Everyone has a hobby of some sort, and many people are fortunate enough to make money from participating in that hobby. What often gets overlooked is reporting that hobby income on a tax return. Here are some things to consider relating to hobby income:
- Is the activity being pursued as a hobby or as a business? A business pursues to make a profit from the activity where a hobby is done for more recreational purposes. There are nine factors to consider when determining if the activity is aimed at profit.
- You may be able to deduct ordinary and necessary expenses in relation to hobby income. These expenses are just that: ordinary and necessary. They are expenses that are common/appropriate and ought to be expected when pursuing a particular hobby. Generally there are limits on these expenses. If your expenses exceed your income you have a loss from the activity but you can’t deduct that loss from your other income.
- You must file Schedule A along with your tax return in order to deduct hobby expenses. The expenses may fall into three categories each with their own special rules.
- Activities pursued as businesses may be on the hook for additional self-employment taxes. They may also have more beneficial deduction circumstances than businesses.
If you have any questions or would like to learn more about hobby income don’t hesitate to call us at (763) 786-7899. We will gladly answer any questions/concerns you may have!