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Archives for September 2018

The Financial Flipside Podcast, Episode 14: Can’t Knock the (Side) Hustle

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According to a recent Banrkate.com survey,  4 in 10 Americans have side hustles, or jobs that they work in addition to their primary source of income. Another survey of 1,000 Americans from CreditLoan.com found that 15% of side hustlers want to start a business of their own. If the legions of breathlessarticles aboutside hustling are any indication, we may be nearing a future in which everyone is living their entrepreneurial dreams and working 50 hour weeks.  Today’s episode tackles the hows and whys of side jobs, including making friends with fear, adjusting to irregular income, ethical side hustling, and turning your side hustle into a full-time business.

Discussed in this episode:

What You Need to Know when Your Hobby Becomes a Business

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Who knew you had a green thumb? You started gardening as a way to de-stress. Now, you’re growing exotic orchids in your family room. It was a pricey hobby until you learned how to propagate orchids and started selling them to other hobbyists. And now you’re thinking you might be able to turn growing orchids into an income source — and your hobby into a business.

Once people start making money from their hobbies, they frequently start to deduct all of their hobby-related expenses. At this point, the IRS can become very interested in the nature of the taxpayer’s hobby/business. There are certain tax guidelines to keep in mind.

Deducting Expenses

If you earn income from your hobby, you generally can deduct bona fide hobby-related expenses up to the amount of the annual income your hobby generates. You must itemize to claim the deduction. Hobby expenses fall into the “miscellaneous” category, so they are grouped with any other miscellaneous expenses you have, and only the amount exceeding 2% of your adjusted gross income is deductible.

These restrictions don’t apply to business expenses. If you operate an active business, your business-related expenses generally will be deductible, even if they exceed your business income (limitations apply).

Passing the Test

The IRS won’t just take your word for it. It has a set of guidelines to determine whether a hobby qualifies as a business. First and foremost, you must be pursuing the activity with the goal of making a profit. If you’ve made a profit in three of the last five years (two of the last seven if your activity is horse breeding, showing, or racing), the IRS assumes you had a profit motive.

If you don’t meet the profit criteria, here are a few of the other questions the IRS may ask:

* Do you keep accurate books and separate your venture’s finances from your personal finances?

*Do you spend significant time and effort carrying out the venture?

* Does the activity involve a significant element of personal pleasure or recreation?

Don’t deal with tax issues on your own. Call us right now to find out how we can provide you with the answers you need.