There are lots of hobbies that can let you earn some money while enjoying your job such as photography, craft making, writing stories, collecting antique items and even breeding horses. However, if your hobby is your source of income, you should report your income to the Federal tax return to process your tax income. You should clarify and categorize it from being a mere hobby or a starting business already. There are some people who easily gets confused with this issue mainly because the thought of having your hobby while still paying tax income is terrifying. Continue reading
Being a law-abiding citizen, you are required to pay tax income. Whether it’s just a hobby of yours or your planning to start a small business using your hobby, you cannot avoid taxes. To determine on paying taxes for people who earn a living using their hobby, there are some rules that you need to follow and guidelines that you should always keep in mind. And by that, you are now certain that you understand all aspects related to tax income. First, you should be able to differentiate a business from a hobby.
Business vs. Hobby
To identify whether it’s business or a hobby, you should start evaluating yourself by asking a few questions such as, “Do I carry out the hobby in a business-like manner?”, “Do I exert time and effort into this hobby just to gain a profit?”, “Does my income depends on my hobby?”, “Do I adjust methods and techniques to improve the quality of my product?”, “Do I have enough knowledge to carry on this activity properly to have a successful business?”, “Am I successful in the past few months in getting my hobby as my source of income?”
By answering these questions, you should be able to determine if it’s just a hobby or a business already. Tax deduction also involves in hobby expenses because you are given the authority to deduct hobby expenses that are requiredto carry out and finish a product. However, hobbies are not abusiness therefore hobbyists are not entitled to the same tax deduction although they are still required to pay for tax income.
Regardless of what your current job is or your source of salary, it is important that you know how to pay your taxes to keep your business running or your job stable. Tax income is a responsibility of everyone therefore even if you are just making money out of your hobby; you should know too well that you are still required to pay tax income.