Posts Tagged ‘Chandler Tax Service’

What is a Hobby a Business?

The IRS defines a hobby as an activity you pursue without expecting to make a taxable profit, you do it because you like doing it.  Be aware, however, when your hobby produces income, you owe tax on it.  You can reduce your taxable hobby income by deducting your hobby expenses, but this tax break is very limited.

If  you can demonstrate that you are involved in an activity with the expectation of making money on it, the IRS will consider it a business.

When does the IRS consider an enterprise as a business? The IRS will look at a lot of things such as:

  • Did you earn money or is it in the startup phase?
  • Did you have a profit for three of the five years?
  • Did you carry on the activity in a businesslike manner. This includes, for example, having business bank account, keeping good books and records, promoting your business and holding down costs where possible?
  • How much time and effort did you devote to the enterprise?
  • Do you depend on income from the activity for your livelihood?
  • If your losses are due to circumstances beyond your control or are normal for a business in its startup phase.
  • Whether you change your methods of operation in an attempt to improve profitability.
  • The knowledge and background you (or your advisers) have in running such a business.
  • If you were successful in making a profit in similar activities in the past.
  • Whether the activity makes a profit in some years and, if so, how much.
  • Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
  • The element of personal pleasure involved in the activity. That doesn’t mean you can’t enjoy your new business, but you better be getting more out of it than just a good time.

The IRS says all the facts are taken into account and no one factor alone is decisive.

Six Year-End Tips to Reduce IncomeTaxes

You usually need to take action no later than Dec. 31 in order to claim certain tax benefits. Here are six tax-saving tips for you to consider before the calendar turns:

Income Tax Preparation Service

1. Make Charitable Contributions – If you itemize deductions, your donations must be made to qualified charities no later than Dec. 31 to be deductible. You must have a canceled check, a bank statement, credit card statement or a written statement from the charity, showing the name of the charity and the date and amount of the contribution for all cash donations. Donations charged to a credit card by Dec. 31 are deductible, even if the bill isn’t paid until later year. If you donate clothing or household items, they must be in good used condition or better to be eductible.

2. Install Energy-Efficient Home Improvements –   Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. The credit equals 30 percent of the cost of qualifying solar, wind, geothermal, or heat pump property.

3. Consider a Portfolio Adjustment – Check your investments for gains and losses and consider sales by Dec. 31. You may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. If your net capital losses are more than $3,000, the excess can be carried forward and deducted in future years.

4. Contribute the Maximum to Retirement Accounts – Elective deferrals you make to employer-sponsored 401(k) plans or similar workplace retirement programs must be made by Dec. 31. However, you have until April 15, of the next year, to set up a new IRA or add money to an existing IRA. You normally can contribute up to $5,000 to a traditional or Roth IRA, and up to $6,000 if age 50 or over.

5. Make a Qualified Charitable Distribution – If you are age 70½ or over, the qualified charitable distribution (QCD) allows you to make a distribution paid directly from your individual retirement account to a qualified charity, and exclude the amount from gross income. The maximum annual exclusion for QCDs is $100,000. The excluded amount can be used to satisfy any required minimum distributions that the individual must otherwise receive from their IRA’s. This benefit is available even if you do not itemize deductions.

6. Don’t Overlook the Small Business Health Care Tax Credit – If you are a small employer who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35 percent of the premiums paid. An employer with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify. For more information see the Small Business Health Care Tax Credit page on