Ask a goalgami Expert:Answer

Have a financial question?SUBMIT>


True or false: A hobby can be written off on one’s taxes. Please elaborate


False. Tax write-offs are available for legitimate business expenses and certain other items that Congress wants to encourage people to buy for economic or social reasons or out of political expediency. Whatever your hobby is, chances are it doesn’t serve to make America a better place, no matter how rewarding you may find it. If your hobby is rewarding in a concrete way – if you can make money at it – then it goes from being a hobby to being a business. Then you can deduct the expenses you incur from engaging in it, but here’s the bad news: Whatever money you make, minus those expenses, is taxable. Not every business is run at a profit, of course, and some taxpayers try to tell the Internal Revenue Service that an activity that they lose money on is a business when it really is a hobby.

They may be able to get away with it for a while. The IRS deems an activity to be a business if it has been profitable in at least three of the last five years, with certain exceptions, such as for breeding livestock or race horses. It’s possible to be in business and never show a profit, but for the IRS to decide that your hobby falls into that category, you’ll have to take many detailed steps to persuade it that you’re trying to turn a profit and operating in a businesslike way. One solution if you’d really like the IRS to subsidize your hobby is indeed to make a concerted effort to make money at it. If you like stamp or coin collecting, for instance, try to get good enough at judging value and condition that you can start selling items in your collection for more than you paid for them. You might enjoy it more and come out a few bucks ahead – after taxes.

-Conrad de Aenlle