Things To Know About Hobby Income And Your Taxes
Hobbies. Most people have them, and they’re a source of relaxation and enjoyment for millions. But for some, they may also be a source of income. And like any other source of income, what you earn from your hobby must be reported on your tax return. Whether it’s scrapbooking, music, or metalworking, the fact is that if you’re earning money, you need to claim it.
However, the IRS does have different rules in place for hobbies versus businesses. There are special rules and limitations on the deductions that you can claim from your hobby also. With that in mind, here are a few key things to know about hobby income and your taxes this year.
• Determination – First, you must be able to show that the hobby is a hobby instead of a business. Businesses are set up with one goal – to earn a profit. Hobbies are done for recreation, but income may occur as a result of them. Your tax pro can review your hobby and help you make the determination as to which your hobby qualifies as, but in general if you’re not depending on the income form the hobby and the overall profit you earn will play a major role here.
• Allowed Deductions – You’ll be able to use some deductions related to your hobby expenses. In particular, you can deduct expenses for ordinary or necessary expenses related to your hobby.
• Limitations – However, it’s important to note that you can only deduct your expenses up to the amount of income that you earn from the hobby. You likely won’t be able to deduct anything over what you’ve earned, and if your expenses are greater than the income you earn, you’ll take a loss for the year. This is a key part of what separates hobbies and businesses.
Hobbies are an important part of life for millions of us, and when it’s possible to earn a bit of extra money from your hobby it’s even better. But the financial side of a hobby can make your taxes more complicated. Talking to a tax professional is the best way to make certain that you handle your hobby income properly.
If you earn anything from your hobby, we’re here to help simplify your taxes. Contact Sherbetjian Premium Tax Services today to get the assistance you need and to rest easy knowing that your taxes are filed correctly this year.