Want a tax break? Transform your hobby into a business
It’s safe to say, most of us dream of transforming our passions into a career. Whether it’s freelance writing, crafting, coaching, or whatever else you enjoy doing- there’s honestly no better feeling than being paid for doing something you love.
What about the IRS?
As great as this is, you need to be prepared to face the IRS. Obviously, all the money you make from your hobbies contributes to your taxable income.
Before 2018, if your hobby cost you money you could enjoy a legitimate tax break. Whereas, now the only way to enjoy a similar benefit is to transform your hobby into a side hustle.
Make the most of your tax situation
When you turn your hobby into a business, you can claim any expenses and losses under ‘Schedule C’ of the tax form. This helps to calculate the net taxable income for both sole proprietors and independent contractors.
You can even deduct a section of your rent/mortgage and utility payments if you primarily run your business from your home. In addition to this, you can also offset some of your travel expenses. That means money for gas and other costs associated with the maintenance of your vehicle.
Shift your mindset
For your hobby to qualify as a business, you’ll need to generate a profit. Alternatively, you’ll have to pass the IRS’s “factors and circumstances” test. This means, if you haven’t turned a profit yet never fear, you just need to show you’re conducting yourself as a business.
For example, paying taxes like social security and Medicare on all the income your hobby’s generating. This shouldn’t set you back too much because the IRS permits you to claim half this sum back as part of your tax return. This is one example of many financial records you need to keep track of.