Got a hobby? 4 Tax Tips about Hobbies that Earn Income

Millions of people enjoy hobbies. They can also be a source of income. Some of these types of hobbies include stamp or coin collecting, craft making and horse breeding. You must report any income you get from a hobby on your tax return. How you report the income is different than how you report income from a business. There are special rules and limits for deductions you can claim for a hobby. Here are four basic tax tips you should know if you get income from your hobby:

1. Business versus Hobby.  A key feature of a business is that you do the activity to make a profit. This differs from a hobby that you may do for sport or recreation. There are nine factors to consider when you determine if you do the activity to make a profit. Make sure you base your decision on all the facts and circumstances of your situation.

So, how do you distinguish between a business and a hobby? In making the distinction between a hobby or business activity, take into account all facts and circumstances with respect to the activity. No one factor alone is decisive. You must generally consider these factors to establish that an activity is a business engaged in making a profit: 

1. Whether you carry on the activity in a businesslike manner.
2. Whether the time and effort you put into the activity indicate you intend to make it profitable.
3. Whether you depend on income from the activity for your livelihood.
4. Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
5. Whether you change your methods of operation in an attempt to improve profitability.
6. Whether you or your advisers have the knowledge needed to carry on the activity as a successful business.
7. Whether you were successful in making a profit in similar activities in the past.
8. Whether the activity makes a profit in some years and how much profit it makes.
9. Whether you can expect to make a future profit from the appreciation of the assets used in the activity.  
   

2. Allowable Hobby Deductions.  You may be able to deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is helpful or appropriate. 

 

3. Limits on Expenses.  As a general rule, you can only deduct your hobby expenses up to the amount of your hobby income. If your expenses are more than your income, you have a loss from the activity. You can’t deduct that loss from your other income.

4. How to Deduct Expenses.  You must itemize deductions on your tax return in order to deduct hobby expenses. Your costs may fall into three types of expenses. Special rules apply to each type. 

 

Yes, Hobby rules can be complex but we can help to make filing your tax return easier no matter where you are in the USA. There are some self-help tools available from the IRS; however, we've all at some point learned  that there are some things that we shouldn't try to figure it out on our own...seek the help of a professional tax preparer!

 

 

 

 

 

 

Keep Track of Miscellaneous Deductions

Miscellaneous deductions can cut taxes!
These may include certain expenses you paid for in your work if you are an employee. You must itemize deductions when you file to claim these costs. So if you usually claim the standard deduction, think about itemizing instead. You might pay less tax if you itemize.  Here are some IRS tax tips you should know that may help you reduce your taxes:
Deductions Subject to the Limit.  You can deduct most miscellaneous costs only if their sum is more than two percent of your adjusted gross income. These include expenses such as:

• Unreimbursed employee expenses.
• Job search costs for a new job in the same line of work.
• Some work clothes and uniforms.
• Tools for your job.
• Union dues. • Work-related travel and transportation.
• The cost you paid to prepare your tax return. These fees include the cost you paid for tax preparation software. They also include any fee you paid for e-filing of your return.

Deductions Not Subject to the Limit.  Some deductions are not subject to the two percent limit. They include:

• Certain casualty and theft losses. In most cases, this rule applies to damaged or stolen property you held for investment.  This may include property such as stocks, bonds and works of art.
• Gambling losses up to the total of your gambling winnings.
• Losses from Ponzi-type investment schemes.

There are many expenses that you can’t deduct, and if you need assistance in this area don't hesitate to contact your Business Accountants at Envision Tax & Accounting Services...we're here to help you get the most out of your hard earned dollars.

Products for Taxpayers Who Are Visually Impaired

Here's a quick, yet very information video from the IRS regarding the assistance that is available for the visually impaired:

 

~just keeping you in the loop!
www.EnvisionTaxandAccounting.com

4 Things To Consider During Your Mid-Year Evaluation

As we enter the second half of the year, many people are thinking of summer vacation plans; however, most CEO’s are thinking about their business. and how the year will be over before they know it!  That said, CEO’s are an optimist bunch and quickly realize there is still half of the year left to ensure your business finishes the 2015 year strong!

Take a look at these 4 things CEO’s should be addressing now:

The following are important to consider when performing your mid-year assessment.

1. Protect your ASSets: For many organizations, the first part of 2015 has been strong. Now it’s time to protect your assets and bottom line, while reducing risk. For many Business Owners, it is truly easier to make money than to keep it. Protecting what you have made is critical to preserving the longevity of the organization. Investments in the organization are necessary to fuel continued growth and evolution; however, these should be carefully calculated strategies with an intended return and a ‘what if’ analysis. You should have a financial ceiling – the most financial exposure you are willing to tolerate before altering your course, should the investment not go according to plan. In addition, every company should have a risk management and risk mitigation plan which identifies the potential threats to the organization and outlines the processes, procedures and tactical steps taken, to mitigate these risk.

2. Improve inefficiencies: When times are tough, most people realize the importance of streamlining processes, reducing unnecessary expenditures, and cutting the proverbial fat. However, when times are good, these strategies are of equal importance. Every dollar that can be dropped to the bottom line is simply more you will have to invest in other strategic initiatives, increase shareholder value, and/or pay your team for their contributions to success. Too many companies ignore this fact during good times, because it is easier to overlook or deny these inefficiencies in a time of increasing revenues.

3. Evaluate opportunities: There is still time left in 2015 to implement and execute strategies for growth of the organization. These opportunities need to be carefully vetted by your Executive Management team, Board of Directors, and Chief Financial Officer. Projecting not only the net income or ROI, but also the cash flow and tax implications. This practice is necessary to ensure the long term success of the venture.

4. Recasting projections: For 99% of companies, the first part of the year wasn’t exactly what was projected and that trend of uncertainty will likely continue for the rest of 2015. Therefore, recasting projections for the remainder of 2015 is critical to ensure you are able to achieve the goal of EBITDA, net income, and increased enterprise value.

At Envision Tax & Accounting we work with our clients to make sure they understand the ramifications of inefficient processes throughout their fiscal or calendar year. We help them find the best practices for their specific industry and help them to be proactive to ensure that successful close of the year. If you need guidance and or assistance with the aforementioned as you consider your mid-year evaluations and assessments, give us a call. We're here to help...