Hobby or Business? IRS Offers Tips To Decide

Millions of people enjoy hobbies that are also a source of income. From catering to cupcake baking, crafting homemade jewelry to glass blowing — no matter what a person’s passion, the Internal Revenue Service offers some tips on hobbies.

Taxpayers must report on their tax return the income earned from hobbies. The rules for how to report the income and expenses depend on whether the activity is a hobby or a business. There are special rules and limits for deductions taxpayers can claim for hobbies.

Here are five IRS tax tips to consider.

1. Is it a Business or a Hobby? A key feature of a business is that people do it to make a profit. People engage in a hobby for sport or recreation, not to make a profit. Consider nine factors when determining whether an activity is a hobby. Make sure to base the determination on all the facts and circumstances. For more about ‘not-for-profit’ rules, see IRS Publication 535, Business Expenses.

2. Allowable Hobby Deductions. Within certain limits, taxpayers can usually deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is appropriate for the activity.

3. Limits on Hobby Expenses. Generally, taxpayers can only deduct hobby expenses up to the amount of hobby income. If hobby expenses are more than income, taxpayers have a loss from the activity. However, a hobby loss can’t be deducted from other income.

4. How to Deduct Hobby Expenses. Taxpayers must itemize deductions on their tax return to deduct hobby expenses. Expenses may fall into three types of deductions, and special rules apply to each type. See IRS Publication 535 for the rules about how to claim these on Schedule A, Itemized Deductions.

Source: IRS Small Business Week Tax Tip 2017-04

If you have questions about starting, growing, protecting, understanding business taxes, or selling your small business, please contact us. As a CPA, Certified Business Advisor, Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners and provide tax, accounting, financial analysis, business planning, and small business advisory services. For more information, call (727) 391-7373 or else visit us on the web at http://www.LindaStortzCPA.com.

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IRS Promotes Specialized Online Services During Small Business Week

National Small Business Week for 2017 runs from Sunday, April 30 through Saturday, May 6. During this time, the Internal Revenue Service will promote many online products to help small business owners and those who are self-employed understand their tax responsibilities.

Here are just a few among dozens of useful IRS products in the spotlight for this year’s National Small Business Week that can be found at http://www.irs.gov:

1. Sharing Economy Tax Center. This special webpage provides fast answers to tax questions, as well as links and forms for the sharing economy. People who use one of the many online platforms to engage in this type of business, such as renting a spare bedroom, providing car rides or providing many other goods or services, are involved in the sharing economy. Topics include filing requirements, rules for home rentals and business expenses.

2. Self-Employed Individuals Tax Center. Taxpayers will find the Self-Employed Individuals Tax Center to be a great resource for sole proprietors and others who are in business for themselves. This site has many handy tips and references to tax rules a self-employed person may need to know. In addition to many other subjects, taxpayers will find information on:

• How to Make Quarterly Payments.
• Requirements for Information Returns.
• How to File an Annual Return.
• Business Structures.
• Qualified Joint Ventures

3. Small Business and Self-Employed Tax Center. This online information center features links to a wealth of useful tools, including Small Business Taxes: The Virtual Workshop and common IRS forms with instructions. Find help on everything from how to get an Employer Identification Number online to how to engage with the IRS during an audit. The IRS Tax Calendar for businesses and Self-Employed is a convenient, at-a-glance resource designed to show key tax dates for businesses.

For more information about how these IRS products relate to your business, please call our office today.

Source: Small Business Week Tax Tip 2017-01 http://www.irs.gov

If you have questions about starting, growing, protecting, understanding business taxes, or selling your small business, please contact us. As a CPA, Certified Business Advisor, Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners and provide tax, accounting, financial analysis, business planning, and small business advisory services. For more information, call (727) 391-7373 or else visit us on the web at http://www.LindaStortzCPA.com.

Year-End Business Tax Tip: Small Employer Health Insurance Credit

Eligible small employers may be entitled to a tax credit of ranging from 35% to 50% of their contribution toward employee health coverage. This credit is available for two consecutive tax years. An eligible small employer must have:

1. No more than 25 full-time equivalent employees during its tax year.

2. Employees who have average annual wages of no more than $51,800 for 2016.

3. A qualifying arrangement in effect that requires the employer to contribute at least 50% of the health insurance premiums.

Tax-exempt organizations may also qualify for the credit. The credit is refundable for tax-exempt employees but is limited to the amount of the tax-exempt employer’s payroll taxes withheld during the calendar year in which the taxable year begins. The credit for tax-exempt organizations can range from 25% to 35% of employer contributions.

This tax credit must be calculated annually on Form 8941, Credit For Small Employer Health Insurance Premiums, and must be attached to the business tax return.

For more information, please call our office today.

If you have questions about starting, growing, protecting, reducing business taxes, or selling your small business, please contact us. As a CPA, Certified Business Advisor, Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners just like you and provide tax, accounting, financial analysis, management, business planning, and small business advisory services. We can advise you on how to start, manage, grow, and terminate a small business. For more information, call (727) 391-7373 or else visit us on the web at http://www.LindaStortzCPA.com.

October Is National Women’s Small Business Month

This month we are celebrating National Women’s Small Business Month. Did you know that according to a study done by American Express, an estimated 1,200 new businesses a day were started by women over the past year, up from an average of 740 a day the year prior. Four out of 10 new firms are now started by women.

Here are the statistics of women-owned businesses in the United States:

1. More than 9.4 million firms are owned by women, employing nearly 7.9 million people, and generating $1.5 trillion in sales as of 2015.

2. Women-owned firms (51% or more) account for 31% of all privately held firms and contribute 14% of employment and 12% of revenues.

3. Over the past seven years, the overall increase of 8.3 million (net) new jobs is comprised of a 9.2 million increase in employment in large, publicly traded corporations, combined with a 893,000 decline in employment among smaller, privately held companies.

4. 2.9 million firms are majority-owned by women of color in the U.S. These firms employ 1.4 million people and generate $226 billion in revenues annually.

5. One in five firms with revenue of $1 million or more is woman-owned. 4.2% of all women-owned firms have revenues of 1 million or more.

Between 2007 and 2016, the greatest increase in the number of women-owned firms has generally been in more traditional industry sectors, perhaps indicating some degree of regrouping in the wake of the recession – particularly among the minority women-owned firms which have comprised the vast majority (79%) of the firms launched over the past nine years. This trend is expected to continue.

Let’s celebrate with these women-owned small businesses that are leading the way!

Statistics from Womenable report commissioned by American Express “OPEN State of Women-Owned Businesses 2015.” Retrieved from https://nawbo.org/resources/women-business-owner-statistics

If you have questions about starting, growing, or selling your small business, please contact us. As a CPA, Certified Business Advisor, Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners just like you and provide tax, accounting, financial analysis, management, business planning, and small business advisory services. We can advise you on how to start, manage, grow, and terminate a small business. For more information, call (727) 391-7373 or else visit us on the web at http://www.LindaStortzCPA.com.

Have You Tried EMail Marketing To Promote Your Business?

emailmarketingEmail marketing is just one of many ways to engage customers and ultimately lead them to purchase a product or service. Building and maintaining a healthy email list is important in learning more about your customer base and how they respond to your business, as well as generating potential new business. If your business has not explored nor maximized the possibilities of email marketing, you should learn more about how to leverage your existing and future contacts. If you are a small business owner looking to try a different tactic or introduce something new, why not use a change in season to test new ideas.

Get Permission
First, your email marketing campaign or listserv should have the option to opt-out of emails. Subscribers may have their reason for removal from your list and to capture their explanation, add a comment section before they officially remove themselves. By having permission to be in the electronic inboxes of your customers, you can better target content and offerings to be the people who want to remain on your list. If you want to incentivize your email list or a special campaign, consider adding a discount code, flash sale or customer appreciation message.

Test And Then Test Again
Once you focus on the subscribers who remain on your list, regardless of how many subscribers, there is an opportunity to experiment with different type of sales copy, promotions, visuals, etc. A simple way to test subject lines or a specific merchandise is to test a call-to-action, time of day, or even the email’s layout. Send two emails to similar groups within your email list but hold a variable for testing. Make sure to have predetermined goals and review the analytics of open and click through rates of hyperlinks, especially those tied to your website.

Incorporate Seasonal Trends
If weather or the time of year affects your sales or potential new business, tailor email marketing accordingly. For example, if you manage a summer camp for teens, then you may target different groups to include school staff, parents, and community officials to inform them of your offerings, cost and availability. A common example of seasonal emails is small businesses and big brands using holidays like Thanksgiving and Valentine’s Day to generate sales and customer interest about their products and store specials.

Integrate EMail Marketing As Part Of An Entire Plan
A small business may not have a lot of marketing resources but to maximize your efforts, it’s important that email marketing and subsequent campaigns are connected to other business goals and marketing objectives. Think about social media, advertising, events, SEO, and other strategies that can work in tandem with your email marketing.

Email marketing can have many layers and may require knowledgeable staff or additional resources. Starting with the basics can help small businesses take advantage being present in their customers’ inboxes. Don’t lose sight of the chance to engage them, delight them and to make a sale.

Source:
Nwatu, I. (2016) E-Mail Marketing Basics For Small Business. Retrieved from https://www.sba.gov/blogs/email-marketing-basics-small-business

If you have questions about starting, growing, or selling your small business, please contact us. As a CPA, Accredited Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners just like you and provide tax, accounting, financial analysis, management, business planning, and small business advisory services. We can help you to start, manage, and grow a successful small business. For more information, call (727) 391-7373 or else visit us on the web at http://www.LStortzCPA.com.

Part-Time Hobby or a Business?

openforbusinessAre you interested in pursuing your favorite hobby as a business? You should know that if the IRS views your activity as a hobby rather than as a business, your tax deductions for business-type expenses are subject to certain limitations.

To qualify as a hobby, an activity must be conducted for the primary purpose of earning a profit. Factors considered by the IRS to determine hobby or business are:

1. Your experience.

2. The time and effort put into the activity.

3. Your history of income/loss with respect to the activity.

4. The presence of personal pleasure or recreation.

5. The existence of a written business plan.

Generally, the IRS assumes that an activity qualifies as a business if it shows a profit for three out of the last five years.

If your business is considered to be a hobby, your deduction for hobby expenses cannot exceed the activity’s gross income, and the hobby expenses will be deductible only to the extend that they (when combined with your other expenses) exceed 2% of your adjusted gross income.

If you have questions about whether your business could be considered to be a hobby, please contact us. As a CPA, Accredited Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners just like you and provide tax, accounting, financial analysis, management, business planning, and small business advisory services. We can help you to start, manage, and grow a successful small business. For more information, call (727) 391-7373 or else visit us on the web at http://www.LStortzCPA.com.

Five Facts About The Small Business Health Care Credit

smallbizhealthcreditIf you are a small employer, there is a tax credit that may help to put money back into your pocket.

The Small Business Health Care Credit benefits employers that:

1. Offer coverage through the small business health options program, also known as the SHOP marketplace.

2. Have fewer than 25 full-time equivalent employees.

3. Pay an average wage of less than $50,000 a year.

4. Pay at least half of employee health insurance premiums.

Here are five facts about the Small Business Health Care Credit.

1. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers.

2. To be eligible for the credit, you must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program Marketplace, or qualify for an exception to this requirement.

3. The credit is available to eligible employers for two consecutive taxable years beginning in 2014 or later. You may be able to amend prior year tax returns to claim the credit for tax years 2010 through 2013 in addition to claiming this credit for those two consecutive years.

4. You can carry the credit back or forward to other tax years if you do not owe tax during the year.

5. You may get both a credit and a deduction for employee premium payments. Since the amount of your health insurance premium payments will be more than the total credit, if you are eligible, you can still claim a business expense deduction for the premiums in excess of the credit.

If you need help in understanding if this credit can be utilized by your small business, please contact us. As a CPA, Accredited Small Business Consultant, and Advanced Certified QuickBooks ProAdvisor, we specialize in working with small business owners just like you and provide tax, accounting, financial analysis, management, business planning, and small business advisory services. We can help you to start, manage, and grow a successful small business. For more information, call (727) 391-7373 or else visit us on the web at http://www.LStortzCPA.com.