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Episode 983 - Are You A Hobby Or A Real Business?
So I got up early to talk with a client and found out it isn't until next weekend, so you get the tax lecture I was going to give. Over the past week I have received emails asking about their hobby and how that income would affect their social security or disability. I say hobby because the questions has got to be is your activity going to be a business or a hobby - per the IRS. If your business claims a net loss for too many years, or fails to meet other requirements, the IRS may classify it as a hobby, which would prevent you from claiming a loss related to the business.
So let's talk about hobby vs. business. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.
The IRS expects that if you start a business, you intend to make money at it. If you don't, your business might be a hobby. To determine if your business is a hobby, the IRS looks at numerous factors, including the following:
- Do you put in the necessary time and effort to turn a profit?
- Have you made a profit in this activity in the past, or can you expect to make one in the future?
- Do you have the necessary knowledge to succeed in this field?
- Do you depend on income from this activity?
- Are your losses beyond your control?
These are the questions the IRS will ask as they look at your business that you are claiming on your Schedule C for business or profession.
Now there are consequences of hobby classification. Generally, the IRS classifies your business as a hobby, it won't allow you to deduct ANY expenses or take any loss of it on your tax return. But you will have to claim the income and that will affect your tax return. Hobby income is not subject to self employment taxes. It is just classified as income to you.
This tax season please take a look at your business and it's losses. Make sure you have classified your business correctly so you are not facing potential penalties and interest.
If you like my content of my podcasts, please support me at www.buymeacoffee.com/MichaelLodge
If you have any questions or comments, send them through text to 818.252.5682 or email at [email protected] www.lodge-co.com
So let's talk about hobby vs. business. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.
The IRS expects that if you start a business, you intend to make money at it. If you don't, your business might be a hobby. To determine if your business is a hobby, the IRS looks at numerous factors, including the following:
- Do you put in the necessary time and effort to turn a profit?
- Have you made a profit in this activity in the past, or can you expect to make one in the future?
- Do you have the necessary knowledge to succeed in this field?
- Do you depend on income from this activity?
- Are your losses beyond your control?
These are the questions the IRS will ask as they look at your business that you are claiming on your Schedule C for business or profession.
Now there are consequences of hobby classification. Generally, the IRS classifies your business as a hobby, it won't allow you to deduct ANY expenses or take any loss of it on your tax return. But you will have to claim the income and that will affect your tax return. Hobby income is not subject to self employment taxes. It is just classified as income to you.
This tax season please take a look at your business and it's losses. Make sure you have classified your business correctly so you are not facing potential penalties and interest.
If you like my content of my podcasts, please support me at www.buymeacoffee.com/MichaelLodge
If you have any questions or comments, send them through text to 818.252.5682 or email at [email protected] www.lodge-co.com
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By Michael Lodge
3.7
33 ratings
So I got up early to talk with a client and found out it isn't until next weekend, so you get the tax lecture I was going to give. Over the past week I have received emails asking about their hobby and how that income would affect their social security or disability. I say hobby because the questions has got to be is your activity going to be a business or a hobby - per the IRS. If your business claims a net loss for too many years, or fails to meet other requirements, the IRS may classify it as a hobby, which would prevent you from claiming a loss related to the business.
So let's talk about hobby vs. business. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.
The IRS expects that if you start a business, you intend to make money at it. If you don't, your business might be a hobby. To determine if your business is a hobby, the IRS looks at numerous factors, including the following:
- Do you put in the necessary time and effort to turn a profit?
- Have you made a profit in this activity in the past, or can you expect to make one in the future?
- Do you have the necessary knowledge to succeed in this field?
- Do you depend on income from this activity?
- Are your losses beyond your control?
These are the questions the IRS will ask as they look at your business that you are claiming on your Schedule C for business or profession.
Now there are consequences of hobby classification. Generally, the IRS classifies your business as a hobby, it won't allow you to deduct ANY expenses or take any loss of it on your tax return. But you will have to claim the income and that will affect your tax return. Hobby income is not subject to self employment taxes. It is just classified as income to you.
This tax season please take a look at your business and it's losses. Make sure you have classified your business correctly so you are not facing potential penalties and interest.
If you like my content of my podcasts, please support me at www.buymeacoffee.com/MichaelLodge
If you have any questions or comments, send them through text to 818.252.5682 or email at [email protected] www.lodge-co.com
So let's talk about hobby vs. business. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions.
The IRS expects that if you start a business, you intend to make money at it. If you don't, your business might be a hobby. To determine if your business is a hobby, the IRS looks at numerous factors, including the following:
- Do you put in the necessary time and effort to turn a profit?
- Have you made a profit in this activity in the past, or can you expect to make one in the future?
- Do you have the necessary knowledge to succeed in this field?
- Do you depend on income from this activity?
- Are your losses beyond your control?
These are the questions the IRS will ask as they look at your business that you are claiming on your Schedule C for business or profession.
Now there are consequences of hobby classification. Generally, the IRS classifies your business as a hobby, it won't allow you to deduct ANY expenses or take any loss of it on your tax return. But you will have to claim the income and that will affect your tax return. Hobby income is not subject to self employment taxes. It is just classified as income to you.
This tax season please take a look at your business and it's losses. Make sure you have classified your business correctly so you are not facing potential penalties and interest.
If you like my content of my podcasts, please support me at www.buymeacoffee.com/MichaelLodge
If you have any questions or comments, send them through text to 818.252.5682 or email at [email protected] www.lodge-co.com