| September 14, 2015 | 0 Comments

We all enjoy hobbies OR, at least, I hope you have a an interest that you can pursue that  makes your life bearable.  Maybe I should use the term “makes your life interesting”.

Hobbies are activities that you do for pleasure NOT for profit.  Hobbies include collecting, craft making and horse breeding/racing to address a few types of hobbies.  YOU MUST REPORT ANY INCOME YOU GET FROM A HOBBY ON YOUR TAX RETURN.  How you report the income is different from reporting income from a business venture.

You can only deduct expenses from a hobby up to the amount of income. In a business venture you can deduct  reasonable and usual expenses even if the net affect is a “loss” for the year.  This loss can also be applied against Other Income.

How to determine whether you should report as a hobby or business?  Consider these factors (No one factor will determine the activity):

Intent:  Are you participating in the activity to gain a PROFIT (the IRS will presume you have a profit motive if in 3 out of 5 years you were profitable)

Is the activity carried on in a business like manner

Do you depend on the income for your livelihood

You have the knowledge needed to carry on the activity as a successful business

You were successful in similar businesses in the past

The activity makes a profit in some years and not in others

These are just a few of the considerations to address when determining whether you are engaged in a hobby OR business.  The Presumption of Profits may take a few years to determine when you are initiating the activity.  A hobby can change to a business
OR a business can change to a hobby.  The IRS has forms and additional rules that can be addressed.  Please contact this office if I can be of help.







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