Five Basic Tax Tips about Hobbies
Millions of people enjoy hobbies that are also a source of income. Some examples include stamp and coin collecting, craft making, and horsemanship.
You must report on your tax return the income you earn from a hobby. The rules for how you report the income and expenses depend on whether the activity is a hobby or a business. There are special rules and limits for deductions you can claim for a hobby. Here are five tax tips you should know about hobbies:
1. Is it a Business or a Hobby? A key feature of a business is that you do it to make a profit. You often engage in a hobby for sport or recreation, not to make a profit. You should consider http://www.zfcpa.com/blog/businessorhobbyanswerhasimplicationsfordeductions when you determine whether your activity is a hobby. Make sure to base your determination on all the facts and circumstances of your situation. For more about ‘not-for-profit’ rules see Publication 535, Business Expenses.
2. Allowable Hobby Deductions. Within certain limits, you can usually 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 appropriate for the activity.
3. Limits on Hobby Expenses. Generally, you can only deduct your hobby expenses up to the amount of hobby income. If your hobby expenses are more than your hobby income, you have a loss from the activity. You can’t deduct the loss from your other income.
4. How to Deduct Hobby Expenses. You must itemize deductions on your tax return in order to deduct hobby expenses. Your expenses may fall into three types of deductions, and special rules apply to each type. See of Publication 535 for the rules about how you claim them on Schedule A, Itemized Deductions.
5. Use IRS Free File. Hobby rules can be complex and IRS Free File can make filing your tax return easier. IRS Free File is available until Oct. 15. If you make $58,000 or less, you can use brand-name tax software. If you earn more, you can use Free File Fillable Forms, an electronic version of IRS paper forms. Free File is available only through the IRS.gov website.
For assistance with disclosing your undeclared foreign bank accounts (offshore voluntary disclosure program, OVDP), report of foreign bank & financial accounts (FBAR), foreign account tax compliance act (FATCA), tax preparation, tax planning, tax audit IRS representation, and the US treasury office of foreign assets control (OFAC), contact Zaher Fallahi, Los Angeles Tax Attorney, Los Angeles OFAC Attorney, Los Angeles Tax CPA, Los Angeles Dental CPA, at (310) 719-1040 and Orange County Tax Attorney, Orange County OFAC Attorney, Orange County Tax CPA, Orange County Dental CPA, at (714) 546-4272 (Orange County) or e-mail: [email protected]