If you were to claim income deductions for expenses associated with designing furniture for your parents’ large group of wealthy friends from an office in your home, what would the IRS likely decide (hobby or profession)?
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August 15, 2017If you had the opportunity to conduct a study, what would you want to study? What would you hope to find that could help you personally or professionally? Be specific.
August 15, 2017If you were to claim income deductions for expenses associated with designing furniture for your parents’ large group of wealthy friends from an office in your home, what would the IRS likely decide (hobby or profession)?
The IRS has a list of factors that it examines when taxpayers file certain income deductions and claim a œhobby loss. This will trigger the IRS to examine whether a person can legitimately deduct certain expenses related to pursuing an art-related business. If the business is deemed instead to be a œhobby, then the losses that may be claimed are limited: A hobbyist in any field may deduct hobby expenses only up to the amount of income produced by the hobby. Some of the factors the IRS looks at to determine if the activity is a hobby or a legitimate profession are: 1. Manner in which the taxpayer carries on the activity “ does he/she keep accurate records of business activities, including receipts, invoices, etc? 2. The expertise of the taxpayer or his advisors: study, education, experience, use of professional equipment, etc. 3. The time and effort spent by the taxpayer on the activity. 4. Success of taxpayer in carrying out previous similar or dissimilar activities. E.g., previous successful employment, sales of artwork, commissions 5. Taxpayer’s history of income or losses regarding the activity in question. Successive annual increases in income are a strong indicator. 6. Amount of occasional profits, if any, that have been earned. Profits can be weighed against expenses. 7. The financial status of the taxpayer. An independently wealthy taxpayer is seen as having a lower profit motive than a taxpayer with fewer financial resources. 8. Elements of personal pleasure or recreation. Do the activities claimed (such as travel, throwing gallery parties, etc) relate directly to the activity as an occupation, or are they more indicative of a hobby? Please discuss: If you were to claim income deductions for expenses associated with designing furniture for your parents’ large group of wealthy friends from an office in your home, what would the IRS likely decide (hobby or profession), based on the factors listed above? What if you had a year or two where you were working on your own designs, but had no customers? You are welcome to do a little Internet research on the concept of œhobby loss before posting your answer, but it is not required. This topic is not meant to be tricky or difficult.
