Maybe you cater for your friends, maybe you make jewelry, maybe you sell your artwork, maybe you have a lemonade stand- regardless of what you do, do you know how the IRS views this? Here are some tips on how to tell if your activity is a business or a hobby and the tax implications of each.
1. The IRS has a checklist for determining if your activity is a business or hobby. The list is basically intent. Is this for fun or do you intend to make a profit? Do you want to depend on the income? What is the intent of your activity?
For the IRS list that discusses the difference between a business and a hobby click here.
Whatever the location, size, or value of a second home, certain tax advantages are built in. However, your opportunity to benefit from them depends on how you use the property.
Both property taxes and mortgage interest are as deductible for a second home as they are for your primary residence — and are subject to the same limitations. If you file a joint return, you cannot deduct interest on more than $1 million of acquisition debt ($500,000 for married persons filing separately) on one or two homes. Read More
If your interview was during 2017 (or earlier) and for a job in the same line of work, your mileage expenses and other expenses are deductible. You can use the standard mileage rate (53.5 cents per mile for 2017) to figure your expenses.
Thus, if you drove 1,300 miles, your driving expense is $6,995. But you may take this deduction only if you itemize your personal deductions on your tax return. Read More
You can claim a deduction for medical and dental expenses you incurred, but as a word of caution, you should expect a deduction, only if you incurred major unreimbursed medical expenses during the year. This is so, because you can deduct medical expenses only to the extent that they exceed 10% of your adjusted gross income (AGI).
For example, your AGI is $50,000 and your medical expenses total $6,000. Since 10% of $50,000 is $5,000, you can only take a deduction of $1,000 ($6,000-$5,000). The criteria for applying this restriction, from the government’s perspective, is to prevent taxpayers with large salaries from claiming expenses they can certainly afford, while benefiting lower income taxpayers who are burdened by unforeseen medical costs. Read More
Taxpayers can elect to take a simplified deduction for the business use of the taxpayer’s home. The deduction is $5 per square foot, with a maximum square footage of 300. Thus, the maximum deduction is $1,500 per year. Here are the details of this simplified method:
Annual Election – A taxpayer may elect to take the safe-harbor method or the regular method on an annual basis. Thus, a taxpayer may freely switch between the methods each year. The election is made by choosing the method on a timely filed original return and is irrevocable for that year.
Depreciation – When the taxpayer elects the safe-harbor method, no depreciation deduction for the home is allowed, and the depreciation for the year is deemed to be zero. Read More
In Industry Director Directive on Domestic Production Deduction #3 (3/4/2009) (the “IDD”), the IRS addressed the treatment of post-2004 compensation deductions (e.g., pension expense and medical-related costs) that relate to services rendered prior to 2005. The IDD held that the treatment of such deductions requires an analysis under the “section 861 method”. In lieu of detailed support regarding the lack of a factual relationship between a deduction and domestic production gross receipts (“DPGR”), the IDD allowed taxpayers to treat such deductions as not properly allocable to DPGR, subject to a 10% haircut. The haircut relates to the — sometimes real, sometimes theoretical – possibility that some of the services rendered prior to 2005 may relate to the production of (post-2004) DPGR. The scope of the IDD was limited to expenses not subject to §263A. Read More