You enjoy making money out of your hobby. That is good to know. Only, this is where certain lines must be drawn and you must be sure that the hobby you enjoy doing and at the same time gaining some cash is really free from any tax liabilities
There are many myths out there and knowing the straight facts is beneficial for you to save you from more trouble. You might think that you’re only doing these things to relax after your tiring day of work, and your baking, painting, and raising crops is not really liable for any tax dues. You might be right, you might be wrong. Listening to popular urban myths might have caused to think otherwise, but some of these recreational activities you do might actually add up to your tax responsibilities. Find out more.
Your Hobby Can be Considered as a Business
It’s only a hobby for you, but IRS might have a contrasting perspective. There are two factors which can determine if your hobby is simply a hobby or it has crossed the border and can already be considered a business. These two factors are the amount of money you gain from it and the frequency of doing such activity.
Regarding the amount of money you earn, if you make less than $400 from your hobby, you don’t have to worry about taxes by doing it. If you can prove it as a mere recreational activity separate from your income-generating activity, those earnings which go above $400 can still be saved from any tax. But, once your profit exceeds two years in every five years, IRS will already label that hobby of yours as a real business and therefore incurs tax duties.
Another factor is the frequency of doing the activity. If your hobby which provides additional earning for you is done occasionally, then it will not qualify as a business. If you share your products or services and you infrequently get a client, it can be considered as merely a hobby. If, however, there is an obvious advertisement about what you can offer and you do it publicly through social media, for instance, then you’re actually doing business.
You Can’t Always Use Personal Office Expenses as Tax Deductions
Being knowledgeable about which belongings you have at home that you can write off will give you more advantage than simply believing what others say is true. The fact is, not all of your home office expenses as a self-employed person can be written off your taxes.
Those appliances and things used exclusively for your business purposes are the only ones you can include in your tax deductions. That chair you use in your office can also be used during your personal time or when you relax. Only space and things assigned and used solely for business can be included. If space or an appliance is also used for personal benefits, it is already disqualified from any tax write offs.
There are some exemptions like those related to child care provision and inventory purposes.
Most of Your Online Transactions are Taxable
Have you experienced purchasing or selling something online and no tax was attached to your transaction? You might not have known it but most every online financial transaction is taxable.
Some online stores or services might not show the tax charge on your receipt but the truth is they still pay a certain amount of tax related to your purchase. If you are the one selling online, your income may be liable for tax dues so you still have to report your earnings.
Be careful about tax hacks going around especially during tax seasons. They may sound enticing, giving your additional deductions on your tax bill, but be wise enough to do a little research and ask advice from reliable sources. There are actually tax hacks that can give substantial benefits and make your tax payments less burdensome.