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Business vs Hobby

Can someone point me at the elements that distinguish a business (Schedule C) from a hobby (1040 line 21 "other income")?

Here's the thing: I do a lot of contesting (participate in local radio/TV station promo programs, sweepstakes, etc.). I have some small expenses, primarily the costs of driving to the stations to pick up prizes. I could also make a case that a small proportion of my internet connection costs are attributable to this enterprise.

I've made money at this enterprise for the last 3+ years, and would have still made money even if I had been able to deduct my expenses.

I'm considering declaring this to be a Schedule C business so that my expenses are not unreasonably limited by the 2% AGI floor.

Does anyone have any thoughts on this?

Reply to
NoSuchPerson
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Here's what the IRS says:

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Don't miss the line that says: No one factor alone is decisive.

Reply to
Alan

Yup, 'cause otherwise, "You depend on the income for your livelihood" would be a killer, and that would be true for an awful lot of people with side businesses, such as Amway (does Amway still exist?).

Interesting. Thanks very much for the pointer!

Reply to
NoSuchPerson

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You should have been doing this on a Schedule C since incedption. Sounds like it was your choice to put it on line 21. The "hobby" thing is a forced issue with the IRS, not something you should try to satisfy. If they can't prove you lost money in 3 of the past 5 years they can't force you into hobby status. You could lose money forever and not be a hobby if you are in business to profit, hopefully.

The flip side is that on line 21 you didn't have to pay SE taxes of over 15%. Are you sure you don't want to be a hobby??

ed

Reply to
ed

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Another excellent point. If my regular consulting biz gets me above the FICA ceiling, then the answer is "yes". Otherwise, you're right: the deductible expenses will be wiped out by SE tax.

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Reply to
NoSuchPerson

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