Press Releases
Your Hobby Could Have Tax Implications
NORTH CHARLESTON, S.C. – Do you consider your favorite hobby a business or just something that’s just fun? Depending on your answer, there might be surprising tax implications to consider.
According the IRS, if your favorite activity makes a profit every year or so, there might be tax issues that you are not aware of. The IRS defines a hobby as a not-for-profit activity; something that is recreational and is not pursued for profit. Your activity could be considered a business if it is carried on with the expectation of earning a profit. Keep in mind, the first two years of your activity, you are entitled to write off your losses, but if you have not turned a profit by the beginning of year three, be prepared for the possibility of facing an audit.
“The IRS has seen an upswing in the number of people trying to write off hobbies as small businesses,” said JK Harris Director of Professional Services, Ralph Havens. “It is important to know if you are entitled to claim the losses on your activity or not.”
Havens offers some sound advice to anyone considering turning a favorite hobby into a business.
“First have a sound business plan in place,” Havens adds. “Second, be sure to keep your personal and business accounts completely separate – do not co-mingle funds. Third, meet with professionals in the field who can offer you advice and guidance on how best to run your business. Lastly, invest the time needed to get your business launched. If you are only working four hours a week at your venture, and then you claim a loss on the business year after year, it could trigger a warning flag to the IRS.
“If you are not sure which category you fall under,” Haven’s continued, “just remember that an activity is considered a business if it is profitable for three out of five years. “At JK Harris, we remind our customers of this so they know if they are eligible to claim the write off or not.”
Visit http://www.irs.gov/newsroom/article/0,,id=172833,00.html for more information.