You’ve loved dogs all your life so you decide to start a dog breeding and training business. Turning your hobby into a business can provide tax benefits if you do it right. But it can create a big tax headache if you do it wrong.
One of the main benefits of turning your hobby into a business is deducting all your qualified business expenses, even if it results in a loss. However, if you don’t properly transition your hobby into a business in the eyes of the IRS, you could be waving a red flag that reads, Audit Me! The agency uses several criteria to distinguish whether an activity is a hobby or a business. So why not make your business activity bullet proof! Here is what you need to know:
The business-versus -hobby test
As you can see, there is a degree of interpretation involved in reviewing any activity. So, if your dog breeding business (or any other activity) falls under any of the hobby categories on the right side of the chart, consider what you can do to meet the business-like criteria on the left side. The more your activity resembles the left side, the less likely you are to be challenged by the IRS. And to remove any doubt, your best defense is making some money!
Join our Brews and Bookkeeping Event!
Need help keeping professional records or a balance sheet? Perhaps you even thought, “What the heck is a balance sheet?” If you want these questions answered and more, join us after work for the Brews and Bookkeeping event at the Ripple Space on August 17, 2022 at 5:30 p.m. where we will explore the case study of Zak and Lisa Cate as they journey from turning Zak’s passion for home brewing into a small business. Did the mention of beer get your mouth watering? Well, we’ll have some for our attendees thanks to Little Hop Brewing!