The Savings Highway, Home Based Business or Hobby? How IRS Determines Tax Savings
The Internal Revenue Service reminds all home based business
operators to follow appropriate guidelines when determining whether an
activity is a home based business or a hobby, an activity not engaged
in for profit.
In order to educate taxpayers regarding their filing obligations, the IRS guidelines explain the rules for determining if The Savings Highway
qualifies as a business and what limitations apply if the activity is
not a business. Incorrect deduction of hobby expenses account for a
portion of the overstated adjustments, deductions, exemptions and
credits that add up to $30 billion per year in unpaid taxes, according
to IRS estimates.
In general, taxpayers may deduct ordinary and necessary expenses for conducting a Savings Highway
business. An ordinary expense is an expense that is common and accepted
in the taxpayer’s trade or business. A necessary expense is one that is
appropriate for the business. Generally, an activity qualifies as a
business if it is carried on with the reasonable expectation of earning
Auditors are being told to use several tests to
determine if your “activity” is really a “hobby”
or a “business.” Hobbies get a few tax breaks,
but home-business owners get substantianly more!
If they can reclassify you as a hobby, the IRS gets
more of your money.
IMPORTANT: As A Savings Highway representative. One of the tests that is not well
understood, has to do with how much time you
spend on the activity.
You need to prove *“Material Participation*” in
your Savings Highway opportunity. Here are seven ways to prove you qualify for the tax savings:
1: If you work your business at least 500 hours
per year. Tax Savings Allowed
2. If you work your business at least 100 hours per
year AND no one else working in your business
puts in more time than you do.Tax Savings Allowed
3. The taxpayer does substantially all the work in the activity.Tax Savings Allowed
4. The activity is a significant participation activity (SPA), and
the sum of SPAs in which the taxpayer works 100-500 hours exceeds 500
hours for the year.Tax Savings Allowed
5. The taxpayer materially participated in the activity in any 5 of the prior 10 years.Tax Savings Allowed
6. The activity is a personal service activity and the taxpayer materially participated in that activity in any 3 prior years.Tax Savings Allowed
7. Based on all of the facts and circumstances, the taxpayer
participates in the activity on a regular, continuous, and substantial
basis during such year. However, this test only applies if the taxpayer
works at least 100 hours in the activity, no one else works more hours
than the taxpayer in the activity, and no one else receives
compensation for managing the activity.Tax Savings Allowed
In order to determine wether the Savings Highway is a qualified home based business or hobby, taxpayers should consider the following factors:
Does the time and effort put into the activity indicate an intention to make a profit?
Does the taxpayer depend on income from the activity?
If there are losses, are they due to circumstances beyond the
taxpayer’s control or did they occur in the start-up phase of the
Has the taxpayer changed methods of operation to improve profitability?
Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
Has the taxpayer made a profit in similar activities in the past?
Does the activity make a profit in some years?
Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?
The IRS presumes that an home based business is carried on for
profit if it makes a profit during at least three of the last five tax
years, including the current year — at least two of the last seven
years for activities that consist primarily of breeding, showing,
training or racing horses.
If an activity is not for profit, losses from that activity may not
be used to offset other income. An activity produces a loss when
related expenses exceed income. The limit on not-for-profit losses
applies to individuals, partnerships, estates, trusts, and S
corporations. It does not apply to corporations other than S
Tax savings for
hobby activities are claimed as itemized deductions on Schedule A (Form
1040). These deductions must be taken in the following order and only
to the extent stated in each of three categories:
Tax savings that a taxpayer may take for personal as well
as home based business activities, such as home mortgage interest and
taxes, may be taken in full.
Tax savings that don’t result in an adjustment to basis, such as
advertising, insurance premiums and wages, may be taken next, to the
extent gross income for the activity is more than the deductions from
the first category.
Tax savings that reduce the basis of property, such as depreciation and
amortization, are taken last, but only to the extent gross income for
the activity is more than the deductions taken in the first two
As you can see from the guidelines established by the IRS qualifying as a legitimate home based business such as The Savings Highway
are extremely straight forward. (Work at your business opportunity for
100 hours a year, and intend to make a profit). Turn your everyday
activities (Eating and Driving) into substantial tax savings when you
join the Savings Highway today.
Jim Roche NJ
Skype Id= jim.roche3