Hobby or Business?

If you make money in any way outside of your “regular” job, the IRS probably knows about it. And, if it doesn’t, it wants to and eventually will. That’s because the IRS wants to tax every cent you make.

However, it’s important to understand that not all enterprises count as a “business” for IRS purposes. Some do and will allow you to take business deductions. Then, you have others that count merely as hobbies and don’t allow for deductions. Obviously, for tax purposes, it’s important to understand the difference.    

Is it a Hobby?

If you make money from a hobby, you have to report it to the IRS. However, whether you report it as a business or a hobby all comes down to expectation. If you expect to make money from your hobby, then it’s a business. If you’re just doing it for fun, however, and profit is just a “maybe” thing, it’s a hobby.

While classifying your extra or side work as a hobby may seem less intimidating come tax time, it actually doesn’t work in your favor. That’s because you can’t deduct any of the expenses related to it.

Is it a Business?

As mentioned, if you can reasonably expect to earn a profit from what you do, even if it’s “on the side,” you can count it as a business.

Of course, you should appear as operating a legitimate business to the IRS. This means keeping detailed financial records, ideally ones that are separate from your personal records, having verifiable skills or credentials that increase your likelihood of success in your chosen area, and depending, at least in part, on the income you make from your business for your survival.

Contact A Tax Professional

Whether you think you’re operating a business or just engaging in a hobby, you really should consult a tax professional for help.

If it’s a hobby, then you’re going to need to find other ways to lower your tax liability since you can’t take deductions.

And, if it’s a business, then you need to be able to take advantage of all of the legal deductions you can to save.

Either way, if you’re earning money from something outside of your regular 9 to 5, don’t handle your taxes on your own. It’s just not smart.

Phishing on Tax Professionals

There’s a new phishing scam going around, and this time it’s targeting tax professionals.

How this dangerous scam works is that a scammer pretends to be affiliated with a state accounting association. The scammer then emails the tax professional, trying to get that person to disclose his username and password. Usually, the scammer provides a link where the person can “sign in,” but really, the victim will, in actuality, be providing private and sensitive information to a scammer.     

Protecting Yourself

To keep yourself from falling victim to a scammer, be aware of the latest scams, such as this one. Keeping up with the news, like you’re doing right now, and educating yourself is the first step in self-protection.

Also, if you do get an email like the one described above, do not click on the link, do not open any attachments, and do not reply. Instead, report the matter to the IRS by forwarding the email to phishing@irs.gov.

If you’d like to check to see if the email was legitimate, you can always email the actual professional organization you are a part of. In fact, it is a good idea to let that organization know it is being used as part of the scam.

Other steps you can take to protect yourself and your information include:

l  Being aware that the IRS does not contact people via email

l  Having a data security plan in place

l  Having anti-malware and anti-virus programs on all work computers and mobile devices

l  Having complex passwords that are not easy to guess

l  Using encryption for sensitive files and emails

l  Regularly backing up sensitive information in a secure external place

l  Destroying old hard drives, printers, and other devices that could contain sensitive information

l  Reporting any data theft or suspected data theft to the IRS immediately

A Widespread Scam

So far, reports of this specific scam have popped up in Illinois, new Jersey, Iowa, and North Carolina. Thus, you will want to be particularly careful if you live in one of these states.

However, phishing and scamming can and do happen everywhere, so protect yourself no matter where you live.