done tonight?" sort of thing.

Yes, my wife has worked with me on several other projects, a few of which we went to market. She does not really have an electronics background but nevertheless is 1000x faster writing microcontroller code both in assembly and C. She also does a great job with UI. She wrote the entire brushless motor controller PID in assembly and managed to fit it into 16KB of an 8 bit uc while the only software I did on that project was the Verilog portion of the CPLD encoder and digital filter. We make a good team...should probably have started our own company years ago instead of working for the man.

[wearymicrobe]

I spent 15 years living and working in Alaska and knew a number of small scale placer gold miners. Without exception none of them ended up making any money. A couple found enough gold to pay some expenses and one managed to turn his meager finds into a jewelry business that he ran out of the back of his pickup truck at various craft fares and markets around the state. I wouldn't treat placer mining as anything but a hobby like rock collecting.

Bottom line? Despite the reality shows, most actual gold mining today is hard rock mining done by multinational corporations who invest hundreds of millions into their operations and use cyanide to extract gold from high volumes of low grade ore. In other words, the companies with deep pockets who actually do real mining are using completely different methods in completely different types of mines. They are digging ore out of the ground not sifting through sand and gravel. Your market would be the small scale and hobby guys who don't have much capital and generally aren't making much money to begin with.

Thanks for all the replies. I do tend to agree with texasdiver with one exception: This robotic device would be fun to build and could have other practical applications besides mining. Perhaps it could even be used in the oil and gas industry. That sounds ambitious, but you never know...

I don't have great expectations of making much money in gold, nor do I think bubba joe is going to buy my robot even if I could sell it cheap enough and still make a profit.

I have also watched the dragons den shows and see tons of people who have sunk $$$ into patents for their non-viable product. I would like to avoid that and keep this small and simple. If the device is cool enough (and it should be if built as envisioned) I might make the most money getting it featured on a Discovery type show.

Some good things to think about, thanks!

Also travel and operation expenses as you beta are going to be a major cash drain. Likely much more then you have in the prototype. Plus being in a unforgiving place you will not have access to your mill so a second unit is not a bad idea to recoup travel/time expenses.

ROV's already exist for comercial pipeline and seafloor inspection and the market is pretty saturated.

Medical device with your skillset for external use might be a better play with your equipment and wife's programming help.

[Jfet]

Also travel and operation expenses as you beta are going to be a major cash drain. Likely much more then you have in the prototype. Plus being in a unforgiving place you will not have access to your mill so a second unit is not a bad idea to recoup travel/time expenses.

ROV's already exist for comercial pipeline and seafloor inspection and the market is pretty saturated.

Medical device with your skillset for external use might be a better play with your equipment and wife's programming help.

Yes but I am not that interested in medical devices, which will mean the project is doomed from the start.

I wasn't thinking seafloor inspection, but rather some sort of automated cleanup job the robot could do that would be similar to the gold dredging operation. Sucking congealed blobs of spilled oil off the seafloor near the shore, stuff like that. I haven't thought that part through very much though

Travel to Alaska is something we want to do anyway, and a trip or two to Nome is going to happen if this robot gets built or not. But I agree that those expenses would add up fast, which is why it would be nice to be able to deduct them as a business expense.

[wearymicrobe]

Also travel and operation expenses as you beta are going to be a major cash drain. Likely much more then you have in the prototype. Plus being in a unforgiving place you will not have access to your mill so a second unit is not a bad idea to recoup travel/time expenses.

ROV's already exist for comercial pipeline and seafloor inspection and the market is pretty saturated.

Medical device with your skillset for external use might be a better play with your equipment and wife's programming help.

Yes but I am not that interested in medical devices, which will mean the project is doomed from the start.

I wasn't thinking seafloor inspection, but rather some sort of automated cleanup job the robot could do that would be similar to the gold dredging operation. Sucking congealed blobs of spilled oil off the seafloor near the shore, stuff like that. I haven't thought that part through very much though

Travel to Alaska is something we want to do anyway, and a trip or two to Nome is going to happen if this robot gets built or not. But I agree that those expenses would add up fast, which is why it would be nice to be able to deduct them as a business expense.

Then I wish you luck on your endeavor. As for me I need to get back to my Bridgeport and crank some parts out for the robot's the office pays me to build.

[texasdiver]

I spent 10 years of my life doing diving in Alaska for my job (fisheries research) and for recreation (shipwreck and sport diving) and at one time owned a dive boat and had a whole mixed gas fill station in my garage.

The thing about building anything to work in sea water (especially at depth) is that it must be absolutely corrosion-proof and absolutely waterproof. So you end up spending a fortune on aluminum, stainless and chrome-plated brass parts and every wire and electronic component has to be sealed with the correct gaskets and o-rings and such. I did some custom-building of dive lights and underwater video lights and it is a fussy process with lots of failures. We were machining parts out of HDPE, aluminum, and polycarbonate and the whole process was expensive.

Have fun with this. These engineering projects can be lots of fun. But I expect you have a long ways to go before you start wondering what to do with all the profits.

[Jfet]

But I expect you have a long ways to go before you start wondering what to do with all the profits.

That was why I am already worried about deducting the losses

[Jfet]

Wife asked me a question and I am not sure of the answer.

If we make a prototype or a scale model of the prototype and release a video to the public, or test it in public, does this establish prior art such that nobody could then patent that exact device and stop us from using/producing/selling it?