Five Basic Tax Tips about Hobbies Millions of people enjoy hobbies that are also a source of income. You must report on your tax return the income you earn from a hobby. The rules for how you report the income and expenses depend on whether the activity is a hobby or a business. There are special rules and limits for deductions you can claim for a hobby. Here are five tax tips you should know about hobbies: 1. Is it a Business or a Hobby? A key feature of a business is that you do it to make a profit. You often engage in a hobby for sport or recreation, not to make a profit. 2. Allowable Hobby Deductions. Within certain limits, you 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. 3. Limits on Hobby Expenses. Generally, you can only deduct your hobby expenses up to the amount of hobby income. If your hobby expenses are more than your hobby income, you have a loss from the activity. You can’t deduct the loss from your other income. 4. How to Deduct Hobby Expenses. You must itemize deductions on your tax return in order to deduct hobby expenses.
Posted on: Wed, 06 Aug 2014 14:47:28 +0000