Best Tax Preparation Services in Lancaster, PA

Tips for Taxpayers Who Make Money From a HobbynMany people enjoy hobbies that are also a source of income. From soap making and pottery to calligraphy and designing jewelry, these activities can be sources of both fun and finances. However, taxpayers who make money from a hobby should know that they must report that income on their tax return.nnGenerally, if someone has a business, they operate the business to make a profit. In contrast, people engage in a hobby for sport or recreation, and not to make a profit.nnTaxpayers should consider the following nine factors when determining whether their activity is a business or a hobby and base their determination on all the facts and circumstances of their activity. No one factor alone is decisive, however, and it is important to consider all of these factors when deciding whether an activity is a business engaged in making a profit.nnWhether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.nWhether the time and effort you put into the activity indicate you intend to make it profitable.nWhether you depend on income from the activity for your livelihood.nWhether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).nWhether you change your methods of operation in an attempt to improve profitability.nWhether you or your advisors have the knowledge needed to carry on the activity as a successful business.nWhether you were successful in making a profit in similar activities in the past.nWhether the activity makes a profit in some years and how much profit it makes.nWhether you can expect to make a future profit from the appreciation of the assets used in the activity.nIf a taxpayer receives income for an activity that they don't carry out to make a profit, the expenses they pay for the activity are considered miscellaneous itemized deductions and cannot be deducted for tax years 2018 through 2025. The taxpayer, however, must still report income they receive on Schedule 1, Form 1040, line 21.nnIf you have any questions about whether your hobby is actually a business in the eyes of the IRS, don't hesitate to call.