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Deduct your hobby if it's a part time business!
DEDUCT YOUR HOBBY (IF IT'S A PART-TIME BUSINESS)
As we mentioned in our discussion of owning your
own business, the IRS may argue that you are not trying
to make a profit, so the activity really is a hobby.
Then your deductions will be limited to your income
from the activity.
But you can take all the deductions by qualifying
for the "safe harbor" provision. Tax reform made the
safe harbor more difficult to reach. You now have to
make a profit in three out of any five consecutive
years. If you don't meet the standard, you still can
take the deductions by showing that you really tried to
make a profit.
You do this by conducting the business in a
professional manner. Keep good books and records.
Hire experts and advisors when necessary. Be sure all
your practices conform to generally accepted industry
standards. Take courses or some other form of
instruction to improve your skills in the field. You
also must devote enough time and skill to the activity
on a regular basis to indicate that you are serious
about it.
An activity can be considered for profit if you
don't expect to generate much current income but
believe that assets used in the activity will
appreciate and produce significant capital gains in the
long term. By following these guidelines you can
deduct the costs as business expenses even if the
activity never turns a profit.
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