Do you have a particular hobby that is also a source of income? If so, you must report any income you get from your hobby on your tax return. How you report the income is different than how you report income from a business. For example, there are special rules and limits for deductions you can claim from a hobby.
Here are four tax tips you should know:
- 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 the decision on all the facts and circumstances of your situation.
- 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.
- 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.
- 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.
As always it’s a good idea to consult with your tax adviser regarding these matters. Call us if you need help.
For more information, contact Elite Bookkeeping & Tax Services at (800) 416-3820 or (775) 884-6188 Address: 123 West Nye Lane, Suite 103, Carson City, NV 89706. Visit our website at www.elitebookkeeping.biz