It's National Cookie Day. Guess what I had for breakfast? And probably for lunch and supper, too.
Not as my whole meal, at least not for the day's two later repasts.
Today's gustatory observance reminded me of a DailyInfographic.com item that illustrated some money-making hobbies. Baking was on that list. That's the cooking excerpt below.
Hobbies' fun and fiscal benefits: Do you have a hobby? It's a good way to take a break from the day-to-day pressures of being an adult.
If you do and you discover that you can make a little extra cash from your avocation, good for you!
Remember, though, that the Internal Revenue Service considers your hobby earnings as taxable income.
You report the money you make from your craft sales or photo shoots on line 21 of Form 1040. The long tax return form is used because you might be able to deduct expenses you incurred in conducting your money-making hobby.
To do that, you must itemize. And to do that, you file Schedule A, which can only be used with Form 1040.
Hobby cost deduction rules: Cool! Deducting that hot glue gun you bought to make holiday decorations that you sold at the local craft fair. Or all those groceries for the homemade bread you peddle at the neighborhood farmers' market in the spring.
Not so fast.
While you can deduct your ordinary and necessary expenses in connection with your money-earning hobby, they amounts go in the miscellaneous section — technically titled Job Expenses and Certain Miscellaneous Deductions — of Schedule A.
And for these to count, you must have total sundry allowable costs that exceed 2 percent of your adjusted gross income (AGI).
Note the 2 percent requirement. That means that if your AGI is $40,000 (going with round numbers here for ease of calculation), you need all your miscellaneous expenses to come to more than $800. Then you only get to count the amount that's over that threshold.
So in this example, miscellaneous expenses of $835 mean that you can deduct $35.
I hear ya. Big whoop.
But that's how the tax cookie crumbles (sorry, couldn't resist). And if you're itemizing anyway, that $35 is better than nothing.
If you do have enough deductible hobby expenses, you also have to be careful with your deduction. You can only claim losses us to the amount of money you made from your hobby.
That's right. The tax code won't let you use your hobby to generate a tax loss.
And as with all things tax, if you're reporting hobby income and claiming hobby losses, you need to keep good records.
Business income, losses: If, however, your hobby is really making you some dough, you might want to consider turning it into a full-fledged business, either as a side hustle or your main job.
Yes, regardless of whether it's an official business or just a hobby, you'll owe taxes on the money you make.
But when it's a business, you get more deduction options. And in down times, you can even claim the losses.
Whatever you choose, just make sure that you stay on the right side of the tax man.
If you don't, you won't be a happy entrepreneur or a have much fun with your hobby on your days off.
You also might find these items of interest:
Revanche @ A Gai Shan Life
I claim blogging as my income-earning hobby but it’s been mostly losses for a while now ;D