IS YOU HOBBY REALLY A BUSINESS ?

January 15, 2019 - Douglas Myser

Is your hobby really a business ?  This determination is crucial if you want to be able to write off certain expenses, or whether the income is actually a business. The Tax Cuts and Jobs Act has eliminated the deduction for expenses for a hobby with the change to the Schedule A. This has made the determination of whether you are engaged in a business or hobby even more critical. In the past. certain hobby expenses were deductible to the extent that there was income. Unlike an entity that is considered a for profit business in which the expenses can exceed income, hobby expenses were only allowed to the extent of reported IRS income. In determining whether  an activity is a hobby or business, we consider all facts and circumstances of the activities. Is your hobby really a business ?

The manner in which the taxpayer carries on the activity. Factors that may indicate a business include maintaining books and records, obtaining business licenses, having a website, conducting the activity similar to other businesses. The experience of the taxpayer or their advisors. Factors may indicate a business include the knowledge of the taxpayer about eh industry. The time and effort expended by the taxpayer in carrying on the activity. If you commit a tremendous amount of time and effort in the activity, especially if there in no substantial personal or recreational aspect, is considered. Taking time away from another occupation may also indicate a profit motive. If you find the IRS rules your hobby is not a business and you end up owing a large amount of taxes, you can always consult with a reputable, well seasoned Tax Resolution Services Company about the IRS Fresh Start Program, which is better than facing an IRS Wage Garnishment.

The expectation that assets used in the activity may appreciate in value. Even if no profit is made from operations, if the value of land or other assets in the activity appreciate so that an overall profit is made from the sale, the activity may be considered a business. The success of the taxpayer in carrying other similar or dissimilar activities. IF you were successful in the past turning an unprofitable venture into a profitable venture, the current activity may be a business even if it has not made a profit. Ask the question, is your hobby really a business ?