December 8, 2017
Many people dream of making money pursuing a favorite hobby. By starting a sideline business, you could be eligible for a treasure chest of tax deductions.
Warning: The IRS and the U.S. Tax Court often denies losses if the taxpayers have no written business plans, don’t do any advertising, and keep poor records.
If you follow certain rules, you can deduct the expenses related to your venture, including equipment, advertising, subscriptions and business-related auto costs.
You might even be able to claim a loss that can lower the tax you owe on wages, interest and dividends. Keep in mind, however, that “hobby losses” are a favorite target of the IRS. If the tax agency decides your endeavor is not a legitimate business, your deductions are limited to the income from the activity. At the same time, the IRS knows that it’s not unusual for a business to operate at a loss in the first year or two.
With that background, here are five recommendations to help secure valuable deductions and stay out of hot water, but talk to your tax professional before going ahead: