Originally Posted by raiderguy10
Another thing kajshack is to have a CPA prepare your return. The IRS looks closely as "pass through" entities; ie the businesses (partnerships, LLCs, LLPs, SCorps, and Sole Prioprietors) because they are allowed to write expenses off. Having a qualified individual prepare and file your return goes a long ways to proving in the IRS' view that what you claim is legitimate. Obama also passed more stringent laws in order to be a tax preparer (you either have to be a lawyer, CPA, or pass an exam in order to prepare taxes. Before you could have high school dropouts working at H&R Block) and part of the reason is they want to make sure what gets submitted is truthful without having to spend more taxpayer dollars chasing those that are trying to cheat the system. So while it may cost you $50 to prepare (or cards in trade
), it's probably worth it in the long run.
I thought the "burden of proof" for determining hobby vs. business was time spent, resources used, organizational set-up, etc. Of course I enjoy opening cards, but I do run it as a business, pay sales tax on in-state transactions, etc. So while I may not be making money doing it, I do consider it a business.
However, if the IRS considers it a hobby, and I did not make any money from it (spent more than I received), I don't have to worry about anything do I?
Just for the sake of an easy example, let's say I spent $25,000 on wax last year and made back $20,000. That would be a loss of $5,000. Now, if I can prove that I am a business, I can claim a business loss of $5,000. But if I'm considered a hobbyist, would I have to claim $20,000 in additional income, or would I just not report anything?