And How if Effects your Taxes
If you are one of the many who has geared your talents towards an activity that takes extensive time and effort, then sometimes you will sell the products of your dedicated time. Does this mean that you are running a small business?
No, this is still considered a hobby. The intention is not to make money, but for personal enjoyment. You spent a lot of time creating something, because you genuinely enjoy it, not because it will help you to make money and improve your living situation.
We acknowledge that sometimes the line between a small business and a hobby are very thin. How can you tell the difference?
The biggest difference is profitability. If you are investing in an activity specifically to make a profit and actively keeping record of how much is spent on materials or services, then your hobby is actually a business. If you are still not certain whether you have a hobby or a business the IRS has a list of considerations that you should ask yourself to determine whether you have a hobby or a business when deciding what to report for income on your tax return.
If you have determined that your hobby does qualify as a business, you will report your income on Schedule C. If it is a hobby then you will report your income on Line 21 of Schedule 1 on Form 1040. Because of the Tax Cuts and Jobs Acts which eliminated miscellaneous itemized deductions, you will receive no tax benefit from your hobby expenses.
If you need help determining whether the income is from a hobby or business, we encourage you to ask a tax professional. At Private Tax Solutions we can assist you in determining the right amount of income to report. Call us today at 844-774-8829, to schedule a free consultation with one of our tax professionals.