Deducting Hobby Expenses: Think Business
Hobbies are a great way to spend the other eight hours, but they are terrible from a tax perspective. Why? You are not allowed to deduct hobby expenses for tax purposes. This makes sense. If you could deduct hobby expenses, almost everything would be deductible -- trips to the zoo, your subscription to
Hobby expenses are not deductible, but if you can turn your photography hobby into a legitimate business, you can deduct the zoo tickets, magazine subscription, camera and much more. Let's take this slow, because you don't want to take deductions for which you do not qualify.
Three rules for deducting expenses:
1. Expenses must be for a trade or business. OK, but what makes something a trade or business? The
-- Does the time and effort put into the activity indicate an intention to make a profit?
-- Do you depend on income from the activity?
-- If there are losses, are they due to circumstances beyond your control, or did they occur in the start-up phase of the business?
-- Do you have the knowledge needed to carry on the activity as a successful business?
-- Have you made a profit in similar activities in the past?
-- Does the activity make a profit in some years?
2. Expenses must be ordinary for conducting business. This means the expense is common and accepted in your particular trade or business.
3. Expenses must be necessary for conducting business. A necessary expense is one that is appropriate for the business.
How does this work in the real world? If your passion is photography, why not turn what you love into a business? Could you make money -- scratch that -- could you make a profit from your passion? Of course you could.
I was at the
A few disclaimers and words of caution. I am not a CPA. Talk to your professional tax advisor regarding your own situation. Don't deduct expenses that are not legitimate -- the U.S. deficit doesn't need tax cheats. Keep detailed records. Read more about hobby and business expenses from the
Personal Finance - Deducting Hobby Expenses: Think Business
(c) 2010 Robert Pagliarini. Your Other 8 Hours