Four Basic Tax Tips about Hobbies

There are lots of people who enjoy hobbies that are also a source of their income.

 Stamp Collection

Some examples include stamp collection, coin collections, craft making, and horsemanship.

You must report on your tax return all of the income that you earn from your hobby. The rules of how you report your income and expenses depend on whether the activity is considered a hobby or a business. There are special rules and limitation for deductions that you can claim for a hobby. Here are four tax tips you should know about hobbies:

• Is the activity a Business or a Hobby?  A key feature of a business is that you do it for a profit or money.  However, you often engage in a hobby for recreation purpose, not to make a profit. You should consider the following factors when you determine whether or not your activity is a hobby. 
• Whether you carry on the activity in a businesslike manner.
• Whether the time and effort you spend on the activity indicate your intention to make it profitable.
• Whether you depend on the income from the activity for your living.
• Whether your losses are due to the situation that is beyond your control.
• Whether you change your methods of operation in an attempt to increase your earning.
• Whether you have the knowledge or skills needed to carry on the activity as a successful business.
• Allowable Hobby Deductions.  You can usually deduct ordinary and necessary hobby expenses on your tax return. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is appropriate for the activity.
• Limits on Hobby Expenses.  Generally speaking, you can only deduct your hobby expenses up to the amount of your hobby income. You can’t deduct the hobby loss from your other income. If your hobby expenses are more than your hobby income, you have a loss from the activity. 
• How to Deduct Hobby Expenses.  In order to deduct hobby expenses, you must itemize deductions on your tax return.  In other words, if you don’t itemize deductions on your tax return, you can’t deduct your hobby expenses.

Coin collection

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Source:  www.irs.gov.
Email:   Excellent-tax@gmx.com