Oakland, California (EastBayDaily) — Many Americans with full-time jobs engage in creative pursuits that may be lucrative financially or may turn a profit in future years. How does making jewelry or crafts in spare time affect a total tax filing picture? Before preparing taxes this year, consider Oakland tax preparation company, Liberty Tax Service’s tips to understand the difference between a hobby enthusiast and a small-business owner.
When it comes to the IRS, it’s all about intent to be profitable and actually making money. The IRS criteria for determining if an activity is for-profit includes three considerations:
1) Time and effort to make the activity profitable
2) Dependency on generated income
3) Success in the venture
Hobby income is best defined as a not-for-profit income, and losses cannot offset other sources of income. Some expense items may be claimed as miscellaneous expenses. Serious and prosperous artisans making money can offset expenses and generally file a Schedule C or Schedule C-EZ to declare gross receipts and claim expenses. Allowable tax deductible expenses could include the costs of materials, entry fees for shows, classes or instruction, advertising, mileage, and possibly a deduction for a home office or studio.
Keeping thorough records is important for those with hobbies that may become businesses. Those starting an activity that may become profitable can elect to file Form 5213, Election to Postpone Determination as to Whether the Presumption Applies That an Activity is Engaged in for Profit. This form delays the determination of profitability for five to seven years.
“Self-employment and filing a Schedule C is a subject covered in Liberty’s tax courses,” Malkeet Singh of Liberty Tax Service said.
Enrollment is underway for basic tax classes at Liberty Tax locations across the nation. Instructors cover all schedules, credits and forms that can be filed with an individual tax return.
For more information on Liberty Tax Service in Oakland, call 510-239-5284, view the service on the web at http://www.libertytax.com or visit 3207 Grand Ave. in Oakland.
About Liberty Tax Service
Liberty Tax Service is the fastest growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of industry experience, Hewitt stands as the most experienced CEO in the tax preparation business.
Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks number one of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax. Oakland’s tax school at Liberty Tax Service also provides tax planning and tax courses.