Do you have a hobby or a business? While downloading reference guides from the IRS website I came across this list and thought you would definitely benefit from knowing this information. I’m sure that you are wondering how would I know that? Well, after many conversations with small and mid-sized business owners, I’ve came across several who wanted to set up their hobby as a business even though their “business” wouldn’t pass the test.
Thankfully, they took my advice and sought the help of a tax accountant.
Here’s a list:
Whether the activity is carried out in a businesslike manner, and you maintain complete and accurate books and records.
Whether the time and effort you put into the activity show that you intend to make it profitable.
Whether you depend on income from the activity for your livelihood.
Whether any losses are due to circumstances beyond your control are normal for the startup phase of that type of business.
Whether you change methods of operation to improve profitability.
Whether you and your advisors have the knowledge needed to carry out the activity as a successful business.
Whether you were successful in making a profit in similar activities in the past.
Whether the activity makes a profit in some years and how much profit it makes.
Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
My advice for you is to seek the help of a Tax Accountant or an Enrolled Agent before tax season, so both of you may create a plan for your tax situation.