Do I have a business or a hobby, and whats the tax difference?
• According to the IRS, a hobby is engaged in for personal pleasure, with little or no profit motive. Hobbyists keep lousy (if any) records. Hobbyists would do their activity regardless of whether they made any money or not. Hobby INCOME is reported on your tax return, but hobby EXPENSES are taken only if you can itemize your deductions and subject to a 2% income limitation. Hobby expenses CANNOT be netted against hobby income. A business, on the other hand, is engaged in for profit. The income is shown on the tax return and the expenses are netted against it. The standard rule of thumb is to show a profit in 3 of the last 5 years (2 out of 7 for horses). But there are other considerations. Here are 9 factors listed in Treasury Regulation sections 1.183-2(b) that the IRS considers: • The manner in which the taxpayer carries on the business–good records. • The expertise of the taxpayer or his advisors. • The time and effort expended by the taxpayer in carrying on the activity. • Expect
