Tag Archive for hobby

Business Or Hobby, What Is The Difference?

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.

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Hobby VS Business Loss – A U.S. Tax Court Case Ruling

Harold Goedde

A loss from a legitimate business activity is fully deductible against other income. If the loss exceeds income, it can be carried forward to offset business income in future years. If an activity is deemed a hobby by the IRS, a loss cannot be deducted. The IRS has many criteria for determining whether an activity is a hobby or a business [See the author’s article on hobby losses for details].

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Beware! Your Hobby Business Could Land You In Tax Court

Your hobby business could land you in Tax Court – avoid IRS pitfalls by how you structure your small business.

Many people successfully develop a hobby into a going concern and actually receive income from it. That income must always be reported and taxes paid on that money regardless of your situation. If you leave that hobby as a hobby, under the tax law, you are not allowed to deduct any of the losses incurred by activity in that hobby. That is the reason most people turn their hobbies into businesses once they start making money.

When Are Hobby Losses Deductible?

By showing that your pursuit of your “hobby” is an activity engaged in for profit, you may be Read more

Your Hobby May Cost More Than You Know

TaxConnections Picture - Make money onlineOne of the advantages of owning a home-based business is the ability to deduct expenses that would otherwise be non-deductible for federal income tax purposes. However, you should and must be conducting the business in a business-like manner with the intent of making a profit. Otherwise, the Internal Revenue Service might disallow your home-based business deductions and your hobby may cost more than you know. You cannot conduct your business in such a way for the purpose of merely producing “write-offs” for tax purposes. Not only is that unethical, it is illegal. If you are the typical home-based business owner, you likely run your business in an ethical manner with an intent of making a profit. You might think that the phrase “intent of making a profit” is self-explanatory, but the determination as to the profit intent of one’s business is often more subjective than objective. Therefore, in the event of an audit, the IRS uses nine relevant factors to determine whether or not your business qualifies for home-based business tax deductions. Review these factors and consider whether your home-based business is in compliance. You may find areas in the conduct of your home-based business which need improvement.

According to the IRS website, whether or not an activity is presumed to be operated for profit requires an analysis of the facts and circumstances of each case. Deciding whether a taxpayer operates an activity with an actual and honest profit motive typically involves applying the nine non-exclusive factors contained in Treasury Reg. Sec. 1.183-2(b). Those factors are: Read more