Convert Your Personal Expenditures Into Allowable (Legal) Tax Deductions
One of the most often overlooked ways of sheltering income is to turn that favorite hobby of yours into an income producing business, preferably set up as a Corporation.
Once this is completed, you can begin to turn some of your personal expenses into business expenses.
These business expenses will all be tax deductible.
Think about this; setting up a business allows you to earn an income (or second income), and then write off all your expenses.
That sounds like a win-win to me.
If you are converting your hobby into a business, then you need to look at the following: SmallBizKickstarter.com/Business-Or-Hobby-IRS-View
The best way to reduce your taxes and have some fun along the way is to convert your personal expenditures into allowable deductions.
Turn yourself into a business owner and cut your taxes.
We recommend a Corporate Entity for reasons explained below; however, you may operate as a Sole Proprietor under a DBA (Doing Business As).
You must show You Have “A Profit Motive”
Referring to IRS.GOV: Business Income Expenses
QuestionHow do you distinguish between a business and a hobby?AnswerIn making the distinction between a hobby or business activity, take into account all facts and circumstances with respect to the activity. No one factor alone is decisive. You must generally consider these factors in determining whether an activity is a business engaged in making a profit:Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
Whether the time and effort you put into the activity indicate you intend to make it profitable.
Whether you depend on income from the activity for your livelihood.
Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
Whether you change your methods of operation in an attempt to improve profitability.
Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
Whether you were successful in making a profit in similar activities in the past.
Whether the activity makes a profit in some years and how much profit it makes.
Whether y ou can expect to make a future profit from the appreciation of the assets used in the activity.You may find more information on this topic in section 1.183-2 (b) of the Federal Tax Regulations.Additional Information Publication 535, Business ExpensesPublication 17, Your Federal Income Tax for IndividualsCategorySmall Business, Self-Employed, Other BusinessSub-CategoryIncome & Expenses
Here is the secret that you must keep in mind when dealing with the IRS:
They use algorithms that are keyed with “Red Flags” that will trip if you are outside the envelope that they operate under.
Be aware, these algorithms change from time to time, so it pays to keep up with the changes.
At present, they focus on the Sole Proprietor Businesses as opposed to the Corporate Entities.
This is why we recommend incorporation, and an LLC will work fine for this purpose.
Your business doesn’t have to make a profit for your expenses to be deductible. But you must establish a “profit motive.”
Under the Internal Revenue Code, a “profit motive” is presumed if you earn any net income in any three out of five business years.
The IRS recognizes that a new business probably won’t make a profit in the first few years.
In fact, in the early years, you can insist that the IRS defer any challenge for the first five years as to the legitimacy of your business by filing Form 5213.
Are you paying more taxes than you want to?
Chances are the answer is a resounding YES!!!
Then why not set up your own Small Business?
Need Some help?
Our Small Business Kickstarter can help you – That’s what we do!!!
NEED STARTUP FUNDING? THEN GO HERE: Business Startup Funding
