If a business owner works for no salary, but puts time and effort into the business, can those hours be considered a capital investment? If so, is there a term for that kind of work?
A machinist builds a machine. The parts, materials and electricity cost for building the machine is $5,000. The machinist spends 800 hours building the machine and the business processes to lease the machine for which he is unpaid by anyone. In other words he invests his own time.
The machinist then sells the business that owns the machine for $100,000. If the machinist values his time at $200 an hour, then the 800 hours he spent is $16,000. If the machinist cannot include his hours, then his capital gain would be 100-5 = $95,000, but if he can include his hours as an investment, then his capital gain is 100 - 5 - 16 = $79,000. Which is correct?
A software engineer writes a computer program. It takes him 600 hours to write the computer program and those hours are well documented. He sells the source code and copyright to the program to a big company for $150,000. Is the capital gain $150,000 or can he deduct the value of the hours he spent writing the program?