Thursday, August 7, 2014

IRS Summertime Tax Tip 2014-15: Five Basic Tax Tips about Hobbies

IRS Summertime Tax Tip 2014-15: Five Basic Tax Tips about Hobbies by The Internal Revenue Service (IRS) sent this bulletin at 08/06/2014 07:30 AM EDT

Are you really running a business, or is this just a hobby? There is a long list of things to consider before being sure someone is a business: One of the nine items to think about is, "...
  • Whether you depend on income from the activity for your livelihood." 
If a person requires assistance to survive, even though they depend on an activity for income, it is possibly not enough to consider the activity a business. 

There are many other things to consider:

Straight from the Internal Revenue Service (IRS), are some resources and ways to find out if you have a business, or a hobby.  The best resource to start with is PUB 535 (2013) Business Expenses (HTML link), or Pub 535 (PDF link)

If you are a business, and wonder about legit deductions, here is a helpful video from the I.R.S. 

Simplified Home Office Deduction, Videos - YouTube

Some hobbies are very expensive, and taxpayers may be stunned to learn that the 100K they won from the bass tournament is only deductible up to the amount laid out to be eligible to fish in a tournament with grand prizes

With a business, the owner may often deduct many expenses that have been laid out to get the business going. This is in earnest hope and planning that the business will be taking in more than it loses, at least three out of the five prior years. If it does not, the business may be reclassified as a hobby.

ASL: Small Business Health Care Tax Credit (Captions & Audio), IRS - YouTube

When that happens: the financial lay-out may have been substantial, with continuing expenses, but once classified as a hobby, they may deduct expenses only up to and equal to any amounts earned.

This is a link to the U.S. Treasury, the place where tax money is processed. The I.R.S. is just a giant clearing house for the Treasury. It is the Treasury who enforces tax code. Here is a link to a definition by the IRS in agreement with the U.S Treasury "What Constitutes A Business?" 

 Like gambling, if you never win, it is just loss, and not deductible.

For those who are businesses, I hope you find this information useful. Thank you.