Cisco & Co CPA

  • HOME
  • SERVICES
    • ACCOUNTING
    • PERSONAL FINANCIAL PLANNING
    • BUSINESS FINANCIAL PLANNING
    • CHIROPRACTIC ACCOUNTING
  • WHY US
    • STAFF
  • FINANCIAL RESOURCES
    • DOWNLOADABLE FORMS
  • CONTACT US
CONTACT US

Turning Your Hobby Into a Business

Person grooming a dog as a hobby and for business.
Friday, 19 August 2022 / Published in Business

Turning Your Hobby Into a Business

You’ve loved dogs all your life so you decide to start a dog breeding and training business. Turning your hobby into a business can provide tax benefits if you do it right. But it can create a big tax headache if you do it wrong.

One of the main benefits of turning your hobby into a business is deducting all your qualified business expenses, even if it results in a loss. However, if you don’t properly transition your hobby into a business in the eyes of the IRS, you could be waving a red flag that reads, Audit Me! The agency uses several criteria to distinguish whether an activity is a hobby or a business. So why not make your business activity bulletproof! Here is what you need to know:

The business-versus-hobby test

BUSINESS

versus

HOBBY

You have a reasonable expectation of making a profit.

Profit Motive

You may sell occasionally, but making money is not your main goal.

You invest significant personal time and effort. You depend on the resulting income.

Effort and Income

It’s something you do in your free time; you make the bulk of your money elsewhere.

Your expenses are ordinary and necessary to run your business.

Reasonable Expenses

Your expenses are driven by your personal preferences and not strictly necessary.

You have a track record in this industry, and/or a history of making profits.

Background

You don’t have professional training in the field and have rarely or never turned a profit.

You have multiple customers or professional clients.

Customers

You have few customers, mainly relatives and friends.

You keep professional records, including a separate checkbook and balance sheet; you have business cards, stationery and a branded business website.

Professional

You don’t keep strict professional records of your activities; you don’t have a formal business website or business cards.

Honest assessment

As you can see, there is a degree of interpretation involved in reviewing any activity. So, if your dog breeding business (or any other activity) falls under any of the hobby categories on the right side of the chart, consider what you can do to meet the business-like criteria on the left side. The more your activity resembles the left side, the less likely you are to be challenged by the IRS. And to remove any doubt, your best defense is making some money!

What you can read next

final notice bill
Tips on Monitoring Your Accounts Receivable
Man handing out cash
New Overtime Rule May Mean More of Your Employees Qualify For Overtime Pay
Hand holding credit card
Keep Your Business Safe With Internal Controls

Recent Posts

  • Person giving an online business review.

    Handling Negative Online Reviews of Your Business

    Here are some ideas on handling those pesky onl...
  • Graduation cap sitting on a pile of money.

    Student Loan Forgiveness Q&A

    While there may be legal and Congressional chal...
  • Person sitting on the floor holding a calculator paying their bills.

    Taming Monthly Bill Creep

    Paying bills is inevitable, but paying too much...
  • A social security card laying on a pile of money.

    Tips to Protect Your Social Security Number

    Very few things in life can create a higher deg...
  • Electric vehicle charging

    New Electric Vehicle and Other Energy Credits

    Tax incentives for purchasing clean (electric) ...

Categories

  • Announcements
  • Business
  • Financial Planning
  • Personal
  • Retirement Plans
  • Tax Tips & Information
  • Uncategorized
  • Wealth Management

Schedule your 1-to-1 financial planning consultation today!

Visit our Office

Get Directions

Speak with a Staff Member

419.629.3494

Contact Us

Send A Message
Cisco & Co CPA

Mark J. Cisco & Co, Ltd.

419.629.3494

419.629.2444

Hours:

  • Monday: 8:30AM - 4:30PM
  • Tuesday: 8:30AM - 4:30PM
  • Wednesday: 8:30AM - 4:30PM
  • Thursday: 8:30AM - 4:30PM
  • Friday: 8:30AM - 4:30PM
  • Saturday: CLOSED
  • Sunday: CLOSED

5030 State Route 66
New Bremen, OH 45869

PO Box 114
New Bremen, OH 45869

  • HOME
  • SERVICES
  • WHY US
  • FINANCIAL RESOURCES
  • CONTACT US

PAYROLL PORTAL

SIGN IN

FOLLOW US!

Copyright © 2021 Mark J. Cisco & Co, Ltd.   |  Website design by Marketing Essentials, LLC   |   Privacy Policy | Site Map

TOP