A few years old, but still relevant; Forbes Contributor Tony Nitti provides an insight into how to navigate the tax code when it comes to running a side business. Section 183 of the United State Internal Revenue Code, often referred to as the “hobby loss rule” limits the amount of losses that can be deducted from income derived from secondary activities and hobbies. The code lists nine factors that are used to determine whether losses from your side business can be deducted from your tax returns.
While there is no magic number of factors you should have in your favor, it helps to have as many as possible. Several of the factors are out of your control, so it helps to run up the score on the ones you can control. You can control the manner of which your business is conducted, the expertise of you and your advisers on the topic, and the time you put into the activity.
These all boil down to planning and preparation. To maximize your chances of deducting these losses, run your side activity like a regular business. You can start by developing a strategy, maintaining accurate financial records, continually seeking to improve performance, and dedicating your time to the activity.
Interested in learning more? Contact RY CPA today to find out how you can assure your side business qualifies as tax deductible.
Read the full article here.