Millions of people enjoy hobbies that are also a source of income. From
catering to cupcake baking, crafting homemade jewelry to glass blowing -- no
matter what a person’s passion, the Internal Revenue Service offers some tips
on hobbies.
Taxpayers must report on their tax return the income earned from hobbies.
The rules for how to report the income and expenses depend on whether the
activity is a hobby or a business. There are special rules and limits for
deductions taxpayers can claim for hobbies. Here are five tax tips to consider:
Is
it a Business or a Hobby? A key feature of a business is that people do it
to make a profit. People engage in a hobby for sport or recreation, not to
make a profit. Consider nine
factors when determining whether an activity is a hobby. Make sure to
base the determination on all the facts and circumstances.
You must generally consider these factors to establish that an activity is a business engaged in making a profit:
- Whether you carry on the activity in a businesslike manner.
- Whether the time and effort you put into the activity indicate you intend to make it profitable.
- Whether you depend on income from the activity for your livelihood.
- Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
- Whether you change your methods of operation in an attempt to improve profitability.
- Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
- Whether you were successful in making a profit in similar activities in the past.
- Whether the activity makes a profit in some years and how much profit it makes.
- Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
Allowable
Hobby Deductions. Within certain limits, taxpayers can usually deduct
ordinary and necessary hobby expenses. 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, taxpayers can only deduct hobby expenses up
to the amount of hobby income. If hobby expenses are more than its income,
taxpayers have a loss from the activity. However, a hobby loss can’t be
deducted from other income.
Source: Internal Revenue Service
contact@officetaxservices.com
(858)247-1680
Beginning on Jan. 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 53.5 cents per mile for business miles driven, down from 54 cents for 2016
- 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
- 14 cents per mile driven in service of charitable organizations
The business mileage rate decreased half a cent per mile and the medical and moving expense rates each dropped 2 cents per mile from 2016. The charitable rate is set by statute and remains unchanged. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.
Source: Internal Revenue Service
contact@officetaxservices.com
(858)247-1680
11/28/2016
Deposit payroll tax for payments on Nov 19-22 if the semiweekly deposit rule applies.
contact@officetaxservices.com
(858)247-1680
11/15/2016
Deposit payroll tax for Oct if the monthly rule applies.
contact@officetaxservices.com
(858)247-1680
11/02/2016
Deposit payroll tax for payments on Oct 26-28 if the semiweekly
deposit rule applies.
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(858)247-1680
10/31/2016
- File Form 720 for the third quarter.
- File Form 730 and pay tax on wagers accepted during September.
- File Form 2290 and pay the tax for vehicles first used during
September.
- File Form 941 for the third quarter.
Deposit FUTA owed through Sep if more than $500.
contact@officetaxservices.com
(858)247-1680
10/28/2016Deposit payroll tax for payments on Oct 22-25 if the semiweekly
deposit rule applies
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(858)247-1680
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If you have a business, keeping track of income and expenses is part of the job.
Be sure to keep:
- Track of ALL spending;
- A copy of EVERY tax form you file;
- Separate bank accounts for business and personal purposes;
- Personal expenses separate from business expenses;
- All business records at least four years after return is filed.
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(858)247-1680
Understanding your tax obligation is one key to business success. When you
start a business, you need to know about income taxes, payroll taxes and much
more. Here are five IRS tax tips that can help you get your business off to a
good start:
- Business Structure. An early choice you
need to make is to decide on the type of structure
for your business. The most common types are sole proprietor,
partnership and corporation. The type of business you choose will
determine which tax forms you file.
- Business Taxes. There are four general types
of business taxes. They are income tax, self-employment tax,
employment tax and excise tax. In most cases, the types of tax your
business pays depends on the type of business structure you set up. You
may need to make estimated
tax payments. If you do, you can use IRS
Direct Pay to make them. It’s the fast, easy and secure way to pay
from your checking or savings account.
- Employer Identification
Number (EIN).
You
may need to get an EIN for federal tax purposes.
- Accounting Method. An accounting
method is a set of rules that you use to determine when to report
income and expenses. You must use a consistent method. The two that are
most common are the cash and accrual methods. Under the cash method, you
normally report income and deduct expenses in the year that you receive or
pay them. Under the accrual method, you generally report income and deduct
expenses in the year that you earn or incur them. This is true even if you
get the income or pay the expense in a later year.
- Employee Health Care. The Small
Business Health Care Tax Credit helps small businesses and tax-exempt
organizations pay for health care coverage they offer their employees.
You’re eligible for the credit if you have fewer than 25 employees who
work full-time, or a combination of full-time and part-time. The maximum
credit is 50 percent of premiums paid for small business employers and 35
percent of premiums paid for small tax-exempt employers, such as
charities.
Source: Internal Revenue Service
contact@officetaxservices.com
(858)247-1680
