Do You Have a Business or a Hobby?
Earlier this week I created a social media post about the factors the Internal Revenue Services uses to determine whether your small business is a business or a hobby. I also said that I would list the factors in this blog post, so that is exactly what I am doing. I want every small business to receive every tax deduction they are entitled to receive. I also want them to understand the importance of proper record keeping and,
of documentation of all business activities. For makers or crafters it is especially important since it literally means the difference of claiming only income, causing a higher tax liability, or of claiming both income and deductions, causing a lower tax liability.
These are the Nine Factors In Determining Whether You Have a Business or a Hobby:
Whether the activity is carried out in a business like manner, and the taxpayer maintains complete and accurate books and records.
Whether the time and effort the taxpayer puts into the activity shows they intend to make it profitable.
Whether they depend on income from the activity for their livelihood.
Whether any losses are due to circumstances beyond the taxpayers control, or are normal for the start-up phase of their type of business.
Whether they change methods of operation to improve profitability.
Whether the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business.
Whether the taxpayer was 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 the taxpayer can expect to make a future profit from the appreciation of the assets used in the activity.
All factors, facts, and circumstances with respect to the activity must be considered. And, no one factor is more important than another.
This information is straight from the IRS email tips. Below I will also list the Publications that are useful in finding information on small business taxes. I truly want each small business owner to understand how important it is to either have the knowledge when it comes to bookkeeping and taxes, or hire someone that does. Your business depends on it, and you should never have to pay more in taxes from a lack of understanding. It saves you time and money to use a professional, and it will help ensure you are in compliance with tax law, and with GAAP regulations.
Publication 17, Your Federal Income Tax
Publication 525, Taxable and Nontaxable Income
Publication 535, Business Expenses
Publication 334 Tax Guide for Small Businesses (for individuals that use Schedule C)
We are always happy to serve you with all bookkeeping and tax preparation needs, so if there is anything that we can help with, please reach out. This business is based on the desire to help small businesses, and was created with the passion for creators and makers to make their life and business easier by offering an affordable option to handle all of their financial documents for them. I truly understand what it takes to design, make your product, and to handle all the other areas of your business.
I want to personally take a minute to thank you for reading our blog, and to ask you to provide any feedback, or suggestions to what material will be most helpful to you!
Misty D. Rodriguez