Jan 10, 2010

Is your business a real business or is it a hobby? Tax time is near!

It is getting close to tax time and as an artist doing business I have had to learn what it takes to call myself a “business” and not just a hobbyist. When I first started, I had to talk to a taxman and find out exactly what I could deduct. I was happy to find out that my studio and any other room in my house I used such as my office could be listed on my tax form. In addition, I could list my phone bill, electric bill, and any upkeep and improvements to the property. This is just a few of the deductions we as artists can take.
However, you need to be in business and not just a hobbyist. Many artists think they can deduct things and call themselves a business but it is important to know how the IRS determines if you qualify for that status before you start deducting net losses.

Here is what they base a business on.

Is what you are doing just for a little more money or do you depend on the income from your activity for your livelihood? It has to be for your livelihood; otherwise, it will be considered a “hobby.”

You have to run your business like a business; otherwise, it will appear to be a hobby.
Do you spend your time and energy building your business so you will show a profit? A person who spends an hour here and there is not in business!
Are you educated enough to run this business and make it successful. If you are not qualified to do what your business is all about you cannot be successful and therefore you will not make a profit.
When we start, it is hard at first to show any kind of profit, and the IRS knows that, however are your losses normal for the start-up stage of your business.

If we are working, hard at it, we will eventually show a profit but if we never do then we will not be able to be called a “business.”

If things are not working the way you have them now you need to be able and willing to make the necessary changes in order to make things turn around.
Have you made the necessary changes in your operations to improve your profitability?

Have you done anything like this in the past that made a profit? If so, that a point for you!

Has your business made a profit before, if so how much profit did you make? If you never make a profit, you’re not in business.

It is important that you make a profit. That is why be go into business. That is the major way the IRS will determine if you are running a legitimate business or just doing something you love!

No comments:

New Free Pattern Blog

New Free Pattern Blog
Sharon Teal Coray has a new blog offering free patterns! Updated often! Check it out!