Am I a professional?

Started Sep 11, 2007 | Discussions thread
digital4dummies.com
digital4dummies.com Senior Member • Posts: 2,218
Re: Am I a professional?

Joe Ellis wrote:

I sold one photo this year. Does this qualify me as a "pro" for tax
purposes?

In general, the IRS uses the following 9-Point Test to determine if your activity is a business or a hobby:

1. The manner in which the activity is conducted
2. The expertise of the taxpayer
3. The time expended on the activity
4. The expectation of profit
5. The success in other similar or dissimilar activities
6. The history of income and losses
7. The amount of “occasional” profits
8. The financial status of the taxpayer
9. How personal pleasure or recreation contribute to the business

If you intended to make a profit and a tax professional (and the IRS) concurs that your activity is a business, you can claim all your applicable business expenses. If your business expenses exceed your income for the tax year, you can claim a loss for the year, up to the amount of your taxable income from other activities. Any remaining losses may be carried over into other years.

If your tax professional (or the IRS at a later date) believes that your business never intended to make a profit your activity will be classified as a “hobby” and your losses will be limited to the amount of income generated by the activity.

“Hobby Income” is reported as "other income" on your Form 1040, Individual Income Tax Return. “Hobby Expenses” are only deductible if you itemize deductions on your tax return. They are considered "miscellaneous itemized deductions" and you may only deduct the portion of them that, along with any other miscellaneous deductions, exceeds 2 percent of your adjusted gross income.

Depending on your particular tax circumstances this can result in all income form the hobby being taxable income with no offsetting deduction for hobby expenses.

Dave

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