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    0 Replies Latest reply on Aug 17, 2009 9:38 PM by LUCKIEST

    Eight Important Questions for Hobbyists

    LUCKIEST Guide
      *Eight Important Questions
      for Hobbyists*
      Summer is a
      time many Americans take their fishing poles and gardening tools out of storage.
      Hobbies – such as woodworking, stamp collecting and scrapbooking – are often
      done for pleasure, but can result in a profit. If your favorite activity does
      make a profit every year or so, there may be tax implications. You must report
      income to the IRS from almost all sources, including hobbies. Here are eight
      questions that will help determine if your activity is a hobby or a business.
      # Is the purpose \\ of your activity to make a profit? Generally, your activity is considered a \\ business if it is carried on with the reasonable expectation of earning a \\ profit.
      # Do you \\ participate in your activity just for fun? Hobbies – also called \\ not-for-profit activities – are those activities that are not pursued for \\ profit.
      # Do you depend \\ on income from the activity? If so, your activity is likely considered a \\ business.
      # Have you \\ changed methods of operation to improve profitability? If so, your hobby may \\ actually be a business.
      # Do you have \\ the knowledge needed to carry on the activity as a successful business? \\ People who carry out hobbies just for fun, often don’t have the business acumen \\ to turn their not-for-profit activity into a profitable business venture.
      # Have you made \\ a profit in similar activities in the past? This may indicate your activity \\ is a business rather than a not-for-profit hobby. An activity is presumed \\ carried on for profit if it makes a profit in at least three of the last five \\ tax years, including the current year – or at least two of the last seven years \\ for activities that consist primarily of breeding, showing, training or racing \\ horses.
      # Does the \\ activity make a profit in some years? Even if your activity does not make a \\ profit every year, it still may be considered a business.
      # Do you expect \\ to make a profit in the future from the appreciation of assets used in the \\ activity? This indicates your activity may be a business rather than a \\ hobby. If your activity is not carried on for profit,
      allowable deductions cannot exceed the gross receipts for the activity. If you
      are conducting a trade or business you may deduct your ordinary and necessary
      expenses. More information about not-for-profit activities is available in
      Publication 535, Business Expenses, available on the Web site or by
      calling 800-TAX-FORM (800-829-3676).
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