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DPChallenge Forums >> Tips, Tricks, and Q&A >> Deducting hobby expenses
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02/18/2006 11:29:11 PM · #1
One more tax question:
Can you only deduct hobby expenses if you itemize?

We were going to get $4100 back. Then I added in the $1100 I made doing a few shoots for a magazine. Now we are only getting $3700!!! Sooo....we are loosing $400 because I made $1100. I spent PLENTY on equipment last year to knock that $1100 down to zero. However, we do not have quite enough to itemize this year. The standard deduction is more that our itemized deductions.


02/18/2006 11:38:45 PM · #2
if your itemized is less then standard you should use standard.
02/18/2006 11:39:09 PM · #3
The way I understand it, you can deduct hobby expenses, but no more than what income that hobby generated.

So, you can deduct up to $1100 on that hobby.
02/18/2006 11:41:41 PM · #4
Yeah, but what I am asking is do I have to file long form (itemize) in order to deduct those espenses? (Or can I take the standard deduction and still deduct my $1100 for hobby expenses)

I hate taxes. LOL
02/18/2006 11:44:35 PM · #5
you must itemize your deductions in order to deduct hobby expenses
02/18/2006 11:46:52 PM · #6
You could deduct it if you are filing self-employment. If you consider your hobby a business then you can deduct expenses from that. Equipment would count, but there are probably rules about equipment used for both business and personal use.

If you don't do the self-employment route, then you must itemize to deduct any expense that doesn't have its own line on the tax form.

BTW, don't think of it as losing $400, you gained $700 from the hobby. In other words, if you hadn't made that money, you'd be $700 poorer than you will be after you get your refund.

Message edited by author 2006-02-18 23:47:50.
02/18/2006 11:47:35 PM · #7
not sure, i use H&R block and they had alot of things you can deduct..but i dont recall seeing hobbies under standard, but i'm not certain. you can always go there or some other site and do your taxes to find out, just dont submit them.

Originally posted by JRalston:

Yeah, but what I am asking is do I have to file long form (itemize) in order to deduct those espenses? (Or can I take the standard deduction and still deduct my $1100 for hobby expenses)

I hate taxes. LOL

02/18/2006 11:57:10 PM · #8
Here's some possible bad news...

You can reduce your taxable hobby income by deducting your hobby expenses, but this tax break is limited. You can only deduct expenses up to the amount of money you make on the hobby. Even then, hobby expenses, along with other miscellaneous expenses you itemize on Schedule A, must come to more than 2 percent of your adjusted gross income before you can deduct them.
02/19/2006 12:11:16 AM · #9
Originally posted by DrAchoo:

Here's some possible bad news...

You can reduce your taxable hobby income by deducting your hobby expenses, but this tax break is limited. You can only deduct expenses up to the amount of money you make on the hobby. Even then, hobby expenses, along with other miscellaneous expenses you itemize on Schedule A, must come to more than 2 percent of your adjusted gross income before you can deduct them.


I THINK we are ok there. Since my husband is in the military, only his base pay is taxable and that is around $34000. So, the $1100 is about 3%.
02/19/2006 12:11:49 AM · #10
Originally posted by idnic:

you must itemize your deductions in order to deduct hobby expenses


Thanks, that was my main question.
02/19/2006 12:13:48 AM · #11
Originally posted by queanbeez:

not sure, i use H&R block and they had alot of things you can deduct..but i dont recall seeing hobbies under standard, but i'm not certain. you can always go there or some other site and do your taxes to find out, just dont submit them.



I am trying to do that on a site I submitted to the last few years. I should just become a CPA and make things easier..LOL
02/19/2006 12:27:09 AM · #12
Originally posted by DrAchoo:

Equipment would count, but there are probably rules about equipment used for both business and personal use.


Unless there is some "hobby" exception I'm not aware of this is correct. The max she can deduct would be:

$1,100 x the business percentage

Of course one could easily rationalize the pct being a 100% for business even if the equipment was just used a couple of times for that while the rest of the time it was used to shoot family/personal pictures.

Message edited by author 2006-02-19 00:31:49.
02/19/2006 12:43:06 AM · #13
In case anyone is interested:
-My husbands AGI was $34000
-I made $1100 on a 1099 form from photography
-Adding up all the receipts from last year, we paid $1263 in sales tax
-Our interest and property taxes from our house were $6512
-We paid $364 in child care expenses from my son's preschool (which I think I have to have a W2 myself in order to use that)
-I probably spent $10,000 on photography equipment last year (we sold our house, the profits paid for it)
-I did not keep track of gas mileage or other expenses when earning that $1100 from the magazine.

I think we are falling short of the standard deduction, making the standard deduction more valuable.

We are going to check out the tax preparers on base....but for the most part they are just people who took a class recently and are not CPA's. I am not sure how up to par they are with more complicated returns. We are also waiting to see what expenses the miltary will reimburse from our move.....we may have enough for an additional small deduction.

I greatly appreciate everyone's help.
02/19/2006 12:46:30 AM · #14
Phew I'm glad our taxes are not as nearly complicated here in NZ!
02/19/2006 02:27:52 AM · #15
uhm, hate to mention it, but profits from the sale of your house are taxable.
02/19/2006 02:47:37 AM · #16
Originally posted by dartompkins:

uhm, hate to mention it, but profits from the sale of your house are taxable.


For us, they are not. We would have had to make more than $500,000 profit on the house for it to be taxable. It was our primary residence and we lived in it 2 of the last 5 years.
02/19/2006 06:54:47 PM · #17
How serious are you about photography, and about makeing it a business? There are a ton of deductions you can use for a business (but you have to make money at some point--IIRC, you have to make money 2 out of 5 years, but there are some exceptions.) However, having your own business has some unexpected costs, for example, in Connecticut, I get hit with a $250 minimum tax on corporations (I have an LLC).

Check with an accountant. If you have a business, you file schedule C and I believe the deduction comes out of the income it is counted as income on your 1040, so even if you still use the standard deduction, it may not be affected.

The good news is that you probably have purchased enough high-ticket items to depreciate them over some number of years (I think its either 5 or 7).

The bad news is that you may have to pro-rate your camera by the number of shots used for business vs the number used personally. This is a tricky area; what if you take 1000 shots just to get that one perfect shot that everyone will buy?

This is an issue that you should probably see a good accountant about. Depending on what you think you'll sell in the future, you may save a bunch of money.
02/19/2006 06:55:38 PM · #18
How serious are you about photography, and about makeing it a business? There are a ton of deductions you can use for a business (but you have to make money at some point--IIRC, you have to make money 2 out of 5 years, but there are some exceptions.) However, having your own business has some unexpected costs, for example, in Connecticut, I get hit with a $250 minimum tax on corporations (I have an LLC).

Check with an accountant. If you have a business, you file schedule C and I believe the deduction comes out of the income it is counted as income on your 1040, so even if you still use the standard deduction, it may not be affected.

The good news is that you probably have purchased enough high-ticket items to depreciate them over some number of years (I think its either 5 or 7).

The bad news is that you may have to pro-rate your camera by the number of shots used for business vs the number used personally. This is a tricky area; what if you take 1000 shots just to get that one perfect shot that everyone will buy?

This is an issue that you should probably see a good accountant about. Depending on what you think you'll sell in the future, you may save a bunch of money.
02/19/2006 07:06:56 PM · #19
Originally posted by hankk:

How serious are you about photography, and about makeing it a business? There are a ton of deductions you can use for a business (but you have to make money at some point--IIRC, you have to make money 2 out of 5 years, but there are some exceptions.) However, having your own business has some unexpected costs, for example, in Connecticut, I get hit with a $250 minimum tax on corporations (I have an LLC).

Check with an accountant. If you have a business, you file schedule C and I believe the deduction comes out of the income it is counted as income on your 1040, so even if you still use the standard deduction, it may not be affected.

The good news is that you probably have purchased enough high-ticket items to depreciate them over some number of years (I think its either 5 or 7).

The bad news is that you may have to pro-rate your camera by the number of shots used for business vs the number used personally. This is a tricky area; what if you take 1000 shots just to get that one perfect shot that everyone will buy?

This is an issue that you should probably see a good accountant about. Depending on what you think you'll sell in the future, you may save a bunch of money.


Thanks-
I definitely have plans to make it a business, but last year I was not conducting business to make money. It was all for fun and even the magazine I shot for was just for money to buy more toys. I didn't keep track of mileage or every little expense.

I think we are going to see just how knowlegable the tax people on base are. Hopefully, they are on top of their game and can help me out!
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