Happy Roo by Meg Lyman
Happy March! This kangaroo is smiling because it is sunny and 70 degrees here, and I’m about to go play soccer. I love the south!
I want to answer some questions asked in my last post about taxes - but I need a disclaimer. I am no expert. I don’t know a Form 1120 from an abacus. Please do not take these tips as law. My best advice: talk to an accountant.
That said, here’s what I learned about hobbies this week:
- As far as I can tell, there’s no maximum you can earn as a hobbyist before the IRS takes notice. You can offset your hobby gains with hobby losses. The catch: the losses (expenses) have to be at least 2% of your adjusted gross income before you can deduct them. So you have to spend a lot and make a lot on your hobby for that to work in your favor.
- I’m not sure about years of consecutive loss, but a legitimate business (in the all-seeing eyes of the IRS) will show a profit in at least 3 of the last 5 years. There are exceptions to this (me, for example, since I’ve only been doing it officially for one year) - you have to pass a type of “legitimate business test,” witch factors in things like reasonable attempts to make profit, how much time you spend on it, and if you rely on it for your livelihood. Go here for some great advice.
- Confused yet? I am. See above advice about an accountant.
- How is it that smart, educated people have trouble figuring this stuff out? I think they make it hard on purpose. Makes me want Fair Tax even more.
You have now completely exhausted my knowledge of art and taxes. If you have any further advice, let us all know!