Convert Your Hobby To A Business
Wouldn't it be great if you could convert
many of your hobby expenses into tax deductions? The courts have
consistently ruled that enjoying your hobby while running it as a
for-profit business is perfectly legal. Here's another idea: start a
business that includes your hobby, while branching out in other
directions that may be more profitable. A whole section of the excellent Nolo.com business law site is devoted to the art of starting
up a new business. Two of the best articles are "Starting a
Business You Care About" and "Business for Pleasure: Hobby Businesses".
You need only show to the IRS that you intend to turn a profit (you
don't necessarily have to succeed in this goal). Fortunately, that's fairly
easy to do. The most important key is to show
a profit in three out of the first five years. This can often be done by picking
two years to stock up on most of your supplies, which will make it easier to
be profitable in the other three years. If you should lose money
in a year, you can take it as a tax deduction (except that you must exclude
home-office and equipment-expensing deductions.) If you lose money one
year, it's possible to "carry your losses forward" and deduct them in the
next year. To help prove that your business is not just a
hobby, keep accurate records, register a business name, print business cards
and get a business telephone number.
Turning your hobby into a business is only the first thing you should do.
After you discover how to start a business, it will seem very simple to you.
There's no reason why you can't go on to start any number of small businesses
(in fact, I think that's what most people should be doing.)
The first thing you should do is spend some time looking at all the business
opportunities:
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Convert Your Hobby To A Business 
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Time to complete:
| A few days |
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Money you'll spend:
| Less than $500 startup costs for most service-industry businesses. Costs will include equipment, government filing fees, and how-to business books. |
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What you'll get:
| Business profits, plus 28% of your hobby expenses (assuming you're in the 28% tax bracket.) |
Step-by-step instructions:
here are some points
to remember when deciding what kind of business to start.
- Take as much time as you need to think about the things you really love doing,
and which of those things you'd like to convert into a business.
- Try looking in the search engines for "start business ideas", which will show
you some sites that contain business start-up ideas. If you're interested
in a particular kind of business, look for that (e.g. if you like widgets, search
for "widget start business ideas".) Probably the best place to look is
at Google.com:
- Take a flexible, experimental approach when you start it up and try your hand at
different lines of work. When you figure out which business you
really want to run, try to specialize in that and be the best at what you do.
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Further Reading:
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