A lot of people consider turning a favorite hobby into a money-making operation. And you could be eligible for some tax deductions by starting a Maine-based sideline business.
Some expense deductions that could be possible include equipment, advertising, subscriptions and business-related auto costs.
It may even be possible to claim a loss that can lower the tax you owe on wages, interest and dividends. It’s important to remember, however, that “hobby losses” are a favorite target of the IRS. If they decide your new small business is not a legitimate endeavor, your deductions are limited to the income from the activity. At the same time, the IRS knows that very often a business operates at a loss for the first year or two.
With that in mind, here are five recommendations to help secure valuable deductions and stay within IRS guidelines, but talk Filler & Associates before going ahead:
Investigate. Look extensively into accepted business practices in the industry. You may need training, and remember to keep copies of any studies or expert opinions that you find.
Keep separate accounts. Don’t combine your personal and professional money.
Operate professionally. Get business cards, stationery, a business telephone listing and advertise. Save receipts and document business expenses and the hours you spend on the venture.
Draw a business plan. Make the plan for five or ten years, and include income and expenses, as well as expected profit.
Show a profit. The IRS usually leaves businesses alone if they show a profit in three out of five consecutive years.Timing is crucial so consider moving deductions and delaying business income so you can show a loss one year and a small profit the next.