Tax Tips About Hobbies That Earn Income

   People in all walks of life enjoy hobbies.  Sometimes, these activities outside of the normal day-to-day routine, can produce an income.  In these situations the income must be reported on your tax return, but not in the same way as a business.  Here are some tips to keep in mind if this is your situation. 

   First of all, please note that a business and hobby are never the same thing.  The goal of a business is to have an income and make a profit.  A hobby is done for fun and relaxation, and under certain circumstances can create income.  Before you start a business or hobby you should consider your situation to determine which category you fall into.  If a hobby is still the best choice, keep in mind there are allowable hobby deductions.  In this case, deductions on your tax return would need to be itemized.  These would be the types of expenses that are commonly accepted, or helpful and appropriate for the activity being pursued.  However, the total of these expense deductions are limited to the total income from the hobby.  If there is a loss in this activity, it cannot be deducted from any other income. 

   Hobby rules can certainly be complex, but there are ways to simplify the process.  The website www.irs.gov has forms like publication 535 and a search feature.  But, for some, the best way through a complex situation is have a personal guide to answer questions and provide needed insight.  What do you think?

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