You've been able to make a few bucks recently on your hobby. That will really help with the holiday gift buying.
But if your hobby regularly puts more than just a few extra dollars in your pocket, consider turning it into a full-fledged business.
As this week's Weekly Tax Tip notes, officially converting your hobby into a business is not that difficult.
Why, you might be asking, would you want to do that?
Because regardless of whether your earnings are from a business or a hobby, they still are taxable income. The IRS expects you to report the income from your recreational jewelry making or photo shoots on line 21 of Form 1040.
But when the earnings come from a business, even one's that a side job, you get the benefit of tax deductions that could effectively erase your taxable hobby-turned-business income.
Of course, you must show Uncle Sam that your operation is a legitimate business and not just a way to avoid taxes. It's not that hard, though.
And who knows. Maybe your fledgling business will really take off, making both you and the IRS happy.
You also might find these items of interest:
Gustav
It actually is quite easy to convert a profitable hobby into a business venture. The intent to make a profit, maintaining proper books and records, etc. The problem usually arises when you consistently show losses on a Schedule C. I’ve had a few clients that were challenged by the IRS on various types of ventures, and won them all based on the above. One in particular was a stable of racehorses that never reflected a profit in over six years. I proved the intent to make a profit motive, the owner’s active participitation by working in excess of the required number of hours, etc. The agent’s supervisor got involved and had no problem with it.
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