Many people have moneymaking hobbies they would like to claim as businesses on income tax forms in order to take bigger deductions.

How do you do that?

You can deduct hobby expenses only up to the amount of income your hobby yields. But you can claim business expenses – and deductions – above and beyond the total income your business produces.

The difference is the primary intent of your activity. Say you have a garden and sell your excess produce to a local health food store. The IRS declares that if your intent in gardening is primarily for pleasure, then gardening is a hobby. But if your intent is primarily to make money, then it’s a farming business. Also, if you make money gardening in at least three out of five years, the IRS assumes farming is your business.

Even if you fail to do that, the IRS may still let you claim your garden as a business if you can produce good business records such as profit-and-loss statements that show your primary intent was to make money.

See also…

Tax Issues